Governance Overview for both Board and Management
Board Director Recap – SagaciousThink Governance Insight
Theme of the week: Governance is getting more regulated, more data-driven, and more political across ESG, AI, and board power structures.
1. UK moves to regulate ESG rating providers
The UK Financial Conduct Authority (FCA) has confirmed plans to bring ESG rating providers into the regulatory perimeter, requiring clearer methodologies, conflict-of-interest controls, and restrictions on staff trading. Voluntary codes will give way to mandatory regulation by 2028. Reuters
Why it matters:
ESG scores increasingly influence investor decisions, index inclusion, and cost of capital.
Regulation will pressure both rating firms and rated companies to tighten data quality, disclosure, and claims around “sustainability.”
Expect more questions from investors about how your ESG data is generated, verified, and governed.
Questions to ask:
Do we understand which ESG ratings we’re included in and how those scores are calculated?
Who internally owns data quality and narrative consistency across sustainability, risk, and investor communications?
Are we making any claims that could be seen as “greenwashing” once methodologies are more transparent?
2. Patchwork AI regulation: states and regions sprint ahead
In the US, federal AI oversight has stalled while 38 states have passed more than 100 AI-related laws in 2025, targeting deepfakes, hiring bias, transparency, and high-risk AI uses.TechCrunch
In Australia, New South Wales is pushing a bill that would regulate AI in employment, limiting “unreasonable” digital workloads and worker surveillance, while business groups warn of fragmented standards and higher compliance costs. The Australian
At the same time, multiple governance and security bodies are warning that boards are experimenting with AI without adequate guardrails and need formal AI policies, risk frameworks, and oversight mechanisms. Information Security Forum
Why it matters:
AI oversight is not optional – regulators, plaintiffs, and employees will treat AI decisions as board-level accountability issues.
Jurisdictional fragmentation (US federal vs states; EU vs UK; individual countries like Australia) creates compliance risk by geography that boards must understand.
AI touches strategy, workforce, IP, cyber, and reputational risk simultaneously.
Questions to ask:
Have we identified AI use cases across the company that is both internal and externally focused?
Who owns AI governance (policy, risk, audit, compliance, ethics)?
How are we ensuring compliance when we perform activities such as recruiting, screening, or monitoring employees using AI tools?
Are we prepared to explain our AI approach to regulators, investors, and employees?
3. UK governance code, reporting reforms, and NED pay in shares
Recent UK developments include:
The FRC’s 2025 Review of Corporate Governance Reporting, stressing concise, outcomes-based reporting and better explanations of how boards oversee risk, culture, and controls. Eversheds Sutherland
Updated guidance clarifying that paying non-executive directors in shares is appropriate for UK-listed companies, to help them compete for global board talent. Latham & Watkins
A UK government program to modernize corporate reporting, including remuneration, governance reporting, and alignment across frameworks. From Counsel Blog
Why it matters:
Investors increasingly expect story-driven governance disclosures that demonstrate how oversight actually works, rather than boilerplate code-compliance language. OnBoard
While paying Non-Executive Directors NEDs in shares provides "skin in the game," it may introduce unintended consequences with potential independence and time-horizon issues.
Questions to ask:
Does our governance report actually explain what changed because of board oversight this year?
Are our NED pay structures aligned with our ownership structure, risk profile, and investor expectations?
How will upcoming reporting reforms affect our 2025–2026 disclosures?
4. Activist pressure on Swatch: “worst-in-class governance”
US investor GreenWood Investors has publicly attacked Swatch’s “worst-in-class governance,” proposing board reforms to give bearer shareholders greater representation. Swatch’s share price has halved since early 2023, and its prior AGM overwhelmingly rejected the activist’s board candidacy, backed by the controlling Hayek family. Reuters
Why it matters:
Classic governance tensions: dual-class/control families, underperformance, and frustrated minorities.
International investors are increasingly comfortable using public campaigns to challenge entrenched governance structures.
Even small stakes can drive large reputational impact if governance is perceived as insular.
Questions to ask:
If we faced a similar campaign, what governance vulnerabilities would activists target?
How transparent are we about board composition, refreshment, and evaluation?
Is our capital and portfolio allocation story credible to both controlling and minority shareholders?
5. Public sector and SOE governance: Aruba example
The IMF’s latest Article IV consultation with Aruba highlights plans for a Corporate Governance Law to strengthen oversight and reduce fiscal risks posed by state-owned enterprises (SOEs). It stresses the need for legal, institutional, and technical reforms to improve SOE governance. IMF
Why it matters:
In many markets, the state remains a major shareholder, lender, customer, or regulator.
Governance reforms in SOEs often spill over into expectations for private issuers (e.g., transparency, board independence, risk controls).
Cross-border investors may benchmark companies against local governance norms shaped by these reforms.
Macro-trend to consider
Across these latest news articles, three global themes emerge:
Regulated governance: ESG ratings, AI, and corporate reporting are pulled into formal regulatory frameworks.
Political governance: AI, ESG, and board structure debates are increasingly politicized in ways that can compound complexity, with competing narratives from governments, activists, and business groups.
Convergence and fragmentation all at once: International standards (OECD, IOSCO, FRC, etc.) push convergence, while local laws and activism drive fragmentation. OECD (Financial Reporting Council)
SME Leadership – Practical Readiness Lens
A. ESG ratings: why you should care even if you’re not listed
Banks, insurers, and large customers increasingly rely on ESG ratings and data when deciding whom to lend to, underwrite, or contract with. Reuters
As regulations tighten, those large players are pushing ESG, and data demands down their supply chains.
What SMEs should do:
Monitor what ESG information your key customers and lenders expect from you.
Keep basic but credible data on emissions, workforce, safety, and governance.
Avoid over-promising in marketing; focus on a small number of measurable claims.
B. AI in HR & operations: hidden compliance and trust risk
New state laws (US) and proposed AI rules (e.g., NSW, Australia) focus heavily on hiring, monitoring, and performance management. The Australian
Tools like automated CV screening, productivity tracking, and AI chatbots may now have legal and reputational implications.
What SMEs should do:
Make a list of where you use AI (recruiting, performance dashboards, marketing, chatbots, etc.).
Ensure HR and legal (internal or external) understand any AI tools used in employment.
Document how you avoid unfair bias and excessive monitoring.
C. Reporting and storytelling: deliver your “mini-annual report”
Even if you’re not listed, banks, partners, and large customers are influenced by how you present governance and strategy.
SMEs should:
Create a simple (2 – 3 page) “governance and strategy overview” that explains who owns the business, how decisions are made, how you manage key risks (cyber, supply chain, people), and how you treat employees and the environment
Refresh it annually and ensure it aligns with your website/pitch decks.
D. Activism on a different scale
You may not have hedge funds to answer to, but you do have:
vocal minority shareholders,
key family members,
important customers or partners.
They can launch “micro-activism” if they do not feel heard.
What SMEs should do:
Consider holding at least one structured owner or key-stakeholder conversation per year about strategy and governance.
Document decisions and communicate the “why,” not just the “what.”
Storytelling is the name of the game, key stakeholders as looking for context as much as facts and actions. Transparency is a key theme of your story.