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Back to Global Corporate Governance Trends for 2024
Business volatility in an evolving regulatory environment
New regulations from the EU in sustainability reporting, nature restoration regulation, digital acts, and geopolitical instability are in focus for the boardrooms in the Nordics. The Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), and the Digital Services Act (DSA) will have a direct impact in corporate governance within a volatile business environment that faces geopolitical issues, rapid development of technology, and climate pressure.
Environmental sustainability will stay high on boards’ agendas, due to evolving regulation. In general, the EU's biodiversity strategy for 2030 is a comprehensive, ambitious, and long-term effort to protect nature and reverse the degradation of ecosystems. EU’s Nature Restoration Law aims to restore 20% of the EU's land and sea areas by 2030, and all ecosystems by 2050. The biodiversity strategy and Nature Restoration Law will impact company agendas, especially in sectors operating in raw materials, such as Nordic forest and mining businesses. Furthermore, EU’s CSRD commences in 2024, which requires companies to present concrete actions to improve sustainability and fulfill the set requirements. This will also impact boards, as directors need to have deeper knowledge of sustainability issues and their key drivers.
Moreover, we expect global and regional geopolitical instability to create unpredictable challenges, which will require boards to take a more involved role in preparing for future “worst-case” scenarios. The volatile business environment puts risk management in focus. Boards will be expected to be agile and able to utilize scenario thinking and planning as a regular tool in risk management.
Rapid technology landscape changes coming into view
Megatrends such as advancements in AI, quantum computing, and cybersecurity threats continue to shape the business environment in 2024. This will likely translate into higher expectations for the board’s ability to stay up-to-date with technological development, both for its opportunities and imminent threats.
The EU’s digital regulation and acts, such as DSA, will further affect how companies can conduct their business with data captured through smart devices and what kind of services companies can offer in the future. Regulatory rollouts are expected to set new rules and limitations for business practices.
Technology’s speed of change, as well as the regulatory landscape’s, will challenge boards in their support of executive teams. Boards are increasingly expected to oversee development and stay educated on relevant organizational matters. As boards look for future-proof talent and updated competencies, these rapid advancements will have a major impact on board renewal and composition.
Further significance of social responsibility
Social responsibility continues to receive attention in the Nordics. This accounts for multiple perspectives, including discussions on investment opportunities, subcontractor behavior, ethical manufacturing and supply chain, and employee welfare. Ethical behavior will be a key factor in investors’ investment plans and decisions, as well as for the new workforce that values socially responsible employers and careers. Boards will continue to grapple with globalization and the risk that businesses from countries mandating high levels of responsibility (and the associated higher costs) may lose out to countries with less focus on social responsibility. Looking ahead, boards will be expected to supervise executive teams and their businesses on end-to-end social impact, amping up the demands on boards to monitor corporate culture and their company’s ethical impacts.
Growing pressure on board compensation and talent
The EU’s push towards gender parity (calling for at least 40% of the underrepresented gender on boards) continues to evolve the current board landscape in the Nordics. Nordic countries are, on average, in line with the 40% threshold. However, there will still be a continued need for balancing boards in terms of gender equality. Furthermore, companies must prepare for qualification disclosure if unsuccessful candidates request it, aligned with the GDPR regulation.
The importance of board chair and board member succession planning is rising on the agenda of boards and shareholder’s nomination boards, calling for clear and transparent board appointment procedures. Board workloads also continue to increase, as directors are spending more time on their roles, particularly within committees. Several issues are gradually moving from executive teams to the board level, from oversight into responsibility and liability, most notably concerning the subject of data and data integrity.
Heightened demand for board members’ competence and experience will further increase, especially in terms of technology and geographic savviness. Nordic board compensation has been traditionally low in comparison to other European countries, which raises the bar even further to attract top international talent with the right set of future-proof competencies and experiences. Furthermore, CSRD reporting will substantially grow the workload of audit committees in early 2025. Therefore, increasing workloads have spurred discussion—especially in Sweden—about adjusting the audit committee fees for the Chair and its members. This could be anything from a 15% to 25% fee rise, reflecting the amount of work.