The OECD’s 2021 Corporate Governance Factbook (the Factbook) contains key recommendations for regulators and the private sector regarding the key factors driving economic development in the wake of the pandemic. US businesses can glean insights into the future of likely regulations – and get a head start in implementing future-proof changes to drive growth.
An Outline of the Factbook’s Key Messages
The Factbook is separated into four distinct areas described as being ‘crucial for understanding how corporate governance functions in different jurisdictions”, namely:
- The corporate ownership landscape.
- Regulation of corporate governance around the globe.
- Shareholder rights and ownership function.
- Corporate board of directors.
Since the reporting is targeted towards regulators and public institutions, we aren’t going to comprehensively cover the findings from the reporting in this blog post. Instead we’ve outlined key governance considerations for private US businesses based on the trends revealed in the Factbook. For full details, you can read the Factbook: https://www.oecd.org/corporate/corporate-governance-factbook.htm
Two Corporate Governance Considerations Relevant to Private US Businesses and Startups
Mitigating ESG Risk
Read in conjunction with the new OECD report on The Future of Corporate Governance in Capital Markets Following the COVID-19 Crisis (the Report), the Factbook highlights the importance of mitigating Environmental, Social and Governance (ESG) risk – particularly in the wake of the pandemic.
ESG risk emerged as an issue as millennial investors began to enter the market and has grown as millennials started to dominate the workforce. Millennials consider environmental risks like climate change and social risks, like poor worker conditions and forced labor, to represent a significant risk to today’s companies. The risks posed by poor ESG are broad, but encompass supply chain risk, inconsistent quality of products or services, and compliance risk. For further details about the risks posed, read our article featured in the Future of Sourcing.
While larger companies likely need to disclose key information regarding ESG risk to investors (with increased regulation likely coming), private companies and startups must consider their position on ESG risk as early as possible. This is because the approach to ESG risk management selected by a company is increasingly impacting other areas of business: like board structure, value proposition, marketing, business model, and internal operating procedures.
Gender Composition at the Board and Senior Management Level
The Factbook reiterates the importance of gender diversity for boards, noting that:
“More female directors might bring more independent views into the boardroom and strengthen its monitoring function by counteracting groupthink. Gender-diverse boards tend to have a wider range of backgrounds, experiences, perspectives, and problem-solving skills, which may contribute to better monitoring of executive behaviour, including by fostering closer scrutiny of the handling of conflicts of interest.”
It also highlights the vast array of approaches adopted around the world to increase female participation at the board and senior management level. Regulatory measures, like mandatory quotas or voluntary targets, as well as increased disclosure requirements were flagged as the most common mechanisms for achieving increased female participation.
What private businesses in the US can draw from these findings is that it is important to continue to address the obstacles women face to attaining senior management and board-level roles. Businesses should be taking a proactive stance on reducing barriers for female participation, such as establishing diversity and inclusion programs, tailoring hiring practices, developing and refining promotion and retention guidelines, and introducing better training, mentorship, and networking programs for women.
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