It goes without saying that the early 2000s were marked by a series of corporate scandals and failures that revealed the importance of corporate governance, prompting a complete overhaul and transformation of the system, like a phoenix rising from the ashes. The need to establish systems of rules and practices to better supervise corporate management and decision-making processes had become too loud to ignore. As later emphasised by the OECD in its 2015 paper “Is Corporate Governance a Magic Bullet?”, a robust governance system strengthens investor confidence and trust, attracts capital and funding, boosts economic growth, improves efficiency, and cultivates clear ethical standards and accountability — all while enhancing internal confidence and aligning the interests of employees and other corporate stakeholders.

Developments in corporate governance have evolved over time, and the need for robust governance has taken on more sophisticated forms. Corporate governance has become the driving force in addressing expectations related to innovation and technological growth, data protection and security, as well as laying the groundwork to tackle challenges such as reducing inequality and protecting environmental and human rights through ESG reporting.

In this context, team responsible for the corporate governance officer (CGO) role no longer seems to adequately meet current market needs and challenges. Administrative and purely operational tasks, such as compiling board packs, taking minutes, convening meetings, and executing documentation, are now considered the bare minimum from an operational standpoint. Therefore, poor execution of these tasks undermines the CGO role. In addition, the constantly evolving regulatory framework can feel like wading through quicksand for the corporate governing body. Therefore, market demands require that the CGO role transform from passive reaction to proactive interaction with the board and other corporate stakeholders. This transformation requires CGOs to have a holistic and global understanding, receive ongoing regulatory updates and training, and provide timely responses that enable them not only to promote, but also improve, governance systems. For example, creating an open item log and recurring follow-ups on pending issues helps to anticipate obstacles in the business activity cycle and provide board members with timely hazard alerts. In short, today’s high market standards demand governance proactivity and specialisation.

This kind of specialisation, however, requires dedicated personnel and funding, delegation of complex tasks, and increased operational overview and control by the CGO. In large corporations, such as credit institutions, insurance companies, and global management firms, the need for specialisation became apparent after the COVID-19 pandemic. Nevertheless, some reluctance remains, meaning it would be premature to take bold steps to fully allocate adequate resources and efforts toward building internal structures or dedicated teams specialising in advanced CGO matters.

However, with increasing demands from investors for specialisation and enhanced oversight, large corporations can no longer ignore this new reality. As a result, many have begun outsourcing the CGO role and corporate governance functions in general as a viable alternative.

For example, over the past three to four years, Arendt Investor Services has seen at least two of the most reputable European banks choose to go ahead with a lift out of their corporate governance departments. Several global asset management firms have also partially or fully outsourced this function to Arendt Investor Services’ dedicated department specialising in corporate governance, entrusting it with the responsibility of assisting and enhancing the governance officer role.

Schroder Investment Management (Europe) S.A. is a prime example of an organisation that decided to partially outsource the corporate governance services related to their investment fund structures to Arendt Investor Services. Keti Khukhunashvili, Senior Company Secretary of the Schroders Europe Group Governance, based in the Luxembourg office, states that:

“Asset management firms consider outsourcing CGO functions primarily to optimise their operating models and address evolving resourcing requirements. By leveraging outsourced solutions, firms can access specialised expertise and achieve greater operational flexibility, allowing internal resources to focus on core activities.”

The recent challenges faced by asset management firms can largely be summarised as the need to ensure the smooth flow of people, products, and services — all while minimising financial burden. This challenge also applies when considering whether to outsource the CGO role.

Given the ongoing shortage of skilled professionals, particularly in the Luxembourg market, the decision to outsource must convincingly respond to these challenges before firms take the bold step of allowing a dedicated external team to become more involved in areas that have traditionally operated behind closed doors.

Khukhunashvili continues, highlighting that:

“The most decisive factors when selecting a third-party CGO provider in Luxembourg are competitive pricing and proven local expertise. The ability to navigate the regulatory landscape, combined with in-depth knowledge of Luxembourg’s governance requirements and practical experience dealing with senior stakeholders, is essential to ensure a trusted partnership.”

Ultimately, corporations and firms aim to build long-lasting relationships by fostering trust between the delegated team and the on-site team. The delegated team must demonstrate proven expertise and be able to interact proactively and promptly with various stakeholders. Most importantly, they should establish strong communication with board members to ensure the board is confident that CGO-related matters — whether arising during or outside of board meetings — are being rigorously overseen.

Lastly, at Schroders, a successful outsourcing arrangement is defined by:

“Full alignment with internal policies and expectations, documented through a robust service level agreement. Regular assurance checks, clear communication channels, and defined checkpoints are crucial to building trust and ensuring the service consistently meets the company’s governance expectations.”

Consistency and trust are key to any delegated team understanding and addressing the corporate governance needs of clients. These elements should serve as a guiding light for third-party service providers seeking to enter the market and deliver advanced corporate governance solutions.

Outsourcing the CGO role can be a viable option, but only if it is executed with a focus on specialisation, proactiveness, and continuous communication. The goal must be to genuinely support corporate governing bodies, not to create additional burdens. In the near future, we can expect more opportunities that highlight the need to delegate this specialised function to experts. Third-party CGOs must be ready to meet these challenges and align with market expectations in an increasingly fast-paced and evolving business environment.

1 OECD (2015), G20/OECD Principles of Corporate Governance, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264236882-en

Find out more >https://www.arendt.com/our-expertise/investor-services/governance-services/

Maria Karekla
Director, Governance Services
Arendt Investor Services