The world has changed a lot since our 2020 report. A global pandemic; an ongoing reckoning on race, inequality and social justice; a climate crisis; an economic shock; and increased political polarization have created challenging dynamics for companies and boards globally.

The role of the board in managing risk and charting the course ahead is more critical today than ever before. This report delves into these wide-ranging and interlocking issues and offers insight on how directors and management must proactively embrace their stewardship roles in this brave new world. These excerpts have been edited for length in style. You can find the in-depth report here.

1. 2020 ELECTION IMPACT AND ANTICIPATED CHANGES

The 2021 Georgia Senate runoff elections resulted in a seismic shift on the federal policymaking front, cementing Democratic control of the Senate with a 50-50 divide and Vice President Kamala Harris able to cast the tie-breaking vote for Democrats. As a result, Democrats now have unified control in Washington – winning the White House and narrowly securing majorities in the House of Representatives and Senate.

While Democrats will be driving the agenda, close margins in the House and Senate will im-pact the entire policymaking landscape and likely will contribute to a robust regulatory agenda.

2. COVID-19: LABOR IMPLICATIONS

At the beginning of the pandemic, the vast majority of states implemented “stay at home” orders closing or severely restricting nonessential business operations. Over time, states relaxed these restrictions, but surging infection rates paused many reopenings, with business restrictions reimposed. Companies need to be ready to adapt to emergency state and local orders and pivot on a moment’s notice. Given the complexity and unchartered territory facing businesses in this area, it is imperative for board members to take an active role.

3. DIVERSITY AND INCLUSION

In today’s workplace, corporate social responsibility has taken center stage and is swiftly becoming a business imperative. Events such as the horrible death of George Floyd have shined a spotlight on racism and implicit bias. While stakeholder requests for diversity information are not new, the pressure is mounting as more and more companies disclose their Equal Employment Opportunity data and make public commitments to increase the representation of minorities and women. Many companies are implementing wide-ranging diversity and inclusion programs, often accompanied by public proclamations about achieving certain minority representation goals within a set timeframe. There is risk in well-intentioned efforts to promote diversity in the workforce, which may expose an employer to liability for reverse discrimination.

4. RISING PRESSURE FOR BOARD DIVERSITY

2020 was a difficult year – not least for corporate directors. In addition to safeguarding companies’ financial health, directors were expected to steer their institutions through a slow-burning health and safety emergency, a rapid lurch to virtual and remote work, and a renewed focus on social and racial justice. Furthermore, many have argued that the sole focus of maximizing shareholder returns should be supplanted by a multi-stakeholder model taking other factors into account, including environmental impact and the larger community in which a business operates. Faced with these high stakes, board diversity is more relevant than ever, and legislators and regulators are increasingly focused on the issue.

5. ESG: SPEAKING THE LANGUAGE OF INVESTORS

The onset of the pandemic increased the focus on environmental, social and governance (ESG) issues, including human capital, diversity and inclusion, and climate change. Investors and regulators want to understand the impact of the current environment and pandemic on companies and carefully review ESG disclosures, as many have identified them as critically important – although sometimes frustratingly difficult to decipher – indicators of the health prospects of a company. The need for boards to stay actively engaged continues to increase, as ESG considerations can influence all levels of company operations and increasingly call for direction and oversight from the board.

6. STAKEHOLDER GOVERNANCE

Corporate boards are tasked with setting the “tone at the top,” overseeing strategic direction, monitoring business developments, overseeing known and newly identified risks and dictating risk tolerance levels. However, in light of the dynamic dislocation of 2020, will boards continue to be principally motivated to maximize value for shareholders? We believe that boards should define their company’s mission and purpose and to weave oversight of sustainability strategy and environmental, social and corporate governance issues into the annual agenda. By harnessing a holistic approach to corporate governance, boards will be afforded the protections of the business judgment rule and will lessen the likelihood of government intervention and legislation, be rewarded with the respect of their employees and, we believe, be better drivers of long-term value creation and broad-based prosperity.

7. RISK MANAGEMENT

Given the disruptive events in 2020, it is now more critical than ever for businesses and their leadership to manage enterprise risk and to anticipate and proactively address not only risks endemic to their specific organizations, but also systemic risks in an ever-changing global landscape. Boards are increasingly delegating the risk oversight function to a committee, which means weighing the costs and benefits. In light of the riot and attack on the U.S. Capitol, boards in 2021 should be attentive to their political activity, including donations and lobbying. Moreover, boards should focus on the following risks, each of which closely overlaps with (a) corporate purpose, strategy and culture, (b) ESG, (c) stakeholder governance and activism, (d) political and regulatory changes, (e) business accountability and (f) board composition and succession planning.

8. PRIVACY AND CYBERSECURITY

As data takes on a transformational role for businesses, boards of directors must treat data privacy and cybersecurity as top priorities. The one constant in privacy legislation in the United States is change. In its first year of enforcement, the California Consumer Privacy Act shaped a new phase of privacy compliance, which will require significant organizational efforts, so companies should start now to assess the steps they need to take for compliance. Biometric privacy violations are a big-ticket risk point. If your company uses any type of biometrics – from fingerprints for clocking in to facial recognition for security – it likely has a target on its back. And directors should insist on regular cybersecurity updates to ensure that management is constantly assessing cyber risk, responding to risks unique to the industry and allocating appropriate resources to protect against intrusion.

9. TRADE CONSIDERATIONS

Last year brought an intense focus on the limitations of domestic supply chains as exacerbated by COVID-19 and notable breaches of cybersecurity by foreign nations. From stark shortages in U.S.-made supplies of personal protective equipment to the abrupt shutdown of the Chinese consulate in Houston related to allegations of spying and theft of intellectual property, 2020 highlighted significant shortfalls in the domestic supply chain. Looking to 2021, directors should expect a continued focus on the removal of Chinese technology from the supply chain of U.S. companies and government agencies and on Buy American-type preferences, investment incentives/funding for domestic production and a continued hardening of U.S. information technology assets.

10. INVESTIGATION AND ENFORCEMENT TRENDS

The change in presidential administration, new leadership at federal regulatory agencies and disruption to the economy and business operations caused by the COVID-19 pandemic all point to a dynamic period for government investigations and enforcement. While the factors contributing to the 2008 financial crisis and the resulting economic volatility are different in nature from those of the COVID-19 recession and downturn, corporate boards should look to the pattern of enforcement and oversight following the 2008 financial crisis as indicative of the type of possible government investigations that we anticipate over the next few years. Corporate boards should accept as fact that government investigations and enforcement will ramp up during and following the COVID-19 crisis.

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Photo of John Goodgame - Akin Gump John Goodgame - Akin Gump

John Goodgame is a partner with Akin Gump. He helps U.S. energy clients in strategic and capital-raising transactions. He advises public and private companies and private equity funds in initial public offerings and other public and private equity and debt offerings.

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Frank Reddick handles mergers and acquisitions, corporate finance and public company representations for clients in a broad range of industries, including media, broadcasting, outdoor advertising, apparel, engineering services, food processing, health care, hospitality, gaming and retail.

Photo of Kerry Berchem - Akin Gump Kerry Berchem - Akin Gump

Kerry Berchem is a highly recognized corporate transactional partner, with more than three decades of experience in public and private merger and acquisitions (M&A) and capital markets transactions.

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Jeff Kochian is the co-head of the firm’s corporate practice. He primarily focuses on public and private mergers and acquisitions (including private equity transactions) and other complex transactions.

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Garrett DeVries has led public equity and debt offerings, private placements, and mergers and acquisitions in a wide range of industries, including energy, retail, restaurants, infrastructure, manufacturing, aviation and finance, for more than 25 years.

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Alice Hsu’s practice focuses on capital markets and corporate governance matters, with particular experience in the energy and financial services industries. She advises boards of directors, issuers, underwriters and investors in a broad range of transactions

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Daniel Walsh represents both acquirors/investors and their targets/investees in acquisitions and investments in major markets around the world. His clients span industries including energy, telecommunications, technology, mining and manufacturing.

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Lucas Torres brings nearly three decades of experience advising public companies and their underwriters in public offerings and private placements of equity and debt securities in connection with meeting capital needs, refinancing and restructuring of outstanding debt and financing acquisitions and other strategic…

Lucas Torres brings nearly three decades of experience advising public companies and their underwriters in public offerings and private placements of equity and debt securities in connection with meeting capital needs, refinancing and restructuring of outstanding debt and financing acquisitions and other strategic transactions.