Investors remind business leaders: Governance matters

Activists continue to poke holes in corporate performance and returns, but they are having their greatest success with governance structures. Here’s how to think about their moves.

Even before the spread of the novel coronavirus, investors were calling on senior-management teams and corporate boards to focus on environmental, social, and governance (ESG) concerns. Investors were, for example, prompting companies to consider questions of purpose and to pay more attention to the impact of their actions on the envi­ronment. Now the pendulum is swinging toward social issues raised by the spread of COVID-19—for instance, worker safety and rising unemployment.

For many businesses, governance remains a less discussed area of vulnerability, in part because it involves internal systems, controls, and procedures, which in many cases are less visible to stake­holders and the broader public. For instance, stakeholders cannot always tell if boards and senior-management teams are preempting regulatory violations or communicating clearly with regulators, above and beyond standard reporting—until it is too late.

In the wake of the global pandemic, boards play a key role in guiding their organizations into the next normal. Indeed, this may well be the moment when boards and leadership teams prove their value—or show their flaws.

Companies that do not regularly review and address governance issues may be ignoring them at their own peril. Governance-related demands by activist investors around the world rose from just 27 in 2009 to around 1,400 in 2019. These demands reflect activists’ interest in a broad range of sectors, including the financial.

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Πηγή: mckinsey

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