Weekly Governance Overview & Key Takeaways

SagaciousThink Governance Insight, Vol. 5

Weekly Update — Week of Dec 15–21, 2025 Regions: US • EU/UK • Asia • Middle East • Africa

I'm continuing my global look at corporate governance news, what's been identified this past week, and I have expanded my focus beyond ESG. I continue to look at it from both the perspective of boards and that of SME leadership.

SECTION I — BOARD DIRECTOR LENS

Oversight, fiduciary responsibility, and agenda setting

1. Shareholder Influence, Proxy Advisors & Activism

Primary Region: US (global spillover)

What’s Happening

A new US executive order increases scrutiny of proxy advisory firms and their influence on shareholder voting, particularly related to ESG and DEI proposals. This may reshape how voting recommendations are formed and how shareholder influence is exercised heading into 2026.

Example Companies / Entities Impacted

Glass Lewis — a major proxy advisory firm whose voting recommendations influence hundreds of public companies worldwide, specifically targeted by the latest executive order. The White House

Institutional Shareholder Services (ISS) — the largest proxy advisory firm, explicitly mentioned in the Executive Order as subject to new scrutiny. Gibson Dunn

Harley-Davidson —in 2025, proxy contests saw proxy advisors (including Egan-Jones and Glass Lewis) actively recommending votes against management in contested elections. Skadden

Key Sources

White House EO targeting proxy advisors with oversight directives. The White House

Freshfields analysis on EO implications for ISS and Glass Lewis. Freshfields

Harvard Law School Wachtell Lipton overview CorpGov

Why This Matters: Boards of any publicly listed company with significant institutional ownership should pay attention; proxy voting recommendations can tangibly affect director elections, say-on-pay votes, and shareholder proposal outcomes.

• Shareholder engagement dynamics may shift materially.

• Boards could face greater direct accountability for explaining governance and ESG positions without proxy-advisor “cover.”

• Increased politicization raises reputational and disclosure risk.

Questions to Ask

• How dependent are we on proxy advisor recommendations today?

• If proxy guidance becomes less influential, how might we engage shareholders differently?

• Are our ESG and DEI disclosures defensible under heightened scrutiny?

• Do we have a clear escalation plan for shareholder proposals or campaigns?

Suggested Actions

• Refresh the shareholder engagement strategy ahead of proxy season.

• Align governance messaging across proxy, filings, and investor communications.

• Identify likely proposal themes and response playbooks.

Source

• Reuters — New Trump order reining in proxy advisers could weaken shareholder rights (Dec 16, 2025) https://www.reuters.com/legal/government/new-trump-order-reining-proxy-advisers-could-weaken-shareholder-rights-2025-12-16/

2 Executive Compensation & Pay-for-Performance

Primary Region: UK / EU (investor spillover globally)

What’s Happening: Major institutional investors are publicly pressing boards to tighten pay-for-performance alignment, warning against excessive or poorly structured incentives amid listing rule changes and economic uncertainty.

Example Companies

·       While no one definitive company dominated this week’s headlines, ISS’s 2026 proxy policies are already updating pay-for-performance frameworks that affect firms worldwide. Skadden

Too much, too soon, for too lonh - Paper on Competitive CEO Pay - CorpGov

Why It Matters: This kind of policy change — which influences how advisory firms evaluate executive pay alignment — will directly affect most large and mid-cap companies seeking shareholder support over compensation proposals.

• Compensation committees are becoming a front-line governance risk.

• Misaligned incentives can trigger investor votes against directors, even in otherwise strong performance years.

• Disclosure quality is now nearly as important as pay outcomes.

Questions to Ask

• Can we clearly articulate how incentives reward long-term value creation?

• Would our pay outcomes withstand scrutiny in a down year?

• How do incentives align with risk management and controls?

Suggested Actions

• Stress-test incentive plans under multiple performance scenarios.

• Tighten narrative disclosure linking pay to strategy and outcomes.

• Ensure compensation discussions are coordinated with risk oversight.

Sources

Financial Times — Fidelity urges UK chairs to clamp down on executive pay (Dec 21, 2025) https://www.ft.com/content/64d06363-d8ac-40f1-bcf7-842b5fa333a5

3. AI Governance & Technology Oversight

Primary Regions: Middle East, EU/UK, Global

What’s Happening: AI adoption is accelerating globally—particularly in regulated sectors—while regulators and investors increasingly expect boards to oversee AI risk, ethics, and controls as part of fiduciary duty.

Example Companies / Sector Patterns

· Fortune 100 firms are increasingly citing AI as a board oversight responsibility, implying that companies like JPMorgan Chase, Microsoft, and Pfizer (reported broadly in disclosures) are elevating AI risk in board reporting. Corporate Compliance Insights

·       Global legal and technology disclosure analysis shows AI and cyber oversight is doubling in prominence across companies with digital footprints. EY

Why It Matters: These examples show that major enterprises in financial services, tech, and pharmaceuticals are already building disclosure and board oversight mechanisms around AI; something smaller companies will soon need to match or explain.

• AI is shifting from an innovation topic to a governance and liability issue.

• Boards are expected to know where AI is used, how decisions are reviewed, and how risks escalate.

• AI risk intersects with cyber, data privacy, employment, and reputation.

Questions to Ask

• Where is AI used across the enterprise today?

• Which AI use cases pose material risk?

• Who approves, monitors, and can halt AI deployment?

• How do we test AI outputs for bias or error?

Suggested Actions

• Assign formal AI oversight (committee or full board).

• Require an enterprise-wide AI inventory and reporting cadence.

• Integrate AI into ERM and internal controls discussions.

4. ESG & Sustainability (Post-Rollback Reality)

Primary Regions: EU/UK (global supply-chain spillover)

What’s Happening: The EU has scaled back or delayed elements of sustainability reporting and due diligence rules. However, investors, customers, and lenders continue to demand credible ESG data.

Example Companies

Unilever, Nestlé, and BP have been prominent in past reporting and investor campaigns around ESG disclosures, which are sensitive to changes in reporting mandates (even if this week’s example was about EU scope rollback). (Note: these companies are just examples; similar disclosures are widely reported.)

Why This Matters for Boards: Changes in regulatory demands around sustainability don’t remove investor expectations. Boards of large multinationals like those noted above must communicate consistent, credible data to capital markets and supply-chain partners.

• Reduced regulation does not reduce stakeholder expectations.

• Boards face risk if ESG statements are not supported by data and controls.

• Supply-chain exposure remains a material governance issue.

Questions to Ask

• Which ESG metrics truly inform our decisions?

• Can we stand behind our sustainability claims if challenged?

• How is ESG data governed and assured?

Suggested Actions

• Clarify ESG priorities that are strategic, not symbolic.

• Focus on data quality and decision usefulness.

• Align ESG oversight with audit and risk committees.

5. Governance Maturity & Board Composition

Primary Regions: Asia / Global SMEs

What’s Happening: Growth companies are expanding boards and formalizing governance to support strategy, capital access, and risk management.

Example Companies

• Drishti Group (an SME example) expanded its board to strengthen governance and leadership for strategic growth. AdTechToday

Why This Matters

Both large and small companies benefit from mature governance codes; the Drishti example shows how SMEs with growth ambitions are formalizing boards in response to capital and operational demands.

• Static boards become misaligned as complexity grows.

• Skills relevance now matters more than tenure.

• Governance maturity is increasingly tied to valuation and credibility.

Questions to Ask

• Do our (director) skills match the company’s risk profile and strategy?

• Are board processes scaling with growth?

• How effective are our evaluations and refreshment mechanisms?

Suggested Actions

• Update board skills matrices.

• Refresh charters and committee scopes.

• Use evaluations to drive real change.

• Identify triggers for board reviews and refreshes.

SECTION II — SME MANAGEMENT LENS

Execution, preparedness, and commercial impact

1. Shareholder & Investor Expectations

What This Means for SME Leaders: Even private companies feel the impact through investor diligence, customer scrutiny, and reputational expectations.

Example Impact

Smaller public companies that face contested elections, such as Harley-Davidson (referenced proxy advisor activity affecting director votes), show how governance can become a tactical issue even outside the mega-cap context. Skadden

SME Implication

If SMEs pursue public capital or significant institutional investment, governance frameworks (director nomination, engagement narratives) become critical to investor confidence.

Actions to Take

• Prepare a concise governance fact pack (board composition, policies, controls).

• Ensure ESG and DEI statements align with actual practices.

2. Compensation & Incentives

What This Means for SME Leaders: Poorly explained incentives create morale issues, which manifest in turnover and investor concern. Companies adjusting compensation policies ahead of proxy advisories (e.g., Fortune 500 adjusting equity structures per ISS policy updates) show that thoughtful pay design is material and cross-sector. Skadden

SME Implication: Similar logic applies to SMEs seeking scale or investment; incentive clarity and defensible pay design matter to investors.

Actions to Take

• Document incentive logic and performance criteria.

• Align rewards to growth, quality, and risk discipline.

Questions SME Leaders Should Ask Their Boards

• What do they see in their own companies and other boards?

3. AI Adoption & Risk

What This Means for SME Leaders: AI governance increasingly appears in customer security reviews, enterprise sales, and financing diligence. Surveys indicate ~72% of large U.S. companies report AI risk in public disclosures, up from ~12% two years prior. These numbers highlight the breadth of AI governance concerns across sectors. The Conference Board

SME Implication: Even SMEs that use AI tools indirectly (in risk assessment, marketing analytics, or customer service) should prepare governance frameworks; this trend is not limited to Big Tech.

Actions to Take (at a minimum)

• Inventory AI tools and use cases.

• Draft an AI use policy.

• Identify decisions requiring human review, and how that takes place.

• Find expertise to help the firm prepare for implications.

Questions SME Leaders Should Ask Their Boards

• Which AI uses or thresholds require board visibility?

4. ESG & Sustainability

What This Means for SME Leaders: Even if not legally required, ESG data is often commercially required. Major global companies (Unilever, Nestlé) illustrate ongoing investor and customer scrutiny on ESG claims that persist even as regulatory requirements shift.

Actions to Take

• Identify what metrics align with the company’s vision and values

• Create a one-page ESG fact sheet.

• Track a small number of credible metrics.

• Ensure there is no “green” washing

• Implement basic supplier screening.

Questions SME Leaders Should Ask Their Boards

• Which ESG metrics matter for deals and customers?

• How much documentation is “enough”?

5.  Governance & Board Effectiveness

What This Means for SME Leaders: Strong governance improves decision quality, credibility, and resilience. The Drishti Group board expansion shows SMEs evolving governance in response to strategic growth. OnBoard

SME Implication: This type of maturity progression improves capital readiness and operational resilience.

Actions to Take

• Clarify decision rights and escalation paths.

• Refresh board charters and operating rhythms·

What Boards Should Take Away This Week

1. Process is now protection
   Courts, regulators, and investors are scrutinizing how decisions are made — not just outcomes. The Tesla compensation ruling is emblematic of this shift.

2. Delegation without visibility is no longer safe
   Topics once assumed to be “management issues” (AI, culture, ESG data, cyber) are now squarely within board oversight expectations.

3. Independence must be real, not symbolic
   Independence of thought, challenge, and process matters more than formal definitions or tenure rules.

4. Reduced regulation does not mean reduced expectations
   Even where ESG or disclosure rules are rolled back, stakeholder expectations persist — particularly from investors, customers, and supply-chain partners.

5. Governance maturity is becoming a valuation lever
   Strong governance is increasingly associated with resilience, credibility, and capital access — especially for growth companies.

What SME Leadership Should Take Away This Week

1. Governance is now a commercial issue
   Customers, investors, and partners increasingly ask governance questions early — not just at IPO or exit.

2. “We’re too small” is no longer a defense
   AI use, compensation design, ESG claims, and board effectiveness are being examined regardless of company size.

3. Clarity beats complexity
   SMEs don’t need heavy governance — but they do need:

   • clear decision rights

   • documented rationale

   • visible oversight

4. Boards want management to surface risk — not hide it
   The most effective leadership teams proactively bring governance tensions to the board and ask for direction.

Key Takeaways by Ownership Model

• VC-backed companies:
  Founder-centric governance must mature earlier to support scale, enterprise sales, and later-stage capital.

• PE-backed companies:
  Governance discipline protects value creation and reduces exit risk — especially around compensation, controls, and AI/cyber.

• Family-owned enterprises:
  Trust-based governance must be complemented with formal process to protect reputation, continuity, and succession.

Bottom Line for the Week

Good governance in 2026 is no longer about policies and checklists — it’s about disciplined decision-making, credible challenge, and visible oversight.

Boards that cannot demonstrate how they govern will increasingly be judged as if they did not govern at all.