Current Trends in Corporate Governance

If Silicon Valley is any indication, there are several key trends impacting corporate governing boards. While some of these trends are specific to select industries, there are still many critical shifts that executive teams will have to navigate in the coming months and years. How well is your governing body equipped to handle today’s toughest challenges? 

Here are just some of the trends that are impacting leaders in the current business climate.

The Expanding Role of Women

Historically, the C-suite was very much a boy’s club. However, according to the Society for Human Resource Management, more than 10% of today’s Fortune 500 companies are led by women for the first time in the Fortune 500’s nearly 70-year history. This trend is likely to continue, as such representation will likely inspire a new generation of women to strive for senior leadership positions.

It’s not a question of superiority, but it’s worth noting that female leaders bring something unique to the boardroom table. For example, some data indicates that women are statistically more likely to adopt a collaborative approach, inviting teamwork and other voices to contribute to corporate decisions. Other data indicates that women are gifted communicators, able to express themselves eloquently and convincingly.

As companies turn more toward female leadership, it will become increasingly important for executive boards to nurture a female presence in their CEO pipeline. For the time being, a greater percentage of males are vying for C-suite positions, but singling out capable women can prove advantageous to both your board and your company.

Dual-Class Voting Stock Structures

In Silicon Valley, a small (but growing) number of companies are adopting dual-class voting stock structures. This means that voting rights are only granted to a certain percentage of the company’s investors. Google has adopted this model since 2004, but recently the number of companies that adopt this approach is on the rise. 

Such a model is not without controversy. After all, it means that shareholders may have ownership of the company yet have no control over its decisions. This can lead to a disconnect between company leaders and corporate stakeholders. To combat this perceived division, corporate boards will need to work harder to pursue a culture of transparency so that all stakeholders have confidence in the company’s ability to lead.

Despite this controversy, this dual-class model empowers company leaders to retain control over the organization while still soliciting financial backing from investors. For this reason, a dual-class voting system will likely be a long-term trend, though one that will demand careful strategy when it comes to corporate communication.

Classified Boards Are Rising in the Tech and Life Science Sectors

For companies in the technology and life science divisions, classified boards are becoming more common. Such a strategy may be optimal for companies that need to retain their most integral members, especially when it comes to developing products or therapies that require extensive product testing or a lengthy critical trial process.

Such an approach likewise protects governing boards from the influence of activist investors who use their voting power to alter the direction of a company. Additionally, maintaining board continuity ensures that projects are given due attention, which is becoming vital now that clinical trials are expanding in length due to regulatory oversight.

Of course, this creates something of a tension between the need to maintain leadership continuity and adapting to new opportunities and circumstances. Boards should stagger their classification system to avoid stagnation in leadership while still ensuring that critical projects receive the necessary oversight. 

Publicizing leadership classes can protect board members from being “targeted” by activist investors seeking to pressure board members to take on greater influence.

ESG Remains a Major Emphasis

Both now and in the future, corporate boards will need to wrestle with an evolving set of ESG regulations and requirements. Even as companies have taken steps to communicate sustainability initiatives, concerns have been raised about “greenwashing” — a practice wherein companies exaggerate or obscure their environmental policies in an effort to curry favor with the public.

Corporate boards are also discovering that social policies are a bit of a political minefield. The backlash over companies like Target and Anheuser-Busch reveals that social ethics often lie in the eye of the beholder, leading to pushback against all forms of ESG.

For that reason, it will become all the more necessary for governing boards to clearly communicate what ESG policies their organization will be adopting. This ensures that companies can continue to comply with ESG criteria without leaving their actual strategies up to the assumptions (or accusations) of the public.

A Separation Between CEO and Board Chair

At some companies, the CEO also serves as chairman of the board. This makes sense and can provide the greatest chance of efficiency in some cases. However, there are a number of valid reasons why companies are moving away from this model, placing a separation between the CEO and the board chair. 

The most obvious reason for this separation is to provide greater accountability for the CEO. Having another individual chair the board prevents the board from being driven by the company’s chief executive. On the other hand, separating the two roles can lead to confusion about whose vision becomes dominant and, in some cases, may even develop into an internal rivalry. 

Boards that choose to separate CEOs from the position of board chair will need to develop clear guidelines regarding how the decision-making process will work. It will also need to establish clear areas of responsibility for each board member — especially for those who take on such a prominent leadership position.

Where Is Your Board Headed?

Do any of these trends sound familiar? If not, it may be wise to consider whether one or more of these corporate leadership strategies could improve your company’s governance. True, no decision should be made based on broad trends, but adapting to new practices can provide you with both the resilience and agility to forge a path for the future.