2019 Clusters; 2020 Trends – Technology, Growth & Designing ESG

In 2018 Fidelio researched how leading Chairs were preparing their Boards for disruption, and in 2019, the pace of that disruption picked up. Technology continued to drive rapid evolution of business models, while the focus on Environmental, Social and Governance (ESG) sharpened: if climate change was not on the agenda in 2018, by the end of 2019 it was near the top.

For Fidelio, 2019 has been a busy year in the UK and internationally. Through Search, Evaluation and Development we’ve supported Chairs and CEOs internationally to build effective Boards and leadership teams. Further developing the 2018 theme of disruption, in 2019 Fidelio saw assignments predominantly grouped into two clusters:

  1. Technology, Governance and Growth
  2. ESG beginning to bite

In both these clusters shareholder and stakeholder expectations for business leaders are changing sharply. Fidelio works with Chairs and CEOs to understand and respond to the implications and we set out below some highlights of our assignments and thought leadership in both clusters. We also conclude with nascent trends for Board and Executive teams in 2020.

Technology, Governance and Growth

  • Disruptive technology creates opportunity, and this has been pronounced in the FinTech sector where new businesses are challenging incumbents in banking, insurance and asset management. During 2019 Fidelio supported leading FinTechs with international footprints in building highly effective leadership teams. Our Search activity covered a broad range of senior executive roles critical for investors and regulators, enabling the organisation to continue on a high growth trajectory. Nor was the emphasis on growth confined to the Executive: Fidelio explored with leading Chairs and Audit Committee Chairs the Board’s contribution to “FinTech, Governance and Growth” and how FinTechs best develop an effective governance framework.
  • Innovation is a driver of growth in technology and Fidelio is seeing Chairs become much more alert to the Board’s contribution to innovation. Reflecting this challenge for Chairs, Fidelio was pleased to welcome Xavier Rolet, former CEO of the London Stock Exchange. During his tenure, the LSE stock market value grew from £800 million to £14 billion, and Xavier was well placed to contribute to a Board Breakfast exploring “The Board and Innovation”.
  • The Technology Skills Gap in the Boardroom continues to be a challenge for Nomination Committees, and Fidelio has been actively developing a pipeline of prospective Board Directors who can speak and understand both the language of technology, and that of the Boardroom. In this vein, Fidelio was delighted to address the Gartner Security & Risk Management Summit in London; our theme was “Building Boards Fit for the Future: The rise of the CISO”, reviewing cyber competence in the Boardroom and the route to the Board for CTO and CISOs.

Environmental, Social, Governance…Beginning to Bite

  • While the environment was barely mentioned in Fidelio’s 2018 survey on “The Chairman and Disruption”, by the end of 2019 climate change and environmental responsibility were firmly on the Board Agenda. Reflecting this Fidelio hosted our third Audit Committee Chair Roundtable; leading FTSE Audit Committee Chairs flagged the challenges and the value of TCFD reporting, including the identification of business model risk. The rise of green finance has also been an important strand of Fidelio’s advisory with Chairs, CFOs and IROs. And we have also been proud to be actively engaged with Chapter Zero, supporting UK Board Directors to ensure that climate change is given proper attention on the Board Agenda. If you are a UK Director and have not yet joined, please do so.
  • Increasing diversity and enhancing Board effectiveness remain high on Fidelio’s agenda. We were delighted to have been recognised by the Hampton-Alexander Review for the third year running for our contribution towards achieving gender balance on Boards and leadership teams in the category ‘Beyond FTSE 350’. Fidelio’s flagship “A Seat at the Table” Board Learning Programme for Senior Executives and Directors is also core to our contribution to diversity and reflected in our accreditation. Participants graduate from the Programme with a clear grasp of the Board’s role in promoting diversity. We will host the eighth iteration of the programme in March 2020. Fidelio’s focus on Board diversity extends beyond the UK and we continued our very successful close look at progress two leading European markets with our seminar “Die Frauenquote – An Update on Diversity in German and UK Boardrooms” co-hosted with CMS in Stuttgart. The UK and Germany face similar challenges but have adopted two very different approaches.  We’ll be hosting the fifth seminar on 13th May 2020 in Cologne.
  • The scrutiny on Boards is increasing. Fidelio contributed to ICSA’s “Review of the effectiveness of independent board evaluation in the UK listed sector” as well as conducting Evaluations in the FTSE 100 and 250 and with an international focus. In addition, we have supported clients with bespoke peer learning programmes. Peer learning also underpins Fidelio Board breakfasts on current Board topics including:
      • Fidelio’s third Audit Committee Chair Roundtable included discussion of the audit market review by the CMA, as well as the likely recommendations of the “Report of the Independent Review into the Quality and Effectiveness of Audit” by Sir Donald Brydon CBE. Now published, this calls for far-reaching changes to audit, the creation of a specialist audit profession, and new reporting obligations for directors: no shortage of agenda items in 2020!
      • The hottest Board seat continues to be the Remuneration Committee Chair and earlier in 2019 Fidelio was pleased to host a Board breakfast, “RemCo Chair – The Hot Seat” with Ruth Cairnie, Remuneration Committee Chair of Associated British Foods and Chair of Babcock International.
      • The 2018 Corporate Governance Code also shines a spotlight on the people agenda and in October 2019 we were delighted to welcome Pauline Van der Meer Moor, Remuneration Committee Chair of HSBC, to explore “The Board and the People Agenda” and add granularity to what may mistakenly be seen to be a soft subject. Earlier in the year Fidelio also explored the codes new requirement for employee engagement at Board level with a breakfast on “Employee Representation/Board Engagement with the Workforce”.
      • And finally, Fidelio co-hosted a panel with the HBS Club of London on “What the Chair Wants from His/Her Board” where we were joined by five leading FTSE chairs.
  • ESG will inevitably require a higher level of shareholder engagement on the part of companies at both Board and executive level. ESG will also put increasing demands on IR but is equally an opportunity for the profession. Fidelio’s roots are in shareholder engagement and we both advised clients and explored through thought leadership what good looks like:
      • Key aspects of Information Flows between companies and investors remains in flux with the unintended consequences of MiFID II combining with the rise of passive investment: this is putting unprecedented pressure on corporate Investor Relations functions, and our IR Search and Development capability has been much in demand.
      • Formal reporting requirements for companies are also increasing, and 2019 brought a new UK obligation to provide a statement under Section 172 (1) of the Companies Act.
      • Investor Activism is another driver of change in governance as the investment landscape undergoes rapid changes. During the year Fidelio continued to see the rise of activism. We also hosted a Board Breakfast “Engaging with Active Shareholders” with Harlan Zimmerman, Senior Partner at Cevian Capital, and Cas Sydorowitz, Global Head of Activism & M&A at Georgeson, enabling Boards to understand the activist perspective.

Fidelio Sees Two Clear Nascent Trends for 2020

  1. Technology will disrupt but regulators and legislators will continue to curb that disruption. The companies that get ahead will have Boards with deep sensitivity to the regulatory environment but simultaneously allow management to innovate and grow. This requires specific skills at Board and Executive level, and we look forward to supporting technology companies across a range of sectors in building and developing that competence.
  2. ESG needs design. Investors are still fragmented in their approach to ESG and there is as yet no common framework for evaluation: to date rating agencies have to date failed to co-ordinate. Companies that move ahead of the curve will be building ESG competence into Board and Executive Committee skill matrices. Fidelio looks forward to supporting Chairs define and attract the Board level capability to engage strategically with shareholders and stakeholders, including demonstrating climate change competence. And at Executive level we are already seeing the importance of ESG design across the IR, finance and communications departments.

Fidelio would be pleased to support you and your company in the year ahead. To learn more about our Search, Evaluation and Development capability, please contact Gillian Karran-Cumberlege.

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