As a critical component of business, governance is part of a global economy ̶ international trends will influence what is on directors’ minds this year. The fact that major elections
are scheduled, including in South Africa, could also have an impact on governance thinking.
Based on a survey of recent research and articles, here are some of the issues South African boards need to consider: ESG / sustainability is still evolving. Environmental
issues (the E of ESG) remain important generally, especially the impact of climate change, which continues to be a concern. Organisations are being encouraged, or even required, to take a broader view of their environmental impact and responsibility.
Linked to this is the increased focus on sustainability reporting, bearing in mind the new IFRS sustainability disclosure standards: S1 (General requirements for disclosure of sustainability-related financial information) and S2 (Climate-related disclosures).
Executive pay remains a hot potato. Executive pay remains a flashpoint globally, and South Africa is no exception. One of the most important expected amendments to the Companies Act relates to remuneration, with the changes
in law seeking to make remuneration committees more accountable for ensuring pay is fair and responsible. If the latest version of the Bill is promulgated, it will mean remuneration committee members will have to be put forward for re-election if the
remuneration implementation report doesn’t pass the shareholder vote at the AGM.
Technology change is an increasing focus. According to research by the National Association of Corporate Directors (NACD), the increasing pace
of technological change is now the fifth most important governance trend. Artificial intelligence (AI) grabbed the headlines in 2023 and will surely continue to do so, especially given calls for regulating its development. AI raises multifaceted governance
concerns, and boards need to have a deep understanding of the implications for their organisation.
But AI isn’t the only technology that is on the board agenda ̶ others are developing fast, so directors need enough knowledge to monitor this
space. Of particular importance is the fact that as business digitalises, its vulnerability to cybercrime increases. Data privacy is a related issue that poses a significant risk.
In the context of fast-moving technological change, digital
transformation will surely continue to be a major board focus for 2024.
Board culture and effectiveness are more important than ever. As the ultimate source and arbiter of governance, the board has a critical role to play.
There is a growing appreciation of the fact that the board’s effectiveness and culture are vital in ensuring it functions optimally. Regular board evaluations are one aspect, but softer issues like cultivating a culture of collegiality and vigorous but
respectful debate are just as important. The chair has a key role to play in driving this culture ̶ no easy task given the need for a wide range of diverging views to be considered.
A range of issues related to board performance, such as board
composition, will remain important.
Board/management dynamic needs to be revisited. Globally, and particularly in South Africa, there is a tendency for boards to get too involved in management issues in a bid to resolve deep-seated
governance issues. Areas of focus in 2024 will include redefining the respective roles of board and management.
Traditional board concerns need to be strengthened. The NACD’s research showed that key areas of improvement for
boards include oversight of strategy execution and development, risk management, financial reporting and human capital. These are long-established board focus areas, and remain so.
South Africa’s upcoming elections. The outcome
of South Africa's national elections holds significant implications for corporate board directors. Monitoring political and economic stability is crucial as shifts in the external environment directly affect their companies. A keen understanding of the
post-election landscape is essential for strategic decision making, safeguarding against potential challenges, and capitalising on opportunities to ensure sustained business success.
In conclusion: Boards will have their hands full with a mix
of old and new issues. Not surprisingly, then, boards will need to have a very clear understanding of what their organisation’s priorities are, and its pre-eminent risks. This framework will have to guide the board’s agenda to ensure it does not lose
focus. Additionally, boards must adapt to rapidly evolving global standards and stakeholder expectations, ensuring their strategies are robust yet flexible enough to navigate the complexities of 2024's dynamic governance landscape.
Parmi Natesan and Dr Prieur du Plessis are respectively CEO and facilitator of the Institute of Directors (IoDSA); email: info@boardgovernance.co.za
I would like to add two comments:
- as far as ESG is concerned and the continually increasing reporting requirements, due diligence into supply chains (end-to-end) as well as TPRM will become critical;
- oversight of how AI and other technology decisions are made and implemented in businesses will require boards to review risk appetite statements and set explicit tolerances for Privacy, Regulatory Compliance and effective Risk Management
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