5 pressing governance trends that CFOs need to know about

CFOs will have a lot more on their plate if the findings of an examination of corporate governance trends come to pass, according to the “2021 Global and Regional Trends in Corporate Governance”, an annual study from executive search consultant Russell Reynolds.

The report predicts some global corporate governance trends for 2021: climate change risk; greater emphasis on diversity, equity, and inclusion (DEI); convergence of sustainability reporting standards; more focus on human capital management; and virtual board and shareholder meetings continuing for the foreseeable future.

“These governance trends will definitely impact the role of the CFO and the broader finance function,” said Ken Witt, CPA, CGMA, senior manager on the Management Accounting team at the Association of International Certified Professional Accountants, representing AICPA & CIMA.

Louder demands for climate disclosure

The report’s finding that boards need to more urgently manage climate change as a long-term material financial risk is no surprise, and it is therefore set to consume a larger slice of CFOs’ time. Wide-ranging commitments globally to various targets — including net zero — mean that CFOs are expected to play a growing role in helping to plan strategic reductions in company climate impact, and to disclose increasingly granular data in corporate communications.

“It is often said that risk and opportunity are two sides of the same coin,” Witt added. “In addition to developing KPIs for all key risks and critical value drivers, the CFO is well positioned to identify potential opportunities that may involve revisions to a company’s strategy and changes to their business model going forward.”

Information flows critical to DEI

Another area where stakeholders expect enhanced disclosure is in DEI. The report found that there is increased demand for racial and ethnic diversity at all levels amongst respondents and that gender diversity remains a priority for organisations across the world. The research also suggests that investors will be seeking more transparent disclosure on issues related to DEI.

Organisational leadership needs to set the tone when it comes to diversity. CFOs can be critical in ensuring that DEI is a priority and measuring the success of diversity effort, and boards will expect to see the CFO deliver.

Convergence, at last?

There may be one area where things are getting simpler for CFOs: the expected convergence of sustainability reporting standards. The ongoing international efforts by various organisations to streamline sustainability reporting will likely lead to internationally recognised standards that boards will need to pay attention to.

Human Capital

The report also described an increased expectation of board oversight of human capital management (HCM) and corporate culture. With few developed standards, human capital and its disclosure remains a hot topic. But stasis is not an option, with the report declaring that “demand for disclosure of more HCM data (eg, gender pay gap, safety incidents, employee turnover) has skyrocketed”.

Boards can expect to be held accountable by investors for insufficient disclosure, and since CFOs are in charge of much of this data, they are expected to be across it.

Democratising investment: virtual meetings

Another investment democratisation trend the report predicted was that the virtual board and shareholder meetings (VSMs), necessitated by the coronavirus pandemic, are here to stay. In some cases they had improved attendance and engagement. The report’s findings suggested that they had varied success globally, though, with “chaotic” scenes in Brazil, and some forgivable early “lack of functionality” in the US and Canada. With VSMs likely to continue throughout a bumpy global recovery, CFOs can expect to spend more time preparing digital board packets.

23 July 2021 by Felicity Hawksley, a freelance writer based in the UK, FM magazine