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Evolution of corporate governance in the face of existential change

Today, we face the double jeopardy of the Covid pandemic and climate change. Both have exposed stark social inequalities, propagating public mistrust in capitalism like never before. How companies and investors address these systemic risks and ‘level-up’ across society is key to successfully rebooting the global economy while at the same time creating a healthier and more sustainable world. 

In this article, I share my observations on the evolution of corporate governance and how priorities have changed from an initial focus on the financial aspects of corporate value more than 30 years ago to a more holistic understanding today of the importance of the human capital and natural capital drivers that have significant influence over a company’s sustainable long-term value creation.

I explain this through the lens of the ICGN Global Governance Principles, which have been updated this year as part of a regular three-year review. Published more than 20 years ago, many ICGN members default to the principles as a bellwether for their own voting policies and company engagements. And many governments use them to help inspire the evolution of national codes.

Corporate governance

Fundamentally, corporate governance is the system by which companies are directed and controlled, based on the principles of fairness, accountability, responsibility and transparency. Boards are responsible for promoting the long-term success and resilience of companies through effective governance, managerial oversight, strategic direction and reporting.

Investors are responsible for holding boards to account on behalf of their beneficiaries, through the exercise of shareholder rights and responsibilities, including company monitoring, voting and engagement.

Today, we appreciate that companies and investors have a mutual responsibility to preserve and enhance long-term corporate value. In doing so they must focus not only on aspects relating to a company’s long-term financial value, but also on factors impacting the health of society and the environment.

In essence, this is about ‘the governance of sustainability’ and the role of the board in overseeing the integration of human and natural capital management in alignment with a company’s purpose and long-term strategy.

ICGN Global Governance Principles

It is against this backdrop that the ICGN Global Governance Principles have been revised. There are dozens of changes based on feedback from ICGN members reflecting current market practice, and in alignment with regulatory changes around the world.

There are three ways to address the key changes. Firstly, in respect to key changes to traditional governance principles; secondly, in relation to how the principles take account of sustainability-related concepts; and thirdly, in relation to an entirely new section on AGMs, which has been enhanced largely in response to Covid restrictions and the impact on shareholder rights.”


Key governance changes

  • We have emphasised the importance of independent board leadership and a clear division of responsibilities between the role of the chair and CEO to avoid unfettered powers of decision-making. We also think the roles of both should be clearly described and publicly disclosed as well as the role of the lead independent director (LID).
  • We have strengthened our standard for a majority of independent directors on the board – not just in companies with widely-held share ownership, but also for those with concentrated share ownership and subsidiaries.
  • Board diversity guidance has been expanded to encourage effective, equitable and inclusive decision-making across the workforce in alignment with the company’s purpose and key stakeholders. And we have separated out specific guidance for gender diversity with a preference for at least one-third of board positions to be held by women.
  • We emphasise the importance of conducting board evaluation annually to review composition in alignment with the company’s long-term strategy, succession planning and diversity policy. And we maintain the importance of having external board evaluation once every three years.
  • Reference to board tenure has been enhanced to clarify that term limits, where they exist, and the identity of directors who have exceeded limits (and thus are no longer independent) should be disclosed. More generally, we believe director re-election should be contingent on a satisfactory annual performance evaluation of his or her contribution to the board
  • There should be a formal approach to board director appointments based on relevant and objective selection criteria, led by the nomination committee, to ensure appropriate board independence and refreshment aligned with the company’s long-term strategy, succession planning and diversity policy.
  • There is new guidance on capital allocation to manage competing company, investor and stakeholder interests, while maintaining sufficient liquidity to ensure resilience.
  • We have acknowledged public debate around tax avoidance by emphasising the board’s role in overseeing a company’s tax policy – not only within a legal context but also within the bounds of acceptable social norms.
  • On risk, we have added that board oversight should include threats to the company’s business model, cybersecurity, supply chain resilience, performance, solvency, liquidity and reputation.
  • In relation to audit, the work of the audit committee should be explained in the annual report. There should be engagement with shareholders on any significant issues arising from the audit relating to the financial statements and how they were addressed. Additionally, the effectiveness of the audit process should be discussed, including auditor tender, tenure, independence, fees, and any non-audit services.

Key sustainability changes

  • Firstly, from the outset we clarify the need for the board to publicly disclose a company purpose to guide management’s approach to strategy, innovation and risk.
  • Directors’ duties clarify responsibility to promote the success of the company to preserve and enhance share value, while contributing to a sustainable economy, society and environment.
  • Risk oversight has been expanded to systemic events, including ecological degradation, social inequality and digital transformation.
  • Stakeholders are referenced throughout with a focus on identifying key parties, disclosing how their interests are considered and engagement.
  • There is new reference to human capital management, including workforce recruitment, retention, training and succession planning, linked to strategy.
  • Human rights, including modern slavery and workforce safety, focus on how companies identify and mitigate risk in their operations and supply chains.
  • We have referenced climate change and the board’s role in assessing business impacts and how it will be adapted to meet the needs of a net-zero economy by reducing carbon emissions over a specified period.
  • Remuneration guidance emphasises that plans should be designed to align the interests of the CEO fairly and effectively with the workforce and long-term company strategy, including the use of sustainability-related metrics.
  • We have new reference to ‘double’ materiality for reporting on a company’s external impacts on society and the environment, as well internal impacts on the company’s own financial performance. We also refer to ‘dynamic materiality’, recognising that materiality evolves over time alongside emerging technology, innovation, regulation and so on.
  • Finally, we encourage companies to use sustainability-related accounting and reporting standards to facilitate consistency and comparability and to contribute to the global consolidation of standards and frameworks.

Key AGM-related changes

Finally, spurred by the Covid crisis, we have added a new Section 10 to the ICGN Principles to emphasise the importance of shareholder participation at AGMs.

There are five new guidelines under Section 10 that are structured around ensuring shareholder meetings are efficiently, democratically and securely facilitated to enable constructive interactivity and to underscore the board’s accountability to shareholders for the company’s long-term strategy, performance and approach to sustainable value creation.

1. Firstly, the meeting format should allow for the physical presence of shareholders and ensure live interaction is possible with the board. Hybrid formats (allowing both physical and virtual participation) are encouraged, although we discourage audio-only meetings, which do not allow for adequate shareholder interaction and board accountability.

2. Companies should establish secure and efficient procedures to enable verification of shareholder identification and level of shareholding and ensure that all participants can vote on matters submitted to the meeting.

3. Shareholder questions should be able to be submitted in advance or during the AGM and companies should facilitate unmoderated, transparent, and interactive dialogue. The meeting minutes, including questions and answers should be recorded and made available to all shareholders of the company.

4. Companies should publish meeting procedures alongside the AGM notice (at least one month before the meeting). This should include information on the meeting format, registration, shareholder identification and holding, voting options and approach to asking/answering questions.

5. Voting results should be published promptly on the company website after the meeting. If a board-endorsed resolution has been opposed by a significant proportion of votes (e.g. 20 per cent or more), the company should explain what actions were taken to understand and respond to the concerns that led a critical mass of shareholders to vote against the board’s recommendation. At the following AGM, the board should report how the views from shareholders were considered and actions taken.


The proper governance of sustainability is no longer a ‘nice to have’. It is a must have. It is incumbent on companies to create value, not only for shareholders, but for all stakeholders, employing their resources to actively address social and environmental risks and opportunities now and into the future. And investors must act as guardians of good governance through the power of share ownership and responsible stewardship practices.

As business leaders and global investors in positions of influence, we share a common imperative as laid out in the UN Sustainable Development Goals to ‘end poverty, protect the planet, and ensure prosperity for all’. This is a collective, global ambition that we must all share and act upon to help ensure future generations benefit from long-term economic prosperity, social inclusiveness and a healthy environment.


Ethical Boardroom is a premier website dedicated to providing the latest news, insights, and analyses on corporate governance, sustainability, and boardroom practices.

Ethical Boardroom is a premier website dedicated to providing the latest news, insights, and analyses on corporate governance, sustainability, and boardroom practices.


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