Proactive corporate governance essential in a changing landscape

The pace of change in the business world continues to accelerate, creating challenges for boards and other governance professionals. Keeping abreast of technological advancements, regulation changes and global issues has never been more important, and being proactive is key.

“From our point of view, the trajectory of corporate governance is set for continued and significant evolution, shaped by technological advancements, environmental considerations, and the broader evolving societal context,” commented Patrick Downes, Partner, Governance Ireland. “We are advising our clients that by adopting a proactive corporate governance posture and embedding a supporting strategy that is anticipatory of future trends and regulatory landscapes, they can stay ahead of obligations and whilst at the same time, maintain their crucial competitive advantage.”

“The core tenets of corporate governance stay the same, but the external factors keep on evolving,” said Caroline Spillane CDir,  Chief Executive Officer, Institute of Directors Ireland. “The big challenge for directors is to keep pace and decide if the organisation’s own controls are adapting to those external factors or do they need to be tweaked. What does it mean for us strategically? What does it mean for us from a risk point of view? Do we have the expertise to deal with it? How are we adapting to policy?

One of the biggest considerations at the moment is the ever-evolving regulatory system. “The policy landscape coming from Europe is very significant, especially in terms of ESG, and the Corporate Sustainability Reporting Directive (CSRD),” said Spillane. “The critical thing for boards is to question, what does it mean for us? How do we deal with it from a stakeholder point of view? How do we deal with it from a disclosure point of view?”

“The introduction of the Corporate Sustainability Reporting Directive (CSDR) is marking another pivotal turn in ESG regulations,” said Downes. “It's really where the rubber hits the road and a leap from the previous and more pedestrian Non-Financial Reporting Directive (NFRD) to delivering a more integrated approach in disclosing how organisations report their ESG endeavours. The directive, which has teeth, encourages companies to adopt a more transparent reporting mechanism, leveraging criteria and data that underpin consistency and reliability of reporting.

“Further sharpening this focus is the European Sustainability Reporting Standards (ESRS), designed to ensure that sustainability reporting is as robust and transparent as financial reporting. These standards serve as the backbone for the CSDR, facilitating a clearer communication channel between corporations and their stakeholders about sustainability practices and their outcomes.”

True diversity encompasses a broader spectrum of demographic attributes, including but not limited to race, ethnicity and age

The result is that ESG has become something that boards must now deal with. “ESG has become central to how companies are perceived and valued,” said Downes. “Integrating ESG considerations into corporate strategy and risk management is not just good practice—it's become a necessity for directors in terms of sustainable success and competitive advantage.”

A further issue is the challenges posed by the rise in AI and related technologies. “Digitalisation and the growth of AI technology is another challenge facing boards,” commented Spillane. “For all the incredible benefits that these technologies bring, there are also risks, and you must balance the strategic advantages of technology with those risks. This is against the backdrop of policy, which often doesn’t keep up with business. As an organisation, do you sit back and wait, possibly missing out on the opportunities? Or do you dive in and manage the risks?”

“At Governance Ireland, we are advising our clients on the delicate balance of harnessing AI's potential while mitigating its risks,” said Downes. “We are seeing regulations such as the EU AI Act emerging  in the last few weeks, which will be focused on introducing legislation to ensure that AI systems are safe, respect fundamental rights and EU values and encourage the development of a single market for AI applications. We would note for example that Minister Dara Calleary has already welcomed the proposed EU regulation as an important step towards ensuring that AI systems will be used in a trustworthy manner.”

Finally, Downes notes that the call for diversity is growing ever louder, despite strides made towards gender balance in the boardroom. “True diversity encompasses a broader spectrum of demographic attributes, including but not limited to race, ethnicity and age. At Governance Ireland, we advocate for a more inclusive approach, we recognise that diversity in leadership is not just a moral imperative but very much a business one.”

Spillane agreed: “Issues such as cultural diversity and gender diversity never go off the agenda. It’s essential that we have a rich mix of cognitive ability within our boards and our organisations.”