As a critical component of business, governance is part of a global economy. International trends will influence what is on directors’ minds this year. That major elections are scheduled around the world, including in SA, could also have an effect on thinking about governance.
Based on a survey of recent research and articles, here are some of the issues SA boards need to consider.
ESG/sustainability is still evolving
Environmental issues (the E of ESG) remain important generally, especially the effects of climate change, which continues to be a concern. Organisations are being encouraged, or even required, to take a broader view of their environmental effects and responsibilities. Linked to this is the sharper focus on sustainability reporting, bearing in mind the new International Financial Reporting Standards sustainability disclosure standards: S1 (general requirements for disclosure of sustainability-related financial information) and S2 (climate-related disclosures).
Executive pay remains a hot potato
Executive pay remains a flashpoint globally, and SA is no exception. One of the most important expected amendments to the Companies Act relates to remuneration, with the changes in law intended to make remuneration committees more accountable for that ensuring pay is fair and responsible. If the latest version of the bill is promulgated, it will mean remuneration committee members will have to be put forward for re-election if the remuneration implementation report doesn’t pass the shareholder vote at the AGM.
Technology change is an increasing focus
According to National Association of Corporate Directors (NACD) research, the accelerating pace of technological change is now the fifth most important governance trend. Artificial intelligence (AI) grabbed the headlines in 2023 and will surely continue to do so, especially given calls for regulating its development. AI raises multifaceted governance concerns. Boards need deep understanding of the implications for their organisations.
But AI isn’t the only technology on the board agenda. Others are developing fast, so directors need enough knowledge to monitor this space. Of particular importance is that as business digitalises, its vulnerability to cybercrime rises. Data privacy is a related issue that poses significant risk. In the context of fast-moving technological change, digital transformation will surely continue to be a major board focus for 2024.
Board culture and effectiveness are more important than ever
As the ultimate source and arbiter of governance, the board has a critical role to play. There is growing appreciation of boards’ effectiveness and culture being vital in ensuring it functions optimally. Regular board evaluations are one aspect, but softer issues such as cultivating a culture of collegiality and vigorous but respectful debate are just as important. The chair has a key role to play in driving this culture — no easy task given the need for a wide range of diverging views to be considered. A range of issues related to board performance, such as board composition, will remain important.
Board/management dynamic needs to be revisited
Globally, and particularly in SA, there is a tendency for boards to get too involved in management issues in a bid to resolve deep-seated governance issues. Areas of focus in 2024 will include redefining the respective roles of board and management.
Traditional board concerns need to be strengthened
NACD research shows that key areas of improvement for boards include oversight of strategy execution and development, risk management, financial reporting and human capital. These are long-established board focus areas, and remain so.
SA’s general election
The general election in a few months’ time holds significant implications for corporate board directors. Monitoring political and economic stability is crucial as shifts in the external environment directly affect their companies. A keen understanding of the post-election landscape is essential for strategic decision making, safeguarding against potential challenges, and capitalising on opportunities to ensure sustained business success.
In conclusion, boards will have their hands full with a mix of old and new issues. Not surprisingly, boards will need a clear understanding of what their organisations’ priorities are and their pre-eminent risks. This framework will have to guide board agendas to ensure they do not lose focus. Boards must adapt to rapidly evolving global standards and stakeholder expectations, ensuring their strategies are robust yet flexible enough to navigate the complexities of 2024’s dynamic governance landscape.
• Professors Natesan and Du Plessis are respectively CEO and facilitator of the Institute of Directors of SA.
First published on Business day – 19.01.2024