How Market Uncertainty Impacts Corporate Governance

As a board of directors, the current state of the market isn’t exactly a metaphorical security blanket as we begin the new decade.

The cold hard facts are that the market is faced with global economic growth reaching a screeching halt. On top of that, the cost of borrowing has skyrocketed. And global trade is in a state of uncertainty and disarray. This lack of clarity necessitates careful management of previously unprecedented risks in developing and fully developed markets.

As a result, there’s a strong chance that macroeconomic trends will affect board performance and the overall checks and balances of the organization. Therefore, there will be an array of audit quality concerns and executive compensation practices.

In these times, boards must keep their head above water and stay connected to crucial governance issues.

The topics discussed below are what boards with the most robust practices will focus on to maintain their standing and strength in the market. These issues are what’s most prevalent in 2020 and what will keep organizations healthy and thriving:

Board Diversity

In the past few years, there’s been a focus on more diverse boardrooms concerning gender. Boards must continue to strive for a diverse room of directors. After all, in the US, California has legislated boardroom gender diversity that took effect last year. Expect similar mandates to spread across the continent and the world as a whole.

Though, corporate officers must look beyond the boardroom when it comes to implementing diverse cultures. They need to investigate whether these values are represented in senior management. With investors focused firmly on social issues, a keen eye will be honed into these diversity practices being represented deeply within organizations.

Plus, diversity is expected to go beyond matters of gender and should also consider differing skills, backgrounds, and ethnicities.

Managing Market Uncertainty and Focusing on Audit Quality

A couple of years ago, a few reputable firms began struggling greatly or outright collapsed in the face of accounting scandals.

The main issues – as mentioned before – are that borrowing is tighter, and the economy is slower. These factors make it likelier for even the most established companies to make mistakes.

Investors will have a keen eye on noticing discrepancies in this regard. With more robust governance practices and a focus on audit quality, companies will be equipped to handle the downturn of the market.

Preventing Executive Misconduct

A couple of years ago, the likes of Carlos Ghosn of the Renault-Nissan-Mitsubishi alliance and Steve Wynn of Wynn Resorts were ousted from leadership positions.

Why were these icons given “Dear John” letters?

It was due to misconduct allegations. Combine those instances with Elon Musk running wild on Twitter, and one can say that executives “behaving badly” has become something of a trend.

Unfortunately, it’s hard to predict when someone will run amuck—sometimes, the rigors of the job bring this out of people.

However, boards with robust practices will be focused on implementing succession plans and oversight mechanisms. Namely, they’ll be investigating the value of independent board leadership structures to offer objective perspectives and mitigate overall risk.

Do you feel your board is employing the most robust corporate governance practices to offset market uncertainty?