Five measures to build excellence in corporate governance

12 March 2024 4 min. read

The GCC business landscape is increasingly ramping up its focus on corporate governance, amid a rise in regulation, reporting standards, investor and stakeholder pressures, and much more. Shazeaa Ingar from Aon outlines some of the key business challenges affecting boards, and how boards can excel despite these complex challenges.

The list of changes impacting and influencing the corporate governance landscape in the Gulf Cooperation Council (GCC) is long – and constantly evolving. As consumer, employee, shareholder, and regulatory priorities shift, corporate governance practices will also need to evolve to meet those changes.

Meanwhile, there is a growing demand for more stringent governance policies and processes from regulators, investors, as well as other stakeholder groups.

Five measures to build excellence in corporate governance

Shazeaa Ingar from Aon

A walk-though of four prominent trends affecting boards in 2024:

ESG and the need to measure success
With potential societal impact from business operations and strategy, avoiding unnecessary risks and proactively mitigating negative external impacts are important considerations. While directors’ fundamental duties have not changed, boards are now expected to oversee how senior managements teams are addressing ESG risks and opportunities, as well as the overall strategy to measure, integrate and manage these matters.

Risk mitigation
With outlier status increasing liability risk for a company and its future profitability, boards need to understand key macro risks and management needs to regularly update the board measures to mitigate risk

Talent scarcity and workforce planning
Retaining talent is becoming increasingly challenging as competition is fierce and job seekers look beyond financial incentives when deciding to stay with an employer. Strengthening the leadership pipeline and ensuring robust talent management and retention processes are more critical than ever before.

Further reading: GCC talent eyeing fresh career opportunities and better compensation.

Navigating the turbulent global economy
Due to geo-political risks with the US/China, Middle East tensions and the Russia Ukraine war, global interest rates are at an all-time high and operational costs are escalating. Corporate purpose is now one of the key drivers that motivates and unifies corporate strategy more than ever before.

Corporate governance areas critical for board excellence

In light on these and other challenges faced by executive teams, there is an increasing demand for boards to take a fresh look at the commitments expected of directors and take the necessary governance measures to ensure risk mitigation.

Boards should consider increasing their use of external resources for board education programs. Enlisting third party experts on specific topics can be an efficient and appropriate way to keep the board informed on emerging trends and risks, and to develop fluency in areas where knowledge may be lacking.

Topics on understanding the ESG landscape and the various ESG reporting frameworks and standards which underpin the legal requirements for disclosing ESG data may be one topic that boards may need oversight on.

Board evaluations are a key governance requirement in the region. As part of the evaluation process, boards should consider evaluating the performance of individual directors and retaining an external facilitator. Aon recommends a multifaceted approach blending self-evaluations with individual director interviews for nuanced insights.

A third party can ensure increased participation and openness in the evaluation process. Aon also recommends tactical action-oriented feedback of the results to ensure blind spots are uncovered whilst suggesting specific governance measures for improvement.

In light of expanding workloads, boards should take a fresh look at the time commitments expected of directors and, if they haven’t already done so, consider adopting policies that address the number of boards on which directors can serve.

Boards should consider adopting a policy on rotating committee memberships to support board education and excellence. Committee rotation can allow directors a more comprehensive overview of the company and ensure knowledge sharing and expanding of experience and skills for each director – supporting the board diversity agenda.

In addition to this, board diversity still sits as one of the key factors for board excellence. Aon recommends boards should track and record their board members skills experience in a skills matrix to ensure a well-balanced boardroom.

Governance structures and practices should support the board in deciding its priorities, agenda, and information needs. Having a detailed Charter aligned to global best practice can ensure that proper processes in the organization and preparation of meetings take place, thus ensuring the proper involvement and participation from all parties.