Only 29% of executives would rate their current board as “good” or “effective,” according to a recent survey conducted by PwC and The Conference Board.
Clearly, companies are facing a corporate governance crisis.
For a business to achieve a high level of success, it must confront this issue head-on.
Still, directors face significant challenges to improvement, especially with the convergence of the following, which are creating an entirely new business landscape:
- Geopolitical conflicts
- Tightening regulations
- Emerging technology
- Social activism.
Boards must understand these issues, the risks they present, and the impact they can have on the corporation’s future.
4 Issues That Boards Must Navigate in Today’s Business Landscape
Global changes are happening faster than ever, and agility is a nonnegotiable prerequisite for success. With recent changes have come new barriers to board effectiveness.
Here are four corporate governance hurdles that modern directors face and a few tips on how your board can build the right foundation to overcome them.
1. Chief Executive Officer Competence & Compensation
The last few years have seen record-high turnover for CEOs. Over 200 top executives vacated their posts in 2024, a 9% increase from the previous year.
This has created an environment where CEO succession must remain top of mind for board members.
Not only must the board focus on ensuring a smooth leadership transition process, but it may also need to retool nomination processes and strategies for building an internal talent pipeline.
This approach will help directors select candidates who have both the stamina and the business acumen needed for long-term success.
Additionally, boards must prepare themselves for a world in which CEO compensation is increasingly viewed as an ESG issue.
Activist investors and the general public want to see executive pay tied to clear performance metrics and aligned with both long-term goals and shareholder value.
Many shareholders are demanding a say-on-pay vote and will challenge board elections to ensure their voices are heard.
2. Risk Management in the Face of Advanced Threats & Emerging Technology
Business risks aren’t simply becoming more plentiful; they are also becoming more complicated. Global events impact business strategies and outcomes both now and in the future.
Boards must have a firm grasp on the risks facing their specific industry, such as natural disasters, geopolitical tensions, new technology, and increasing regulations.
For example, directors must acknowledge how the growth and development of artificial intelligence is affecting corporations.
They can’t ignore that AI’s emergence brings an increase in cybersecurity vulnerabilities, new customer data privacy concerns, and evolving workforce management and hiring practices.
The best directors understand that board composition will play a critical role in better risk management. Most boards value diversity of perspective and backgrounds, believing that it improves board culture and performance.
As the scope of issues boards are expected to assess continues to increase, so must the diversity of this expertise.
For example, your board may need directors who understand technology, government regulations, and public relations. However, the nomination committee must continue to balance board composition concerns with the need for directors who possess business acumen and core skills, which are still crucial to success in any industry.
3. Navigating Shareholder Activism With a Commitment to Credibility & Trust
Good governance is not enough for business success. Modern directors must also be adept at building solid relationships with shareholders. This is one of the most pressing corporate government problems, as many shareholders see themselves as activists and have increasing demands for how corporations must address decisions and issues.
Thus, directors should not wait for shareholders to bring problems to light. Instead, seek out opportunities to better understand business and investor priorities, expectations, and values.
Participate and engage in investor meetings when required, but don’t be afraid to host additional engagement sessions for this purpose.
This approach serves a few needs:
- It allows the board to get ahead of conflicts and diffuse potential issues before they become full-blown challenges.
- It gives directors a chance to advise management on what issues matter deeply to investors and should be addressed.
- It ensures investors are heard and the business is able to thrive.
To meet the expectations of the next generation of shareholders, boards must also focus on accountability and transparent communication. Ensure that messaging is clear across the board and that it remains consistent with the company’s values.
Finally, short-term issues must be addressed within the long-term strategic framework. Boards must not allow temporary pressure from activist investors to persuade them to take their eyes off the company’s overall strategic goals. Instead, directors should work to build investor confidence that the company is headed in the right direction.
4. Managing Third-Party Risks Down the Entire Supply Chain
Business threats are not limited to risks within your organization. The most perceptive boards are also aware of the risks within the companies that they do business with. This extends to vendors, warehouses, transportation providers, and even technology companies that create the software used to manage your inventory.
A comprehensive risk management framework must include careful consideration of all of your business relationships. For example, working with suppliers that have a reputation for poor employee treatment can sabotage your ESG initiatives and damage your corporate reputation.
Risk management leaders should be aware of these potential issues and develop strategies to address them. Enough time must also be given throughout the year for the board to discuss supply chain management, ensuring that the supply chain strategy is well aligned with the overall business strategy and that directors can make informed decisions to that end.
Good Governance Requires Awareness & Preparation
The most astute directors truly understand emerging corporate governance problems. They must navigate increasingly complex risks, understand shareholder attitudes toward CEO compensation, respond diplomatically to shareholder activism, and be prepared to mitigate the challenges of an ever-changing supply chain landscape.
This increased awareness gives directors what they need to overcome today’s challenges. It will also go a long way in helping them prepare for future success, even in the face of continued uncertainty.
About Boardroom Pulse
Boardroom Pulse is the go-to resource for C-suite executives seeking sharp, forward-looking insights on corporate governance and the forces shaping today’s business environment.
Guided by a mission to raise the bar for governance and equip modern leaders, we provide timely news, deep analysis, and thought leadership designed to spark conversation, showcase best practices, and encourage responsible decision-making in boardrooms across the country.
That’s why an increasing number of directors, CEOs, and senior executives rely on Boardroom Pulse to make sense of complex challenges, build sustainable growth strategies, and strengthen governance for the future of business.
