The Power of the Governing Body Composition- Part 9
A very warm welcome to our readers to the second publication of the year 2022. In the last articles, we bid our readers compliments of the season and wished them well in all their undertakings during the rest of the year. We then discussed the overwhelming issues influencing boards compositions such as the merger between the International Integrated Reporting Council ( IIRC) and Sustainability Accounting Standards Board ( SASB) of the International Federation of Accountants ( IFAC) forming Value Reporting Foundation ( The Michael Lee- Chin Family Institute of Corporate Citizenship at the Rotman School of Management ( University of Toronto), 2021). We further discussed the phenomenal evolution of King Report and its iterations.
The pace of corporate governance is evidenced by the escalation of codes on corporate governance which are now over 500 globally. The latest report on corporate governance called “360° Governance: Where are the Directors in a World in Crisis” was published in Canada in 2021 by The Michael LeeChin Family Institute of Corporate Citizenship at the Rotman School of Management ( University of Toronto) led by Peter Dey assisted by Professor Sarah Kaplan facilitated by an oversight of 54 diversity of international intellectuals. In the same year ( 2021), Standard 37 000 on corporate governance was published. In view of climate change and the entire sustainable development, a lot of training is underway on these developments. Some professions are undergoing retraining their professionals, for example, Preparation of Chief Value Officers ( CVOs) has already commenced replacing Chief Financial Officers ( CFOs). This is due to meeting the demanding scope of the role and responsibilities of such positions influenced by the rapid pace of economic change because of the impact of sustainable development. This is evidence of how serious this pace of development is advancing. Certainly, these developments are increasing the demands of corporate boards compositions globally as imperatives rather than leadership discretions.
Other factors influencing board composition are, mainly, evolutionary developments in codes on corporate governance. King Report is serving to change stakeholders’ mindset from, seemingly, mindless compliance to mindful outcome- based governance has been the pillar of influence to boards compositions. In South Africa, discussions have commenced to consider the inclusion of labour groupings in the directorship appointments. In other words, the discussions are in progress about labour representation to many or all the boards.
The advent of development in information and technology also induces additional skills in the boards, especially, their dire need of youthful directors who most of their competencies and skills are characterised by these qualifications. The need for these skills is precipitated by cybercrime and its threatening attacks causing higher risk to corporate governance.
Due to the youthful nature of directors, the same information and technology impact has also necessitated first- time appointments of directors. According to research published in the Spencer Stuart Board Index, 33 per cent of S& P 500 appointments and 32 per cent of FTSE 150 appointments in 2018 were directors serving on their first corporate boards. Many countries have considered taking the advantage of this upwards trend of appointments of directors for the first time without the prerequisite of prior experience unlike in Botswana.
This is so because once people have their basic qualifications and are prospectively appointed to add to optimal board composition, they can be subjected to the pre- appointment assessment which, usually, detects directorship skills gaps which they can then be remedied by the initial training and subsequently be subjected to board inductions.
Another influencing factor is the increasing popularity of codes on corporate governance. In South Africa, courts regularly use King Reports in their case law decisions. Therefore, this is a sign of gaining legitimacy by the code which will have the effect of increasing its corporate use in the country’s corporate arena. The emphasis on directors’ independence will also cause the increase of directors to fulfil the role of director independence. Usually additional skills are required, the sitting directors are never resigned and replaced by directors with those required skills. Therefore, the appointments of independent directors will be given additional slots to the boards.
A Canadian latest corporate governance report, called “360° Governance: Where are the Directors in a World in Crisis” recommends an additional committee, called the stakeholders’ committee which will be, mainly, responsible for sustainability and social responsibility issues. In addition, the report insists on a highly considered view on the indigenous peoples. The corporation should establish and implement a mechanism for fostering its relationship with Indigenous peoples which recognizes the unique historical circumstances under which the relationship is created ( The Michael Lee- Chin Family Institute of Corporate Citizenship at the Rotman School of Management ( University of Toronto), 2021). This code has derived this consideration from Section 35 of the Canadian Constitution Act, 1982 which is in alignment with the United Nations Declaration of the Rights of Indigenous Peoples ( UNDRIP). This is commendable as it reflects unreserved corporate stakeholders’ considerations.
In the next article, we will be introducing new issues for the discussion. We would like to unreservedly thank our readership.