Corporate governance is attracting more attention from investors, regulators, customers, employees, and others. Stakeholders increasingly want to see businesses operate ethically, follow through on commitments to reduce negative impacts on the environment, support social programs that promote equality and opportunity, and give back to the communities they serve. This trend is exposing publicly traded as well as privately held enterprises to public pressure, regulatory inquiries, and even litigation. What these trends mean for businesses Another way to de昀椀ne corporate governance is company’s risk function was not actively seeking decision making and action that creates sustainable external insights to assess and monitor risks. value for a business’ stakeholders. In other words, The SEC is expected to 昀椀nalize several proposed good governance is closely aligned with e昀昀ective rules in 2023, including those related to risk management. For many businesses, a desire cybersecurity risk governance. Small businesses to improve their organization takes the form of will be a昀昀ected as part of the supply chain for working toward developing and implementing those large companies a昀昀ected by the SEC rules. an environmental, social, and governance (ESG) Embedding ESG initiatives is increasingly a source program. Although the “G” is listed last, governance of competitive advantage to the organizations is foundational to meeting ESG commitments. that do it well. Risks arise from perceived ESG gaps, ranging from D&O liability, to employment practices liability, to Providing a clear framework reputational damage. The Securities and Exchange from which to better understand Commission (SEC) is proposing climate disclosure ESG performance, make more rules for publicly traded companies to disclose climate exposures and increased disclosures have informed investment decisions, the potential to impact D&O risk. Even privately held and potentially negotiate better businesses are under scrutiny and expected to be insurance outcomes is a key priority. more transparent about their governance practices. Marsh’s Global Insurance Market Index (GIMI) In addition, certain investment advisors and funds shows that pricing in U.S. professional and will have to make improved disclosures about the 昀椀nancial lines of insurance, which include factors they consider and the characteristics of the D&O liability coverage, began easing in 2022. ESG focused-funds. This will likely impact investors’ This comes after double-digit rate increases expectations of the equities they invest in. dating back to the third quarter of 2019. With the 昀椀nalization of the new rules looming, D&O Across all industries, businesses should remain insurers are watching closely and it remains to be vigilant about governance and a sizable number seen whether the rate decreases will continue in might not be. For example, in a 2022 study by light of the perceived heightened exposures. PwC, 38% of corporate executives said their Business Business Business InsurInsurInsurance ance ance TTTrrrendsendsends 101010