Governance and Crisis Management
Businesses are at the forefront of building a more sustainable world. In order to help society recover from the pandemic and meet the immense challenge of climate change, companies must have strong structures in place. Corporate governance will play a critical role throughout this decade, shaping the way companies are managed and determining the effectiveness of their responses to challenges.
The integration of ESG factors into investment strategies often begins with corporate governance. In fact, investors recognize this component as the most critical extra-financial factor for financial performance.
A 2019 study by the Diligent Institute found that the quintile (1 in 5) of companies with the best governance performance in the S&P 500 outperformed the bottom quintile by 15% over two years. The study further found that "companies facing governance-related crises underperformed their industry by an average of 35% one year after the incident, resulting in approximately $490 billion in reduced shareholder value”. The study also found that companies lost $250 billion in shareholder value and underperformed their industry by 45%, on average, two years after experiencing a crisis .
Surprisingly, despite the potential costs, few executives believe their boards know how to manage a crisis. According to PwC's 2020 annual survey of business leaders, only 37% of them believe that their board of directors has a "good understanding of their company's crisis management plan" .
At StratESGy we consider it essential to link and map critical materiality topics to our clients' ERM in order to ensure consistency but also to thematize crisis management . This is part of our analysis module: www.stratesgy.com/analysis
1. Diligent Institute (May 2019) www.diligentinstitute.com/modern-governance-report