This, our new series, looks at the role of corporate governance, Boards of Directors, senior management, and shareholders in our new global context. In this first article, we review the keys to corporate governance and analyze what factors mark state of the art of corporate governance in the times we live.
Over recent years, we’ve seen a rise in governance-related phenomena—like the increase in ‘activist investors’ (those who seek to guarantee the maintenance and development of companies in a realistic way, and / or help companies improve their records and functions on the environment, diversity (ESG), etc.). The increased incidents of these phenomena show that the concern to have a system of surveillance for correct corporate governance is already a reality. Cases like 2021’s GameStop trading make it even more evident.
Corporate governance is no longer just an ethical issue. Countries have been installing concrete measures to govern legislative frameworks, and ensure their correct application, with particular intensity for two decades. Europe is strong on corporate governance; Directive 2017/828, (to promote greater long-term commitment of shareholders), or Directive 2019/1151, (regarding digital tools and processes for companies) stand out in particular. In Spain, the Capital Companies Law, the Code of Good Governance of Listed Companies (revised in June 2020), the Law on Audits of Accounts (Law 11/2018) are in force. The United States is a governance pioneer through the United States Securities Act of 1933, replaced by the Sarbanes-Oxley Act (2002), which dictates practices for financial reporting. In Ecuador, the Superintendency of Companies, Securities and Insurance has issued the “Ecuadorian Standards for Good Corporate Governance”.
Legal complexities aside, no one doubts that the roadmap for a corporate project to come to fruition (and, above all, last over time) requires leadership and governance that exceeds expectations and is up to the times—and future challenges. The problem is that we are immersed in a liminal context, where regulatory changes happen too quickly and are forcing decision makers (in the broadest sense of the term) to adopt reactive strategies.
Prior to 2020, there was a certain consensus about what marked the ABC of corporate governance, despite changes introduced following the financial crisis of 2008. Generation of long-term value, transparency, equanimity in the treatment of shareholders, diversity and sustainability, constant auditing—for example. Of course, these elements continue to be part of the checklist of good corporate governance but, despite near-universal acceptance, they seem like issues which, possibly, do not prepare companies for scenarios such as those experienced in the last two years.
Therefore, we look to analyze what the keys to corporate governance in this new reality.
Spaces for diversity, conversation, debate, and discussion
Indicators of equality and diversity are increasingly part of the presence of companies (due to the importance of ESG criteria, among others), and no one doubts that diversity (in all its variables) must be part of the reality of corporate governance.