The governance materiality pillar focuses on shareholder’s rights, board diversity, executive compensation, alignment of compensation to company’s sustainability performance, and “matters of corporate behavior” such as anti-competitive practices and corruption. It should be noted that some Companies may interchangeably use “Governance Materiality” along the lines of CSR.
If the Board does not support governance materiality, then the Company shall be unable to work or report on it. This may spell doom for the company’s long term survival in the short to medium term as more and more stakeholders now look for ESG compliance in the Company’s reporting. Even more importantly, the Company shall face their expansion plans ‘going bust’ as fast as they envisage one. More and more JV partners now look to partner with companies that are ‘right’ on ESG.
As much as the support of the Board, the belief of employees on governance materiality too helps to a great extent. Now, more than ever, an increasing number of employees look to their organization to support ESG or be compliant. This, in turn results in increased pressure on the Boards to adhere to ESG. No more are the days where the management believed that employee buy-in is not necessary.
The factors considered by a “Governance Materiality” by a Company may differ from another company. The governance factors are no less vital. For instance, the Deutsche Bank AG identified several primary governance factors. Among them are the degree of independence of the Chairman and the board sub-committee, and information disclosure standards. It views the separation of roles of the Chairman and CEO as material. The quality of the independent directors, level of independence of Board Committees, anti-takeover measures, the equal/unequal level of voting rights (Eg: Holder of one share is entitled to one voting right), and maintenance of independent Audit Committees also are among the impacts that are material to governance.
