A ‘Twist’ On Top 10 Governance Trends For 2022

A ‘Twist’ On Top 10 Governance Trends For 2022

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 Director Commitment

The proliferation of new issues requiring board attention will require greater commitment by directors to their fiduciary duties, and to their role as a sounding board to the management team.  Concerns with director commitment are arising in the context of derivative litigation, government investigation and surveys probing how CEOs view 

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 Director Commitment

board effectiveness. These concerns will prompt directors to reconsider whether they are devoting an adequate amount of time and preparation to board service.

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The Board/Management Dynamic

The same external forces calling for greater director fiduciary commitment will also pressure the stability of the board/management dynamic.  Directors and executives will be encouraged to revisit their related roles, responsibilities and lines of authority after nearly two years of crisis-level accommodations on leadership duties. Particular clarity can be 

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The Board/Management Dynamic

reached on how the board’s monitoring duties can be balanced with its role as a resource to management.

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Business Resiliency

Boards will encourage management to extend business resiliency efforts to new levels of responsiveness.  Leaders will, of course, continue the near-term organizational response to repeated COVID surges and economic volatility, and pursue “re-imagining” initiatives. But they will also need to reorient resiliency planning to confront 

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Business Resiliency

the possibility that coronavirus will become endemic; an elemental risk with which companies and consumers  may be living with for many years.

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Human Capital

The board will need to confront the ongoing recalibration of the traditional workforce/employer relationship.  This extends beyond oversight responsibility for workforce culture as an organizational asset, and addressing workplace safety, work venue and social/political concerns within the workforce. Its most challenging extension will be to 

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Human Capital

guide and support management’s response to the factors prompting the “Great Resignation,” and their impact on employee commitment to the traditional work ethic.

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Continued ESG Oversight

A high level of director attentiveness will continue to be applied to ESG-related issues (especially climate change and human capital) in response to investor, consumer and governmental pressures.  Board members should anticipate, and be prepared to work with management in response to, expected future clarification of ESG 

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Continued ESG Oversight

expectations, metrics and disclosure responsibilities.  These are likely to arise from a combination of new rulemaking, legislation, derivative litigation and guidelines from investment/asset managers.

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Artificial Intelligence

As the application of artificial intelligence continues rapidly across industry sectors, directors should be alert to two related oversight considerations.  First is their preparation to address AI application and implementation issues in their own companies, and the internal structures they create to provide for board education, 

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Artificial Intelligence

oversight and risk prevention. Second is the likelihood of legislative, regulatory and “best practices” developments that have the potential to directly affect board interaction with AI.

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Code of Conduct Oversight

Boards will be pressured to exercise greater oversight of the corporate code of conduct and their process for evaluating alleged violations thereof by board members and executives.  Greater sensitivity will be expected for complainants (including those whose allegations cloak them with a veil of protection as whistleblowers), 

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Code of Conduct Oversight

and heightened awareness of due process and fairness for the accused.  More broadly, boards will be called to more fairly balance the interests of the workplace culture with that of an engaged and loyal executive team, in code of conduct enforcement.

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The Corporate Social Voice

Highly controversial political and social issues anticipated to emerge in 2022 will present boards with increasingly difficult decisions on whether, and in what circumstances, their companies should respond with public positions.  Boards will need to balance pressures from investors seeking more political transparency as well as ESG 

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The Corporate Social Voice

focus on corporate social responsibility, workforce segments which may be highly politically oriented and consumer elements with whom corporate social activism is poorly received.

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Mission Critical Risks

Delaware case law increasingly reflects an expectation that management-to-board reporting systems will focus on informing the board about risks associated with “mission critical” corporate operations.  In response, boards should review what aspects of corporate operations meet that standard, establish the form and structure of such reporting 

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Mission Critical Risks

from management, and confirm a joint understanding with management on the board’s ultimate responsibility to “weigh in” when mission critical risks do arise.

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Compliance, Risk Oversight

Significantly increased Biden Administration corporate fraud enforcement will prompt boards to re-evaluate the sufficiency of internal control and reporting mechanisms.  Boards should look behind appropriately structured risk and compliance systems to examine the willingness and capabilities of management to operate such systems. The 

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Compliance, Risk Oversight

sufficiency of vertical compliance and risk reporting conduits and the board’s ability to evaluate risk should be confirmed. Cultural forces that marginalize risk prevention must be eliminated.

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