State of Governance 2023: directors prepare for an impactful year

2023 promises tough challenges for the corporate world. Directors must prepare for an impactful year. How? Sandra Gobert, Executive Director at GUBERNA, identifies focal points and tips for directors and executives.  

It will be a year of an unprecedented confluence of complex geopolitical, societal and business factors: rising interest rates, more inflation and less growth, a possible recession, China's growing assertiveness, Russian expansionism, global food and energy crises, global warming, cyber threats, much-needed investments in technology, maintaining our competitiveness... and after 30 years of openness, "friend-shoring" seems to be becoming the "post-globalization strategy" of the Western world...

Of course, all of this creates new opportunities and possibilities for companies that do not shy away from risk: 

1. Energy may remain expensive as oil, gas and utility companies respond to continued volatility. Yet this sector can and must make bold long-term decisions to accelerate the energy transition to a low-carbon future.  At the same time, new initiatives are seeing the literal and figurative light. 
2. Reducing our dependence on Russia and China through onshoring also offers new business opportunities. Not only in terms of essential goods but also in sensitive sectors such as artificial intelligence, semiconductor technologies, green transition equipment, pharmaceuticals or strategic minerals.  
3. At the same time, climate change is forcing us to make our facilities more resilient to extreme weather events. This is also part of the transition and creates openings for infrastructure investments.

However, alert executives will simultaneously feel the effects of increased European sustainability and other regulations well. After the 2022 regulations, the Commission will continue its course with legislation on due diligence in terms of human rights, climate and governance.  

Previously, free market forces in particular drove greater transparency and social accountability. Now the new rules push our companies to be more stringent in their compliance, for the sake of stakeholders rather than to protect markets. 

So this year, management and boards of directors of many companies will have to prepare thoroughly for integrated reporting, with all the data perils that this entails. Certainly the measurability and quantification of the "S" in ESG poses a stiff challenge.  

However, there is a misconception that CSRD only requires reporting. No, CSRD also requires companies to provide information about their strategy, their business models, the respective roles of their policy bodies and the potential negative impacts of their value chains. That will require thorough internal discussions, which can no longer be put off.  

And also with the quota directive on gender balance, the EU makes it clear that a societal priority such as diversity and inclusion in the workplace can and should outweigh its own in-house goals.

Such sweeping changes require bold decision-making and transparent accountability. The substantial transformation of the global economy will result in intense debates in many boardrooms: Is economic growth still compatible with environmental sustainability? What is the best way to avoid catastrophic climate change and ecological degradation? Should we embrace so-called "woke" ideologies to win over consumers and attract and retain talent?   

With activism coming from all sides and social pressure invading boardrooms, executives must increase their commitment and demonstrate even more independence of mind to master complex issues and hidden agendas. 

So the number of meetings, their duration and interim consultations are also increasing. We must accept - as some codes already indicate - that a maximum may be needed for the number of directorships. Director, beware of underestimation and "overboarding"

Peace and prosperity can no longer be taken for granted. Business operates in an increasingly uncertain world where the stakes are ever higher. 

Good governance processes will be more important than ever to convert the impact of board time invested into long-term value creation.  

This requires good board composition and internal fit, the right chairmanship, professional onboarding, continuous tapping of new expertise, regular strategic thinking sessions and, of course, quality board evaluations. 

But this also and above all requires commitment, independence and courage from directors. 

GUBERNA is happy to continue this journey with you! 

We wish all directors, despite the tough challenges, much social impact in 2023!