This article has been written by Usha SP pursuing an Executive Certificate Course in Corporate Governance for Directors and CXOs from Skill Arbitrage.
This article has been edited and published by Shashwat Kaushik.
Table of Contents
Introduction
An organisation has multiple stakeholders that are interested in the performance of the company. The stakeholders of the company include its shareholders, directors, employees, customers, vendors and different regulatory authorities. Each of these stakeholders is interested in different aspects of the company, while their common goal is the splendid performance of the company. This is where the board steps in to play a critical role in mentoring and guiding the company to improve its performance. The board has the difficult job of balancing the interests of its different stakeholders. On the one hand, they will have to ensure increased market capitalisation and growth to benefit the shareholders who have invested in the company. On the other hand, they will have to ensure that the company deploys ethical means and methods to add value and comply with all regulatory requirements. They will also have to cater to the expectations of other stakeholders, such as employees, customers and vendors, who would expect an overall great experience while working with the company. The board, consisting of its directors and key personnel, will have to get into the details to understand the key metrics of the company, its growth and trend, its control measures, and its proper and accurate compliance to be able to oversee, review and deliver the right mentorship to the company. Governance plays a key role in moulding and stitching together the outcomes of the efforts of multiple stakeholders in the organisation.
Why is board governance a critical function
For the reasons explained above, the function of board governance has to be agile yet critical and effective. It should be simple yet powerful. The key team that monitors board governance is also small with fewer resources, as in the case of all senior positions. Performing more with fewer resources is a challenge, particularly given that the expectations from the multiple sets of stakeholders are diverse and increasingly competitive. Regulatory functions are also critical, with the number of regulators and compliance itself becoming increasingly high, voluminous, and complex. Managing governance in an effective manner with stringent and robust compliance mechanisms while still performing to deliver great results makes the scope of board governance critical.
Why is it challenging
The board may have all the good intentions to deliver great results, but these become hard to achieve in the light of the on-ground realities. The key challenges faced by the governance team, in addition to the shortage of resources and managing the high expectations of its stakeholders, are the availability of data itself. Data that is made available is either unstructured or incomplete at times.
The other challenges include a lack of clear documentation of the rationale behind key decisions and the correspondences that led to key decisions, lack of transparency, conflict of interest, lack of effective collaboration among the internal teams/ stakeholders of the organisation, diverse reporting requirements by regulatory authorities, proper tracking and closure of critical issues identified by governing teams, monitoring and addressing the root cause of problems and implementing suggestions and solutions.
Different organisations could have different on ground challenges based on the sector in which they operate, the relevant regulatory landscape, the legal requirements ecosystem, the operational issues and various other business challenges. Broadly, the reasons for increased complexity are as follows:
Reliance on external consultants
Organisations generally rely on external consultants for independent analysis or views. They seek their help on issues where the law is either prone to diverse interpretations or where they need to outsource some part of the work due to a resourcing crunch. The views provided by external consultants are, at times, not properly documented/ stored, leading to a lack of relevant information at a later date.
Unstructured data
Data that is not properly structured is hard to analyse as information gets unwieldy and messy, making it cumbersome to break down in the form and manner that it is needed for critical analysis. Also, the source of such data must be reliable and factual. Subjective data obtained from opinions, perceptions or experiences is hard to compare with analytical rigour.
Lack of continuity among key personnel
Senior decision makers of the organisation may be unavailable either due to rotation or retirement. This leads to a gap in communication where the new team finds it challenging to understand the why and how of certain decisions. This leads to either a slowdown of the mechanisms, where the teams have to again check in on the previous details, or build completely new ones that ensure business continuity and, at the same time, align with new solutions.
Risk management
Companies are exposed to the risk of underperformance where there are no proper mechanisms to reduce costs, monitor opportunities to increase revenues, and identify and manage potential areas to optimise and perform better. The absence of risk management tools and techniques again slows down decision-making by the governance teams.
Manual compilation of information, decisions or data makes it hard to prioritise critical issues to be addressed on a priority basis. It also does not provide a holistic view of different situations, as information is generally scattered among different teams or, at times, is not available.
What are the benefits of leveraging technology
Among other things, leveraging technology has the potential to overcome some of the challenges mentioned above. Technology, when built to suit the needs of the organisation, helps governance tremendously in the following manner:
Speed
Technology reduces repeated and routine activities, thereby saving critical time with reduced efforts. Governance can rely on data-driven technology and metrics to increase the speed of analysis. There were days when data had to be plotted either physically or with minimum technology, such as Excel sheets. Today, advanced technology has made it possible to track and crunch data faster, thereby helping in getting metrics easily.
Faster communication among decision-makers is also possible with the use of technology. Methods such as internet based calling, meeting scheduling techniques, recording minutes of meetings and information gathering techniques have enabled faster decision-making.
Agility
Modern day corporations have to deal with change on a daily basis. Evolving regulatory and business environments make it necessary for businesses to be consistent with their core principles and, at the same time, adapt to changes quickly. Agility is possible with technology.
None of us would imagine what an organisation would be going through if they were unprepared for key regulatory changes such as the implementation of GST, data privacy regulations and multiple implementation changes on the ground, which are fluid and sometimes based on stakeholder behavioural trends and patterns. Being agile provides comfort to board governance teams as they monitor and ensure that critical regulatory and business situations are handled based on evolving trends.
Collaboration
Businesses, unlike in the past, are spread out geographically. Leaders perspectives could be insightful yet different from each other. The use of technology helps bring key governance members together in a more collaborative manner to debate and discuss issues to arrive at a decision.
Accuracy
Technology enhances accuracy with tools and systems that are able to capture data or process information as per the requirements of decision makers. It also supports the much-needed accurate research results or inputs, tracks key metrics such as time and date of key business trends, builds business intelligence reports, etc. Governance based on accurate information helps make better informed decisions.
Monitoring
Businesses are moving at warp speed, making it hard for decision makers to notice and monitor change. Technology helps monitor trends, thereby providing input to governance teams to work on the dynamic prioritisation of decisions.
Other benefits:
- Enhancing communication and collaboration:
- Board portals serve as centralised, secure platforms for directors to access meeting materials, agendas, and minutes.
- Real-time collaboration tools enable directors to engage in discussions, annotations, and voting remotely.
- Video conferencing and webcasting allow directors to participate in meetings virtually, increasing accessibility and inclusiveness.
- Streamlining decision-making:
- Voting systems integrated with board portals facilitate efficient and transparent decision-making processes.
- Directors can cast votes securely and track progress on resolutions, ensuring timely actions.
- Risk management tools assist boards in identifying, assessing, and mitigating potential risks.
- Improving transparency and compliance:
- Automated compliance monitoring tracks regulatory changes and alerts directors of potential non-compliance issues.
- Secure document storage and version control ensure easy access to historical documents and maintain an audit trail.
- Disclosure management tools help boards effectively communicate with shareholders and stakeholders.
- Enhancing director engagement:
- Digital training modules provide directors with continuous access to educational resources, enhancing their knowledge and skills.
- Personalized dashboards offer directors tailored information, such as upcoming meetings and action items.
- Director evaluation tools allow boards to assess their effectiveness and identify areas for improvement.
- Facilitating risk management:
- Risk assessment software helps boards identify and prioritize risks, enabling proactive risk mitigation strategies.
- Incident response plans can be easily accessed and shared among directors in the event of a crisis.
- Cybersecurity tools protect sensitive board data and prevent unauthorized access.
- Encouraging data-driven decision-making:
- Data analytics tools provide insights into board performance, meeting effectiveness, and director engagement.
- Directors can analyse trends and make informed decisions based on data-driven insights.
- Performance dashboards track key metrics and allow boards to monitor progress towards their goals.
- Driving innovation and agility:
- Technology enables boards to adapt quickly to changing market conditions and emerging trends.
- Digital tools facilitate strategic planning and scenario modelling, allowing boards to explore different options and make informed choices.
- Boards can collaborate with external experts and stakeholders through virtual channels, leveraging diverse perspectives.
By harnessing technology, boards can enhance their governance practices, improve decision-making, and adapt to the ever-evolving corporate landscape.
Tools that can help governance
Data management tools
Large, complex and multi-layered data is unwieldy to handle and does not help in decision-making as it makes it messy to prune the voluminous data to make it relevant. Software tools that help store, organise and provide access to important data, policy manuals, business intelligence reports, records, dashboards, snap reports, trend reports, pivot reports, etc, aid in quicker decision-making. These tools help crunch complex data, prioritise and provide interactive reports to enable key decision makers to have the information they need for decision-making
Scheduling tools
Tools that aid in scheduling meetings, recording meetings, and interactive conversations through messaging services help in ensuring that key stakeholders are available and aligned on decisions. These tools help bring people together, collaborate, interact and take back follow-up actions.
Monitoring tools
Tools that aid in monitoring outcome of meetings, organising key outcomes of meetings as actionable or non-actionable, prioritising one over the other, providing ageing analysis and monitoring action items for future discussions help board members focus on key items.
Budgeting tools
Tools that help provide overall budget tracking, spend analysis, backup documentation, time period wise analysis across segments, businesses, etc. help in building controls as necessary to manage expenditures.
Finance and audit committee tools
Tools that help track findings of finance and audit committee reviews, compare it with findings in other businesses or geographies and monitor building control mechanisms around findings provide confidence to decision makers and board members on governance aspects.
Board management tools
Keeping all board data in an organised manner as a full package helps board members pull out relevant data for future reference. It also helps them verify any past decisions, reference them for future needs or mark them down for further action. These tools should be secure, consistent and confidential, providing reliable information for easy access. Such tools reduce reliance on external consultants or company secretaries while ensuring that information is available whenever needed.
Challenges in implementing technology
Despite the benefits, there could be certain challenges in implementing technology. Board members could show resistance to adapting to new technology due to a lack of prior exposure. There could be a learning process in adapting to new technology, which has the potential to slow down decisions during the learning phase. This could lead to organisational resistance as well. Budgets are another area of concern, as investing in technology involves substantial capital. Organisations could also be sceptical of the ROI of high investments in technology.
Conclusion
Overall, technology is a game changer for board governance mechanisms. It helps increase transparency, promote accountability and improve the speed and quality of decision-making. It helps board members significantly in performing their duties to the expectations of the diverse group of stakeholders that rely on them for the effective functioning of the company. Challenges, though unavoidable, can be overcome by educating the organisation and its key members of the advantages of technology. Awareness and adaptation sessions play a key role in guiding the members about the usage of technology. Handholding and support during the initial phases of implementation will enable a smooth transition. Technology is the future, which will leapfrog an organisation’s growth and performance. It is, therefore, imperative that organisations implement it to their advantage.
References
- https://www.boardeffect.com/wp-content/uploads/2015/06/NPQ_FieldGuide_R7.pdf
- https://boardoutlook.com/theresolution/three-ways-boards-are-leveraging-technology-to-drive-high-performance
