2023 Corporate Governance Outlook

The year 2022 ended with business challenges, such as high inflation, subdued growth, forex shortages, and rising logistical costs. In 2023, amid economic headwinds, the stakes are higher for companies and their boards. Strong corporate governance is needed now more than ever, as it can help companies to perform better and safeguard their reputation.

Against this backdrop, here are nine (9) issues that will likely impact corporate governance and board performance in 2023. I hope this will help you prepare for the challenges and opportunities you might encounter.?

1.?????BOARD/EXECUTIVE DYNAMICS. Considering the continuing economic pressures, operational and financial challenges, and increased fiduciary expectations, the board is more likely to want to get involved in corporate affairs. As a result, it would be very critical to manage the relationship between the board and executives. Directors and executives should re-confirm their respective roles, responsibilities, and lines of authority to preserve the integrity of the distinction between governance and management and to ensure a strengthened partnership.

2.?????DIVERSITY & INCLUSION: With women comprising a low percentage of corporate directors globally, the push for gender diversity continues to grow. The market will begin to put more pressure on boards to address any lack of gender diversity and "reward" companies with gender-diverse boards. While the mobilization to improve diversity is focused on gender, there is a recognition slowly building around the need for increased age/talent diversity on boards and in management. Today, age/talent diversity is a critical element of any discussion of board composition. One area often overlooked is age diversity, and the proportion of board seats held by directors aged 50 or younger is still marginal. ?

3.?????INCESSANT INNOVATIONS: In response to the challenging business environment, executives must adapt to harsh economic realities by pursuing innovative and bold business initiatives. Higher levels of innovation, not only in technology but also in other operational areas, should be expected as leaders seek to shape corporate destiny. Therefore, boards must be conscious of innovation risks. There is excellent value in collaboratively confronting risk and uncertainty through a well-conceived, diligently developed plan. ?

4.?????ESG PERFORMANCE & DISCLOSURE: ESG is no longer a feel-good concept but an increasingly critical concept with far-reaching impact and implications. ESG needs to be appropriately integrated into business strategy to be meaningful. As the climate crisis becomes more apparent, stakeholders demand more and better action from businesses. ESG performance metrics are increasingly important to investors, regulators, and other stakeholders. The era of greenwashing is over, and companies must report accurate data against agreed standards to make it easier for external parties to compare ESG performance.

5.?????REGULATION: There is likely to be increased regulatory scrutiny, which can create tension within the executive team, which the board will need to deal with, along with its obligation to support compliance. Businesses will face more demanding policy terrain as they navigate multiple changing/emerging/evolving regulatory policies at different levels. Proactive companies will ensure that their systems, controls, policies, and procedures comply with legal requirements and that their governance framework and risk management measures are effective.

6.?????HUMAN CAPITAL MANAGEMENT: Expectations about board oversight and reporting of human capital issues and corporate culture are rising because human capital is critical. The discussions on virtual/physical/hybrid work arrangement and their implications on corporate performance will likely continue. Particularly in Nigeria, the "Japa" syndrome (brain drain or employee exodus) is a genuine concern, therefore, hiring and retention strategies must be rethought. The board must be updated on these human capital concerns, including increasing gender diversity, racial diversity, equity, and inclusion across the company.?

7.?????SOCIAL MEDIA (SM): SM platforms have firmly established themselves as virtual space for sharing and consuming information. Today, SM makes it more difficult for companies to control information, and many companies leverage SM to connect with stakeholders and build a trusted, reputable brand. In this digital era, reliance on top-down, one-way, and faceless corporate communications is outdated, and avoiding SM is no longer an option. Directors and executives must understand SM technologies, the ethos of SM users, how people engage with one another, and the tools used to monitor and analyze SM activities. ?

8.?????ARTIFICIAL INTELLIGENCE: The use of AI within a company is a critical element of most companies' strategic vision and has implications for competitiveness. It is also a complex concept for an average director to come to grips with, and the nuances and risks may also be complicated to articulate. However, the board's responsibility is to oversee and resolve this critical strategic concept's risk/benefit conflict. Consideration should be given to how directors will address AI application and implementation and develop internal structures that will provide for effective board education, monitoring, risk prevention, and regulatory compliance.

9.?????CONTINUED CRISIS MODE: The business environment continues to be volatile, uncertain, complex, and ambiguous. COVID and the economic difficulties it caused may not be entirely over yet. Boards will have to?confront the reality?that there remains a ?vulnerability to COVID and, possibly, other pathogens. This vulnerability may create further difficulties for the business. Therefore, crisis management and business resiliency should remain a focus for directors. The board must establish a "tone at the top" concerning corporate culture around risk management.

In light of the continuing complex and challenging business environment, boards may be required to meet more often over time. In an era of constant change, companies with clear strategies, strong leadership teams, and good corporate governance practices will be opportunistically positioned to adapt and thrive. A proactive approach to improving corporate governance framework and leadership and planning for potential problems will be essential to success.?

Please let me know if I have missed out any issue that you consider relevant to boards as they prepare to navigate 2023