In October this year, Edith Shih FCIS FCS(PE), International President, The Chartered Governance Institute, delivered the opening address of Governance New Zealand’s National Governance Conference. In this article, based on her speech, she looks at emerging trends in governance that will present great opportunities for practitioners able to keep up with the fast-changing landscape.
The theme of today’s conference is ‘The global future of governance’. I recall the oft-expressed warning against making predictions, especially about the future. It’s extremely wise advice. Let me be amongst the many people who fail to follow it. I believe that we stand on the threshold of a revolution in governance. Indeed, I believe we are actually already in it. There are many elements to this revolution. In my brief remarks today, I would like to touch on some of these.
Capital market trends
The development of corporate governance in its modern form can be traced back to the early 1990s, notably the publication of the ‘Cadbury Report’ in the UK. Since then, and reflecting those origins, corporate governance in developed and developing economies has been marked by a strong focus on listed companies. However, we are seeing a widespread decline in the number and economic importance of public and listed companies relative to other capital-raising structures. Businesses and investors are increasingly turning to other structures such as venture capital, private equity, hedge funds, family offices and sovereign wealth funds.
Some of these structures have existed for many years; others, such as crowdfunding, are more recent. But, despite their massive growth and the importance of their role in the global economy, their governance has not been subject to the same degree of attention, transparency and oversight that has been devoted to listed companies. I expect this to change and I think it should change.
Governance processes, policies and disciplines will extend to organisations and entities that deliver a greater range of economic, social, cultural and environmental value – whether in the private sector, the public sector or the third sector of non-governmental, charitable and community organisations. Any undertaking that plays a substantial role in the well-being of society, especially one which enjoys the privileges of external funding and limited liability, will become the subject of heightened expectations of good governance. This will make a positive difference.
By way of illustration, New Zealand is renowned for sporting excellence. It is a world leader in sports such as rugby, cricket and netball, to name just a few. It is also renowned for excellence in sports governance. The two are not unconnected. I understand that, as recently as the Cricket World Cup, some commentators attributed the relative performance of the New Zealand and Sri Lankan teams less to the talent of their individual players, but to the difference in the quality of governance of the two cricket authorities in developing and maximising that talent.
It is because of the expansion of governance expectations and standards to a much wider field of entities that it is no longer appropriate to speak of ‘corporate governance’. As the title of this conference rightly expresses, we must now think, speak and act in terms of ‘governance’, full stop.
Non-financial performance measures
I also expect governance to continue the trend of recent years to reach beyond accounting and financial concerns, and encompass much wider aspects of environmental and social performance. Perhaps as recently as 10 to 15 years ago it would have been rare for any company to report on its carbon emissions. Now, this would be expected of any responsible undertaking – as would reporting on its performance across a sweep of deliverables, such as on diversity, supply chain management, community investment and much more. The scope of this reporting will only increase in the years to come.
The shift to a multi-stakeholder model
We will also see governance continue to recognise the duties owed by business not only to shareholders, but to a much larger group of stakeholders. Identifying those stakeholders, deciding upon the nature of the obligations owed to them, measuring performance in meeting those obligations and the manner of reporting will be a growing component of effective governance. The focus on delivery of shareholder value will gradually merge into a broader notion of sustainable corporate performance.
The impact of technology
Finally, the impact of new and emerging technologies on governance will be immense. This is the most difficult aspect of the future to foretell. I think, albeit with due hesitation, that this impact will have at least two dimensions.
The first is that governance standards and requirements will need to evolve rapidly to enhance the controls, performance and transparency of companies that are carrying on forms of business hitherto unknown. We are already seeing this in the way in which companies such as Google, Facebook and Amazon are subject to growing questioning and scrutiny. Those, and for that matter other longstanding businesses which adopt new technology, will face greater obligations in matters such as data management, data privacy and cyber security. They will also need strengthened governance processes in order to discharge those obligations.
Secondly, new technology will provide governance practitioners with better tools to perform their role. In the IT field we will progress rapidly from corporate secretarial software systems through governance management and reporting systems to the era of artificial intelligence (AI). I am unsure quite how AI will affect governance. However, I am absolutely sure that this will not undermine the relevance and importance of our work. On the contrary, it will enhance our capabilities and, in so doing, the quality of what we do and the value we bring to all stakeholders.
Don’t get left behind
All of the trends I have suggested have several things in common: they are irreversible, they are expanding, they are accelerating and they all present great opportunities. I say with confidence that there has never been a better time to be a governance practitioner and there has never been a better time to reflect on the future of governance. We cannot predict the future, but we can prepare for it.
Edith Shih FCIS FCS(PE)
International President, The Chartered Governance Institute
This article has been adapted from the opening address delivered by Edith Shih FCIS FCS(PE), International President, The Chartered Governance Institute, at Governance New Zealand’s 2019 National Governance Conference held in Auckland on 1 October.