Political uncertainty, climate change, new technologies, social media and the impacts of globalisation create new challenges for businesses every day. There is continual growth in what falls within the scope of either regulation or the social licence to operate. To be resilient, companies need the right governance and legal structures, even though these are not alone sufficient to meet all the challenges they face.
The issues covered in this publication are ones which we think will be particularly topical this year. They all demonstrate the need to build an appropriate culture and to understand expectations of employees, society, investors or governments that are not necessarily set out in black and white. But they are also underpinned by legal obligations, risk and liabilities.
We hope boards and general counsels of UK companies will find that the issues highlighted here resonate with their own thinking. We would be delighted to discuss any of them with you.
Having a clear purpose - both aspirational and realistic - is a critical part of any organisation's success. Recent corporate governance developments mean that 2019 may be a good year for boards to consider reviewing their company's purpose. It needs to drive strategy and actions and be embedded in the company's culture.
Changes to the UK Corporate Governance Code and binding reporting regulations mean listed companies must implement and report on specific mechanisms for the board to hear and consider the views of the workforce. Choosing between the models prescribed by the Code raises fundamental issues which each company needs to consider in the light of its particular culture.
Shareholders of listed companies increasingly expect remuneration committees to use discretion when determining executive pay outcomes. However, the use of discretion involves a judgment which can be challenged by executives. Remuneration committees (and those that support them) need to be mindful of how discretions are exercised in order to avoid challenge and retain shareholder support.
New rules mean that boards of large private companies will have to report on their governance. This need to disclose internal arrangements and stakeholder engagement may prompt boards to review current practices. This will apply to many privately-owned companies, as well as to unlisted subsidiaries of listed companies.
Arguments for companies to embrace sustainability and adapt to the risks of climate change have become ever more powerful in recent years, with pressure from customers, employees, NGOs and investors. New regulatory initiatives in the EU and UK will challenge companies to properly measure and explain their impacts and risks. Boards will face investors who themselves are under pressure to be accountable for the impact of the businesses that they support.
Artificial intelligence (AI) is the latest in a long line of disruptive new technologies. It creates opportunities but also raises new challenges and broader ethical questions. The algorithms used in AI operate in a "black box" and have no common sense or ethical override. This creates new legal issues and GCs have a role to play in ensuring these are properly considered.
Boards of businesses active in M&A - whether as buyers or sellers - are facing a significant extra hurdle when obtaining regulatory approval for their deals. Governments around the world are scrutinising many more proposed inward investments on the grounds of national security, national interest and protecting strategic industries from foreign control.
If properly worded and fairly applied, confidentiality clauses still have a place in settling employment disputes. However, boards need to be clear about why, how and when they are being used.
