Why Boards are Becoming More Courageous

Complex matters such as shareholder activism, executive remuneration, regulatory compliance and strategic performance have caused shifts in corporate governance, highlighting the assertiveness and agility boards need.

For instance, the Financial Reporting Council (FRC) recently welcomed new leadership with the appointment of a new Chair and CEO. These changes come at a pivotal time as the organisation seeks to refine its role in the corporate landscape. These new leaders aim to foster a more responsive and supportive regulatory environment. Their approach emphasises being in ‘listening mode’, signalling a readiness to engage with and understand the needs and challenges of businesses.

There is an attempt to strive for balance in a business environment that has in recent years become unbalanced, skewing toward shareholders and proxy advisors. The FRC aims to ensure governance standards are rigorous yet reasonable, allowing for manoeuvrability as boards navigate inflation, rising costs, tighter margins, talent shortages, net zero commitment and geopolitical tensions.

Corporate governance: comply or comply

In many countries across the world, companies operate under “comply or explain” corporate governance rules. Within this framework, companies must either comply with a set of standards and practices or publicly explain why they have chosen not to. This method allows for flexibility and acknowledges that a one-size-fits-all approach may not suit every organisation.

However, in recent years, investors in the UK, US and the EU have adopted a stricter approach to corporate governance. Driven by heightened shareholder activism, a growing aversion to risk among investors and tighter regulations, a "comply or comply" model has emerged.

Boards are pushing back

In the face of a polycrisis of challenges, boards know they need to prioritise profit generation and growth if they are to maintain strength through this difficult period. We are beginning to see boards resisting the pressures imposed by shareholders and proxy advisors that they view as potentially detrimental to the organisation’s strategic goals or leadership stability.

This is particularly noticeable in matters of executive remuneration. The London Stock Exchange Group (LSEG) recently made headlines  by doubling its CEO's pay in response to challenges, including keeping pace with global competition for top executive talent, particularly from US-based firms. The decision ensures LSEG remains competitive in attracting and retaining high-calibre leadership. 

Similarly, Smith & Nephew, a major player in the medical equipment industry, increased their CEO's pay by 30%, a move that was immediately met with significant resistance from shareholders. The company has faced high leadership turnover, with four new CEOs in the past five years. This increase is recognition that the company competes on the global stage for talent, and is therefore an attempt to achieve stability and continuity in strategy.

Greater risk appetite

Boards are adopting a more courageous stance, embracing their role as stewards, and moving away from being overly risk averse. 

This change signifies resistance to the current “comply or comply” corporate governance code. However, it is important to note that issues such as sustainability and DEI have not been side-lined;  rather, boards are adopting a more holistic approach to governing businesses that incorporates ESG, while also driving financial stability and success.

Identifying courageous board directors

Board directors increasingly recognise the importance of balancing profit with broader corporate purposes, adeptly navigating shareholder activism while safeguarding the bottom line. More are proactively adopting strategies that align with shareholder interests, often implementing changes before facing public pressure.

Our global network, spanning over 30 countries, equips us to identify and appoint directors capable of meeting these evolving challenges, ensuring boards are well-prepared to handle future demands effectively.

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