Issue #15                                                                                                   March 2020
The 2025 Board
by Professor Pedro Nueno

In my book “The 2020 Board” (2016), I anticipated a change in the nature of the boards of directors towards more professionalism; moving away from being a place of reward, or prestige, towards becoming a body of support in the design of the corporate strategy as well as the management structure of the company, and in stimulating the necessary strategic and operational changes.
How might boards look in 2025? It seems very reasonable to expect the board to continue to advance in stimulating the company’s evolution in the conditions that affect all its sectors: an increase in the speed of business, a sharp increase in the levels of internationalization (towards globalization), and incorporating digitalization in all business processes.
It's clear that this evolution will require a relevant work in adapting the role of the board to that of a corporate governance body that can facilitate and stimulate the necessary evolution of the company. This will lead to having more efficient and effective boards and will require greater preparation of the board members, the collection and distribution of the necessary information to the board members, and ensuring an effective and efficient discussion of all the relevant issues in the board meetings. As a result, changes in the board will follow: the number of board members will go down (having deep and fruitful discussions is difficult with high numbers of board members), there will be an increase in the number of and duration of board meetings, and a better quality of interaction between the board and the management team.
Good corporate governance will be difficult with fewer than eight board meetings per year, lasting less than five hours, and with the board members receiving the relevant information for the meetings less than one week before the board meeting. 
In the long term, it is reasonable that there may be as many women as men on boards, or even more women than men. In the short term, this will be difficult because the number of women occupying leadership positions in companies is still lower than that of men, and the main criteria for putting a board together must be the experience and preparedness of its directors. But when looking for the replacement of one board member for another, for example, it is important to look for the highest caliber of candidates.
Lastly, I believe that we should not expect to see many changes when it comes to the profiles of board members. A minority could be company executives (the CEO and, for example, the CFO). Others might represent shareholders. If it’s a family business, there might be family members or certain individuals chosen by the family to protect their interests. If there are financial shareholders (investment funds, venture capital firms, banks that have transformed debt into shares), they’ll want a seat on the board. And it is important that there are independent board members with a vision of what may be best for the company in the long run, although it may be uncomfortable for directors or shareholders in the short term. Independent directors are also able to appreciate the difficulties the company may face in its future given the evolution of its sector, and will be in a better position to reach the conclusion that it’s in the best interest of the company to be sold out to another company in a better situation to benefit from the acquisition. 
Finally, we see that boards are gradually being held accountable to a higher degree, and therefore it’s very important that things be done very well in the company from both a legal and a professional perspective. Business failures may also be detrimental to board members’ careers. The information they receive must be correct, and management (or company owners, for that matter) should not deceive themselves by only highlighting the positive and forgetting about the negative. Board members must ensure the appropriate auditing of the company and, if necessary, conduct an independent study that positions the company in its sector.

Pedro Nueno
Professor of Entrepreneurship
IESE Center for Corporate Governance

Corporate Governance News

Allianz pushes climate agenda forward
Allianz GI, which manages 557 billion euros as part of insurer Allianz, said it had updated its Global Corporate Governance Guidelines and will push companies to do more to manage what is “at critical risk”… read more
New Corporate Governance Code in Italy 
A new version of the Corporate Governance Code has been released. The code focuses on the following four areas: sustainability, engagement, proportionality, and simplification. Latham & Watkins LLP explains these main changes in the Code… read more
Confrontation over how much say investors should have on the companies they own
Last November 2019, the SEC proposed a rule to amend proxy advisory praxis in the U.S. Afterwards, it opened a consultation period during which opponents (Amazon employees and large hedge funds such as Third Point letter or Elliott) and supporters (CEO of Garmin Ltd., the American Chamber of Commerce, and the Society for Corporate Governance, among others) sent letters to the regulator igniting a vivid public debate… read more
Warren Buffett's reflection in his annual letter 2020 focuses on corporate governance
In his 2020 letter to investors, Warren Buffett combines his traditional comments on Berkshire Hathaway’s performance with some specific observations on corporate governance, based on his own experience having served as director of 21 public companies over the last 62 years… read more

In Case You're Interested...

Sustainability is a must for long-term strategy, according to State Street Annual Letter 

As one of the world’s largest investment managers, each year State Street Global Advisors engages in dialogue with companies about a variety of issues critical to long-term performance. This year State Street not only continues its active engagement with boards on sustainability, but also uses its proxy vote to press companies that are falling behind and failing to engage… read more

Warren Buffett’s Annual Letter for Shareholders

Berkshire Hathaway Inc. Chairman Warren Buffett releases its annual letter to shareholders with two entire pages dedicated to discussing the role of the board of directors in corporate governance… read more

The State of Corporate Reputation in 2020: Everything Matters Now

This is a study conducted by global public relations firm Weber Shandwick in partnership with public opinion consultancy KRC Research. The study surveyed executives from 22 markets around the world. The study examines what drives reputation, why it is important to be highly regarded, and the benefits that come with having a strong reputation… read more

Evidence in support of SEC proposal rule to amend proxy advise

The Society for Corporate Governance (the “Society”) supports the SEC proposal to amend the proxy voting business’s methodology, sources of information, conflicts of interest or use of standards that materially differ from relevant standards or requirements that the Commission sets or approves. More importantly, the Society conducted a survey among its members to solicit feedback on errors in proxy advisors reports. The survey results are presented at the end of the letter and support the Society arguments… read more

What Do Investors Want from Financial Reporting?

What do investors and analysts really want to learn from your financial statements? And what are their areas of focus? PwC Director Gregory Johnson joins PwC Strategic Thought Leader Heather Horn to discuss what’s on the minds of investors and to answer those questions (and more)… listen to the podcast

IESE's Recent Research on Corporate Governance 

“Disclosure Regulation and Corporate Acquisitions”

Journal article (Forthcoming)

Journal: Journal of Accounting Research
Authors: Bonetti, Pietro; Duro, Miguel; Ormazabal, Gaizka
Read summary

“Political Connections and the Informativeness of Insider Trades”

Journal article (Forthcoming)

Journal: Journal of Finance
Authors: Jagolinzer, Alan D.; Larcker, David F.; Ormazabal, Gaizka; and Taylor, Daniel J.
Read summary

“Beyond the Target: M&A Decisions and Rival Ownership”

Working paper (last revised: February 2020)

Authors: Antón, Miguel; Azar, José; Giné, Mireia; and Lin, Luca Xianran
Read summary

Upcoming Research Seminars

Distinguished research seminar

Prof. Alex Edmans, London Business School
March 23, 2020 – 12:30 - 14:00 pm
Barcelona: Q-302 & Madrid: Room 131

Upcoming Programs

Executive Program: “Value Creation Through Effective Boards”

Date: May 18-21, 2020
Location: IESE, Barcelona Campus

Visit the program website

IESE CCG-ECGI Corporate Governance Conference

The IESE Center for Corporate Governance (IESE CCG) and the European Corporate Governance Institute (ECGI) co-organized the “Corporate Governance and Ownership with Diverse Shareholders” conference, which took place at IESE's Barcelona Campus on October 25-26, 2019. The high-level event gathered the leading scholars in the field, CEOs and top executives, chairs of boards, investors, regulators, and multilateral organizations.

Check out the highlights of the conference in this video summary:

A detailed report of the conference is available here

A summary article of the event is also available here

Get access to all conference papers and discussions on the conference website (under the section “program”)
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