A Call for Transparency Amid a Shifting Legal and Regulatory Landscape

The big picture: The increasing complexity of the legal and regulatory landscape is challenging the board’s fiduciary duties. Emerging trends ushering in a call for fairness and transparency should be of paramount importance to directors. Boardroom agendas cover an array of topics but no matter the issue, there are important underpinnings to board oversight and governance.

  • Duty of care requires directors to make decisions pursuant to the corporation’s interests with the diligence and prudence expected of a reasonable person.
  • Duty of loyalty requires directors to place the company’s and shareholders’ interests before their own.
  • These responsibilities necessitate a proactive commitment to establish appropriate goals and strategies, relevant metrics and measures, and effective performance-monitoring disciplines. These actions engender confidence and trust in the marketplace.

Why it matters: Stakeholder expectations and reliance on voluntary and obligatory disclosures are increasing. There are signs that legislators, regulators and the plaintiffs’ bar are gearing up for action.

By the numbers: There are important trends contributing to a shifting legal and regulatory landscape. They fall under 3 categories:

  1. Legal — Includes evolution of the Caremark standard, escalating books and records exposure.
  2. Regulatory issues — Includes heightened scrutiny and enforcement, expanded disclosures to investors, proliferating data privacy laws.
  3. Litigation — Includes civil actions resulting from cybersecurity and data breaches, D&O exposure, shareholder derivative suits.

The bottom line: There are actions boards can take to shore up their governance and oversight in light of these trends.

  • Today’s dynamic legal and regulatory landscape points to a vital message: Trust is an essential element of an organisation’s success and reputation.
  • Trust is earned through setting and articulating credible goals and strategies, establishing accountability for results, and emphasising fairness and transparency in market-facing communications.
  • The rise of stakeholder capitalism makes it important for boards to prioritise building and maintaining trust in their decision-making and communications with management.

Go deeper. Read more here, including 10 examples of key trends as well as diagnostic questions for directors that provide a framework for them to consider as their boards facilitate discussions with management, including the general counsel.

(Board Perspectives — Issue 163)

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