With the year drawing to a close, it is an opportune moment to reflect on the governance trends that characterized the year 2022. At the same time, it is also the ideal time to predict on what to expect in 2023 in so far as CG is concerned.
Corporate Governance Trends 2022
- Environment, Social and Governance (ESG) and Sustainability
Globally, issues of ESG have continued to dominate Board agendas of many forward looking companies. ESG, which is an acronym which stands for Environment, Social and Governance, relates to how the world impacts a company or investment, whereas sustainability relates to how the company impacts the world.
Dynamic boards have used 2022 to develop ESG strategies to complement their broader corporate strategies, while investments continue to factor ESG considerations so as to be relevant and impactful.
Within the Namibian context, ESG has been coming along over time, though not with the desired intensity. In terms of Harambee Prosperity Plan II (2021 – 2025), under Pillar 1 on Effective Governance, Goal 1: Accountability and Transparency, Sub-Item 3, the Private Sector is encouraged to subscribe to the International Environmental, Social and Governance Framework.
The Namibian Stock Exchange issued a directive in January 2022, which directed institutions that subscribe to the Namcode to establish the Social, Ethics and Sustainability (SES) Committee. The SES committee shall be responsible for, amongst other things, sustainable development, integration of ESG factors into business strategy, organizational culture and organizational practices.
ESG and sustainability issues continued to be standing issues on major boards and no longer secondary issues, a development very much linked to fundamental environmental concerns like climate change.
It is expected that ESG issues will continue to stay with in 2023 and beyond. Boards are expect to grow their ESG and sustainability skills set in order to better manage associated risks.
- Ukraine War-linked Supply Chain Disruptions
Boards had to struggle with supply chain risks linked to the Ukraine War. This had to force governing bodies to operate in a crisis management mode. Boards were in the course of 2022 expected to ask tough questions, review existing strategies and engage in scenario planning so as to withstand unforeseen shocks.
The result, in the end, was high inflation, skyrocketing oil prices, increased energy and food costs, all thanks to supply chain disruptions linked to the Russian-Ukraine conflict. The fact that Russia and Ukraine were the key exporters of sunflower oil, wheat, crude oil and maize globally, means the impact of the conflict has not spared an emerging economy like Namibia from the adverse effects of the disruption. This has therefore posed challenges to Boards in an effort to mitigate the mitigate risks posed by such a conflict.
It is expected that the Ukraine War would come to pass during 2023, however, lessons learned from the conflict as well as the Covid-19 disruptions have provided Boards sufficient learnings to deal with similar business continuity challenges in future.
- Cybersecurity
A major risk that has continued to confront Boards during 2022 is cyber security. It has become a challenging area of risk management which governing bodies could not just wish away, with global publicly disclosed cyber attacks surpassing 4100, which equated to 22 billion records exposed during the year 2022. It is worthy noting that globally there is a tendency to deal with cyber security as a major risk while locally boards have only started attending to deal with IT governance in general and cyber security issues at either audit committee level or IT steering committees, in particular.
What is even more encouraging are national level, are initiatives which are intended to deal with the matter. The Communications Regulatory Authority of Namibia has started with preparatory stakeholder engagement in order to establish a National Security and Cyber Incident Report Team, which would oversee the handling of cyber incidents in Namibia. The establishment of the Financial Industry Cybersecurity Council in November 2022, spearheaded by the Bank of Namibia, was to ensure that cyber security issues are dealt with. The council is specifically intended to serve as an effective platform through which the banking and non-bank financial sectors can facilitate discussion and operational approaches to combat cyber fraud. These two milestones have done enough to elevate the discussions of cyber security risks to boards of various organisations in the country.
It is expected that 2023 should see more Boards integrating cyber security in their risk management frameworks especially with the anticipated passing and implementation of cybersecurity law.
- Board Composition: Inclusivity and Diversity
The year 2022 has been characterized by added focus on more inclusive and diverse boards. In order to establish an optimally composed Board, there should more regard for racial, ethnic, tribal, minority, gender, cultural, knowledge, skills, experience (KSE), age and language diversity in respect of board appointments.
Leading Namibian entities continued to be optimally composed with a general adherence to the 30% Club standards. The 30% Club is a campaign group of business chairpersons and CEOs taking action to increase gender diversity on boards and senior management teams. The SOE sector has been even more impressive with strict adherence to a 50%:50% gender parity between male and female directors on boards.
It is expected that this trend would continue in 2023, with growth in diversity and further entrenchment of optimally inclusive Boards in both the public and private sectors. We should brace more for board level succession planning and establishment of nominations committees at several boards during 2023.
- Ethical leadership and Culture
The thinking that governance is about effective and ethical leadership continued to enjoy prominence in 2022. Ethical leadership is about behaviours, decisions and actions that are underpinned by values of morality, integrity, trust, fairness, transparency and honesty. The influence of the King IV code globally and regionally has ensured that ethical leadership is an integral part of major boardroom conversations.
The Namibian corporate landscape has continued to take up ethical leadership and ethics management seriously, albeit at a fairly slower pace. The private sector continued to embrace a practice of ensuring that there is full appreciation of the code of ethics and/or conduct and the living of organizational values. Certain entities in the private sector have even elevated to ethics management to a strategic function level which is geared towards actively inculcating an ethical culture. Various entities continued to introduce whistleblower lines within corporate Namibia, in anticipation for the operationalization of the national whistleblower law.
In the Public Sector, a Strategic Office was established to drive ethics and integrity initiatives across the Public Sector as well as at local authority level. Appointments of Integrity Champions have taken place in public service. The African Leadership Institute has launched a nationwide ethics campaign, which seeks to create awareness about corruption and fraud, through story telling.
These developments should serve as building blocks for more defined efforts and initiatives towards more enhanced ethical leadership conversation in boardrooms in 2023.
*Escher Luanda is the former chairperson of the Namibia Institute of Corporate Governance (NICG)
