As 2014 enters its final month and the coming year looms just around the corner, it’s a good time to take a look forward, as is the long-standing tradition of this column. Some years I’ve put forth a wish list for developments I’d like to see in the coming year, but this time I’d like to go out on a limb and make some predictions about what 2015 holds for corporate governance.

For context, it’s worth noting that many elements and underpinnings of the current governance model are being challenged both by investors and their advocates, governance pundits, academics, and others. A recent piece in the Harvard Law School Forum on Corporate Governance and Financial Regulation, for example, by John Wilcox, chairman of corporate governance advisory firm Soladi, raised such fundamental questions as: Should shareholders have more power or less? Should corporate governance be director-centric or shareholder-centric? Is chronic short-termism the fault of greedy shareholders, greedy CEOs, weak boards, or others? These are questions worth pondering, even if the answers are elusive.

So, with logs burning nicely in the fireplace, coffee mug in hand, and crystal ball, tea leaves, and tarot cards close at hand, here are some of the corporate governance developments that we can expect to see in 2015.

Activists Will Ride Strong

Hedge funds and other activist investors have made huge bets, while calling for targeted companies to revamp strategies, divest major businesses, form new capital structures, turn over board seats, and accept takeover proposals. Activists are becoming more emboldened than ever, teaming with mutual funds, pensions, and other institutional investors to effect change in portfolio companies. Even proxy advisers are supporting some activist campaigns.

In 2015 activists will step up such attacks at even more companies, and also will drive actions to replace individual directors, if not entire boards, and to fire CEOs who are not producing. They will also push to increase dividends and buy-back programs or otherwise urge companies to distribute cash in corporate coffers to shareholders. Such payouts will occur even when investment analysts and other Wall Streeters say that such actions will stifle future investment and growth at the company. 

Boards of directors, already looking on with trepidation, will become increasingly agitated. They will drive new initiatives to proactively reach out to major shareholders, enhancing two-way communication to better tell their story and get a better idea of what’s on shareholders’ minds.

Despite boards’ efforts to enhance relationships with investors, however, activists with selected institutional investor partners will cause directors to get even less sleep at night, and more often than not will be successful in wreaking havoc.

Shareholders Will Achieve Binding “Say-on-Directors”

A few years ago an SEC proposal to let shareholders more directly determine who sits in the boardroom—known as proxy access—was stymied by a U.S. Chamber of Commerce and Business Roundtable lawsuit and a related court decision. Although proxy access was contained in the Dodd-Frank Act, the SEC abandoned efforts to adopt it. It did however, pave the way for what is known as “private ordering” proxy access, whereby shareholders must pass a resolution forcing individual companies to allow large shareholders to nominate board members directly on the proxy ballot. Now large state pension funds are pushing for changes to corporate bylaws allowing such power.

In 2015 activists will step up such attacks at even more companies, and also will drive actions to replace individual directors, if not entire boards, and to fire CEOs who are not producing.

In 2015 we will see significant expansion of these efforts on a company-by-company basis, with an increasing number of proposals to gain proxy access to enable those owning a specified number of shares, for a specified period of time, to nominate new directors. Managements and current boards will push back, but they won’t be able to stem the tide.

Sustainability Will Move Front and Center

Viewed as an extension of social responsibility or through a public relations lens, such topics as population growth; scarcity of energy, water, and other resources; carbon emissions and climate change; working conditions and livable wages; and other environmental and social issues have gained attention within corporate C-suites and boardrooms.

In the coming year, more companies will embrace the idea that contributing to sustainability doesn’t have to come at the expense of growing market share, profitability, and return on investment. We will see more companies recognizing these relationships and touting their efforts through public reports on sustainability achievements and related accomplishments. This will be driven not only by insightful senior management teams, but also by boards of directors, shareholders, and even alliance partners or customers.

Whatever the impetus, internal or external, 2015 will see a sharper focus on sustainability—and not only from a cosmetic or public relations perspective, but also with consideration of short- and long-term performance.

Boards’ Will Gain New Focus and Composition

Here are some additional events that my crystal ball shows will occur in boardrooms in 2015:

Boards will direct more and more attention to strategy and cyber-risk. Sure, directors will continue to try to get CEO compensation right, gain a better grasp of risks and risk-management processes, and do better at monitoring more leading than lagging indicators, but boards will be looking at strategic issues and cyber-vulnerabilities at most if not all board meetings.

Board composition will increase in importance. Directors, not being entirely comfortable with the individuals sitting next to them in the boardroom, will drive assessments of boards and individual directors and make changes to board composition. There will be greater recognition that age or term limits just don’t refresh a board quickly enough. Attention will be given to diversity, including increasing the number of women on boards. The primary focus will be on bringing individuals who will quickly add needed skills, knowledge, vitality, and value in the boardroom.

After putting the issue on the back burner for too long, boards will finally put CEO succession planning up front. More boards will give recognition to the reality that CEO turnover occurs faster than expected, for any number of unforeseen reasons. Directors will accept that CEO succession is best addressed by board focus on executive development more broadly, and will move from meeting high performers once or twice a year at or before board meetings to more sustained involvement and relationship building—accomplished through mentoring or similar programs.

The Future

The aforementioned Harvard Law School Forum piece suggests boards take a number of pre-emptive actions, including increasing board transparency. It suggests that boards should issue an annual board report—which would clearly differentiate the board’s role from management’s, describe how the board’s committees and governance policies work, and outline such matters as extraordinary business transactions, the board’s strategic vision, and why compensation diverges from standard practice. The piece calls for a number of other actions including a structured program whereby directors communicate and engage with shareholders.

Will we see such annual board reports become standard practice? No, not in 2015. Sure, there will be more outreach to shareholders, but don’t count on full-blown board reports. If and when boards ultimately do get around to it, they best not do so kicking and screaming under pressure from shareholders, but rather proactively, understanding the benefits of more timely and complete shareholder engagement. The reality is that if shareholders understand that a board is doing its job well, there’s less likelihood of meddling or worse.

So, there we have it. You now know with “absolute certainty” what the next year holds for us in governance! My only request is that you enjoy a happy, healthy, and safe holiday season and New Year. Oh, yes! And that you forget about looking back at the end of next year to see just how accurately my predictions panned out.