Global and Regional Trends in Corporate Governance in 2016

Anthony Goodman is a member of the Board Effectiveness Practice at Russell Reynolds Associates. This post is based on an Russell Reynolds publication authored by Mr. Goodman and Jack “Rusty” O’Kelley, III, available here.

Over the past few years, institutional investors have held boards increasingly accountable for company performance and have demanded greater transparency and engagement with directors. The real question investors are asking is How can we be sure we have a high-performing board in place? Most of the governance reforms currently under discussion globally attempt to address that question.

Around the world, large institutional investors continue to push hard for reforms that will enable them to elect independent non-executive directors who will constructively challenge management on strategy and hold executives accountable for performance (and pay them accordingly). When trust breaks down, activist investors (often hedge funds) move in to drive for change, often with institutional support.

Investors may be increasing their scrutiny of boards, but they are also under pressure. In the United Kingdom, the financial crisis gave rise to an investor stewardship code, and similar codes are being implemented in many other countries, including Japan and Malaysia. These codes attempt to ensure that investors fulfill their responsibilities to manage their investments and vote their shares transparently.

Based on our interviews in five major markets and our collective insights, we believe in 2016 public companies globally will likely face the following trends:

  • More focus on what makes a highly-effective board, with attention particularly being paid to independence, composition, diversity, and board leaders’ roles—More scrutiny of individual directors by investors, or their advisors, and increasing demand in many markets for internal and/or external board and director assessments to drive board performance
  • More regulations, more revisions to corporate governance codes, and more rules on disclosure to drive increased transparency
  • More shareholder engagement, particularly around ESG concerns, and more activist investor interventions when shareholder engagement is absent or trust breaks down

United States

In 2016, we expect boards will face an increasing call for accountability and disclosure from all classes of investors. Companies can expect demands from institutional investors to say more about strategy, environmental risk factors, board leadership roles, the process used to assess the board, and the details of board and CEO succession plans. There will be a focus on improving the quality of engagement between investors and boards, including through individual meetings between investors and board leaders. Boards will start to look for more investor-savvy directors, whether from the investment community or from the ranks of current and former CEOs and CFOs who have dealt with investors regularly. Some very large institutional investors will push harder for regular (every third year) external board assessments, following the British and French models.


The Petrobras scandal has led to a flurry of activity in corporate governance, much of which may bear fruit in 2016. Many institutional investors are skeptical that proposed governance reforms will bring real changes in attitude and behavior and not mere check-the-box compliance activity. As the recession continues, there will be additional focus on the effectiveness of boards and individual directors. The country will likely have new laws governing state-owned enterprises (SOEs). Proposals include mandating more independent directors, a ban on ministers being directors, and requiring audit committees. A new national governance code incorporating comply-or-explain for listed companies may take effect. 2016 will also see more enforcement of existing rules and laws for directors of non-SOEs and the impact of already agreed-upon changes to proxy voting for all listed entities, including streamlined voting for international investors.

European Union

Gender and minority diversity for boards will remain a major focus of governmental and voluntary action across the EU, and we expect to see many more women named to boards across Europe in 2016 as national laws take full effect. The EU is already set to introduce a revised Shareholder Rights Directive in 2016 that will require transparency of the voting and engagement policies of institutional investors. However, many institutional investors are more concerned about differential shareholder rights and protection for minority shareholders (for instance, in the double voting rights in France’s Florange Law). ESG disclosures and engagement with shareholders on ESG issues will likely increase across the EU in 2016. The 2014 EU directive on disclosure of nonfinancial and diversity information requires 6,000 large European companies to publish information on ESG factors.


Recent scandals, along with years of low economic growth, have led to the development of corporate governance and stewardship codes and an amended Company Law that took effect in June 2015. Japan will start to feel the full impact of these changes in 2016. The initial focus is likely to be on gender diversity, to be achieved through the appointment of independent directors. In a sign of change, boards are conducting self-evaluations, and a handful have begun to conduct external evaluations both to comply with requirements and to improve governance. The stewardship code may not lead to an increase in effective engagement between investors and companies, because of a cultural reluctance on the part of domestic and some international shareholders’ corporate governance teams to challenge management. The government is reviewing progress, and the codes could be amended as early as the end of 2016.


The 2013 Companies Act introduced major changes to corporate governance practices in India, including clearer definitions of director independence and related-party transactions, promotion of gender diversity on boards, and enhanced disclosure of the performance evaluations of the board, committees, and directors. The Securities Exchange Board of India (SEBI) increased shareholder rights and responsibilities by introducing compulsory e-voting and requiring investors to disclose and explain their voting decisions. Boards are finding it difficult to deal with the numerous changes. Companies and governance experts have been placing compliance into two categories: what must be done and what can be loosely followed. Director evaluation, for example, falls into the second category. Since neither the act nor SEBI prescribe a process, companies are developing their own, creating inconsistency. In 2015, the government set up panels to review the act and remove what it sees as undue burden on Indian businesses. The reviews are likely to lead to new legislation being proposed in 2016.

The complete publication is available here.

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  1. Jennifer Alterwitz
    Posted Sunday, January 24, 2016 at 8:21 pm | Permalink

    I agree that corporate boards will likely see an increasing call for accountability and disclosure this year. It’s important for institutions to regularly evaluate their corporate governance procedures and documentation processes. Here’s a webinar replay that offers some insights for organizations that are looking to navigate effective corporate governance and process documentation:

  2. Dr Dean Blomson
    Posted Saturday, March 19, 2016 at 12:56 am | Permalink

    I agree with the assertions made about transparency, although the rigour of board deliberations and quality of oversight – the only things that really matter – will always be opaque to those on the outside.

    And I believe the challenge in providing transparency to investors is greatest during corporate acquisitions – as opposed to steady state, business as usual operations.

    Currently there are few, if any, checks and balances in place to protect the shareholders of the acquiring business – an irony given the well-documented research into the poor track-record of M&A. Throwing more input- and process-type requirements (board compositions, codes, etc.) at boards is not the answer – but rather the pressure should be on ensuring that boards are transparent on the targeted outcomes (inputs don’t guarantee outcomes). I believe there are a number of pragmatic actions that will help to protect investors – that won’t negate the safe harbour defence of the Business Judgement Rule – but which will place a greater requirement on boards to ensure investors have better optics that the board has provided the necessary testing and oversight of M&A strategy, planning and execution – during and after the deal. What is ‘right governance’ of M&A is not a well explored topic, so I focused my doctoral research on this.

    Without better optics, and pressure by institutional investors for answers before the event, and board accountability afterwards, deals will continue to announced without the market having any real sense of whether adequate oversight has been applied; and shareholders will continue to be burned.