Among the top governance themes in 2021 are climate risk, the diversification of board members, and digital transformation.
2020 was both a challenging and transformative year for businesses. The resilience and agility of business leaders and board members have been put to the test. This year, organizations are facing a variety of complex and urgent issues, all while trying to recover from the pandemic.
Here are the critical governance issues boards are prioritizing in 2021.
Governance Theme #1: climate risk
As business leaders, we have an important role to play in ensuring transparency around climate-related risks and opportunities, and I encourage a united effort to improve climate governance and disclosure across sectors and regions.
Bob Moritz, Global Chairman, PwC
It is no secret that climate change has been a critical concern for the past few years. The pressure for boards to prioritize climate-centric goals among other key ESG issues is at a historic high. Many boards are setting steep carbon emission goals, with many organizations committing to carbon neutrality by 2050.
EU companies have quickly advanced their environmental targets, feeding off the pressure from the 2019 Green Deal and the 2020 proposal to reach net-zero carbon emissions by 2050.
Climate disclosure reports are also becoming more and more expected in organization’s annual reports.
Governance theme #2: Diversity, Equity & Inclusion
Board diversity is another key issue dominating the conversation in 2021. Both gender parity and racial representation on boards are significantly below par, however, signs indicate they are gradually improving.
In the European Women on Boards’ annual Gender Diversity Index report, they state: “In 14% of companies listed at the index, have at least 40% of women in leadership positions, compared to 8% last year.” This significant 6 point leap is a positive sign that executive representation is becoming a more urgent priority for boards in 2021.
Additional legislative actions have also accelerated the path to more representation. This notably includes France’s recent gender-quota bill, which requires companies greater than 1,000 employees to have women in at least 40% of top management positions by 2040.
Governance Theme #3: board effectiveness
COVID-19 put boards’ communication, collaboration, and problem-solving skills to the test. With boards facing a number of increasingly complex issues, board effectiveness is a major theme in 2021.
In the results of a survey carried out by Harvard, 40% of management rated their board’s effectiveness as fair or poor.
This gap may be linked to unprepared or overburdened board members. The latter may be especially true when it comes to IT. Executives in IT roles were the most critical of board members, with almost three-quarters (74%) giving the board a grade of fair or poor.
Board members will have to step up their technological competence in order to improve their overall effectiveness and productivity.
Governance Theme #4: Virtual meetings & DIGITAL TRANSFORMATION
2021 forced shareholders and board members to quickly digitalize their meetings. And due to their efficiency, productivity, and cost-effectiveness, remote and hybrid meetings are here to stay.
This adaptation to a virtual environment for annual shareholder or board meetings proved the efficacy of holding remote meetings, particularly for organizations that adopted the right technological tools in 2020, such as the Board Portal module of the DiliTrust Governance suite.
Looking ahead, technology will continue to play a major role in how efficient, dynamic, and environmentally forward boards are.