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ESG in the C-suite: Future-Proofing Companies Through Corporate Governance

June 15, 2022
By Lauren Chung & Patricia Heiberger

Teneo Asia hosted a webinar entitled “ESG in the C-suite: Future-proofing Companies Through Corporate Governance.” Panelists explored how regulators, exchanges and companies across Asia are advancing corporate governance to help support their ESG agendas and their wider business goals.

During the session, Kelly Lee, Vice President, Policy and Secretariat Services, Listing, Hong Kong Exchanges and Clearing Limited; Gill Meller, Legal and Governance Director at MTR; Michael Tang, Head of Listing Policy and Product Admission at Singapore Exchange Regulation; and Lauren Chung, CEO, Asia- Pacific Strategy & Communications at Teneo joined Patricia Heiberger, Managing Director at Teneo to discuss opportunities for and challenges to embedding corporate governance culture in companies across markets in North and Southeast Asia.

 

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Changing Macro-Environment

Regardless of company structure and the nature of the industry they operate in, leaders are under pressure to consider a growing range of stakeholder interests as the macro environment changes more quickly every day. Having both hard and soft internal corporate governance mechanisms in place – comprising both a solid governance framework and a culture of compliance – can help ensure companies meet their “E,” “S” and “G” responsibilities while also delivering returns to shareholders.

This approach to corporate governance can help a company in many ways. For example, it can help them recruit engaged employees who want to work for a company with a sense of purpose that mirrors their values. At the same time, it can also help them address shareholder activism by fostering a diverse leadership team that actively engages with stakeholder concerns at the Board of Directors level and in the C-suite.

Moving Towards a Culture of Governance in Asia

Asian companies have come a long way on their corporate governance journeys, but they still have room to enhance their corporate governance practices. Many now understand that strong corporate governance is not about “ticking boxes” on a list of market regulations, but instead requires creating a culture of compliance from the bottom to the top of their organisations.

Corporate governance codification is not enough to instil a culture of good governance, but it is a strong foundation on which to build that culture. Regulators in the region who have moved to put in place minimum governance requirements – whether it be about board tenure or gender diversity – have created a starting point for corporate governance teams. This gives the teams an “excuse” to go to senior management and push for change.

Buy in at the Board and the C-suite level is crucial to developing a strong governance culture. The Board sets the tone when it comes to shaping and leading corporate culture, which in turn underpins the purpose and values the company stands for. Executives and staff who understand and share their company’s purpose and values and implement aligned corporate strategy have a higher likelihood of meeting their business goals.

The Diversity Discussion

Amid the challenges of Covid-19 and increasing geo-political tension, it has become increasingly clear that diversity at the Board level and in the C-suite helps companies manage change and navigate crisis. At the most fundamental level, diversity ensures management considers a wide range of perspectives when deciding how to meet the challenges they face on a daily basis.

A combination of regulation and evolving corporate culture is helping move companies in the right direction. For example, all Hong Kong listed companies must set targets and timelines to achieve gender diversity at the board level, and companies with single-gender boards are required to appoint at least one director of a different gender on their boards by the end of 2024. As noted above, this is empowering corporate governance leads to go to their management teams and push for real change in the near term.

The pandemic has played a key role in showing companies the importance of meeting their “S” commitments to help support their staff and communities amid unprecedented challenges. This is simply not possible in the absence of strong and flexible governance structures that are able to recognise challenges, evaluate them from various perspectives and then implement informed and effective policies and programs to address them.

Corporate Governance and the Family Run Firm

Some might say that strong corporate governance is antithetical in a region where many firms are controlled by founding families or governments, but evolving market realities are changing this as well. As access to diverse funding becomes increasingly important – especially as interest rates start to rise in many large economies – a growing number of regional companies are looking to tap equity and bond markets.

Once they move to raise funds on these platforms, they are required to play by the rules of the exchange or marketplace they turn to. This is another example of how strong governance rules can contribute to enhancing corporate governance across markets in North and Southeast Asia while also contributing to profitability and shareholder returns.

Governance in the Future

Looking ahead, the next generation of corporate leaders are likely to face increasingly complex business environments. They will have to strike a balance between corporate efficiency, corporate resilience and sustainability. The trend of shareholders and other stakeholders demanding more and more in the “E,” “S” and “G” pillars is likely to not just continue but to increase. For example:

  • In the “E” pillar, sustainability, and climate change in particular, has already emerged as a key incentive for strong corporate governance. In the wake of COP26, companies are being called on to report their sustainability practices in ever more detail.
  • In the “S” pillar, diversity reporting, specifically in areas such as gender balance and pay gaps, is pushing for enhanced corporate governance in the companies of today and tomorrow.
  • In the “G” pillar, minority shareholder protections can no longer be ignored, whether by a listed state-owned giant or a small or mid-cap company. Activists are increasingly motivated by more than just profit generation when they agitate for change at the governance level.

There remains much to be done on the journey to more transparent and responsible governance across Asia and many other markets globally. Ultimately the panelists agreed that continued progress will only be possible if driven by a mixture of market regulation, corporate action to enhance resiliency and stakeholder activism from shareholders, employees and other interested parties.

The views and opinions in these articles are solely of the authors and do not necessarily reflect those of Teneo. They are offered to stimulate thought and discussion and not as legal, financial, accounting, tax or other professional advice or counsel.

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