Debugging Digital Governance: The Future Ahead

This article is final part of Board’s Opportunities and Challenges for Corporate Governance and Sustainability and Board Committees and their Composition: Getting it Right which poses a series of questions to support thinking and discussion ahead of the 2019 London Global Convention on Corporate Governance and Sustainability.

Technology can address sustainability issues and widen participation. Digital and other disruptive technologies such as robotics and 3D printing can have multiple impacts and create both challenges and opportunities. They can enable transformation and alternative and better business models, but can also open doors to new forms of hacking. Boards that are proactive and move quickly can use them to great advantage to support new ways of working, learning, operating and building relationships. Those failing to react can suffer from alert competition or become victims of malevolent activities.

Cyber security is now a major area of risk (World Economic Forum, 2018). Are innovations and emerging technologies viewed as disruptive or as enablers? Is their progress outpacing board and corporate responses? For example, how will Blockchain affect the operation, management and governance of economies, companies and/or the Internet (Swan, 2015; Mougayar, 2016)? How boards react to the potential of ‘The Internet of Things’ and/or 5G communications will determine whether they usher in a new era of connectivity, control and possibilities, or create further arenas of vulnerability and loss of  control. Will the naivety of purchasers and users present their beneficial potential from being realised? What should boards do to protect customers and other stakeholders?

A longstanding criticism of corporate boards is that their members lack the information and time to be more effective and to challenge executive teams (Lorsch, 1989). Why is this still the case with many boards in today’s era of ‘big data’, when a mass of data, much of which is being continually refreshed, is available in ‘real time’ to those with questions to ask, and a growing variety of tools are available to analyse, interrogate and present it? Could intelligent scanning, AI and cognitive systems be combined and harnessed to enhance analysis, increase understanding, identify areas to question and improve decision making? Could performance support enable ‘new leadership’ and better board decision making (Coulson-Thomas, 2012b, 2013). If there were a genuine desire for boards that challenge, would we see a much more determined effort on the part of nomination committees to seek out individuals with explicit experience of probing, cross questioning and getting to the root causes of situations?

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How should boards ensure appropriate strategies in relation to automation, robotics and the adoption of new business and operating models? Could and will digital developments transform corporate governance? Are new forms of governance and management required for the digital-era (Dunleavy et al, 2005)? Many current organizational and governance models are expensive compared with digitally enabled alternatives. To what extent could governance itself be automated by rule based applications of Blockchain and/or AI? Would they increase trust (Mougayar, 2016)? Might they enable a community or network of relationships to grow organically and be largely self-governing with limited intervention, with stakeholders exercising voting rights as appropriate? What about relationships between actors and within them (Daily et al, 2003)? Do governance arrangements and our understanding and regulation of them need to take more account of interactions among the members of value networks?

Effective Corporate Governance for Sustainability

Traditional, single and largely standard approaches to corporate governance are struggling to cope with multiple challenges and opportunities and the diversity of possibilities offered by disruptive technologies and new businesses and organisational models. Are different arrangements required according to the situation, context, nature and scale of an entity? Might more than one governance model be required across a diverse enterprise and/or network? What form should an overall umbrella take? Could sustainability against a background of environmental pressure, climate change and commitment to the United Nations (2015) SDGs provide the unifying theme that could embrace monitoring, compliance and risk frameworks and hold a network of relationships together? Could it help to align organisational goals and ethical practices? Would this provide the responsible leadership that might start to rebuild trust with stakeholders?  Might more ethical, inclusive and principle-based forms of corporate governance emerge focused on sustainable development?

Could more effective and responsible corporate governance become the corner stone of sustainability? More boards could focus on and exercise their legal responsibilities. In several jurisdictions these reflect a concern for sustainability and are to further a company’s long-term interests or promote its success, rather than the pre-occupation with short-term performance one often finds? Not to do so favours the interests of traders and speculators, rather than those with a longer-term perspective. The exercise of corporate governance involves board decisions (Useem, 2003). Do directors need to view more matters through a sustainability lens? For example, are wider, downstream, upstream, life-time, ‘true’ and decommissioning costs being overlooked when decisions are taken (Rowe, 2016)?

What are the global trends in corporate governance that affect sustainability? Does more attention need to be devoted to collective responses, collaboration and the alignment and co-evolution of corporate and political strategies (Bleischwitz, 2004)? Should responsible board leadership go beyond strategy and policy to include a review of a company’s rationale, mission and purpose (Handy, 2002; Kempster et al, 2019)? Should boards give a lead in relation to sustainability by redefining corporate purpose, excellence, quality, performance, productivity and success in terms of sustainability considerations such as reducing environmental and resource footprints and addressing climate change? Should they champion the adoption of more sustainable approaches, paradigms, lifestyles and business models?

Navigating Risks and Opportunities in a Volatile World

Many boards need to review their strategies, policies and practices for managing risk and preventing frauds, and review the role of risk management and risk managers in an uncertain world (Coulson-Thomas, 2017c). How many boards are equipped to identify the full range of risks such as those identified by the World Economic Forum (2018) and are taking individual and collective steps to monitor related trends, assess and mitigate their impacts, address their root causes and seize related opportunities? What strategies should they adopt for managing risk and monitoring performance? How many boards also recognise that the corporate and collective activities of many companies represent a major risk for themselves, external parties including stakeholders and life on our planet (Dauvergne, 2018)? What could and should they do, individually and collaboratively, to mitigate the risks they cause for others? Might helping others to understand and cope with such risks represent a business opportunity?

Embracing uncertainty has been described as the essence of leadership (Clampitt and DeKoch, 2015). Will networks have so many connections and inter-connections and generate so much more data than can be handled by a central team, that hierarchical control of many activities will become almost impossible unless sub-networks are given much greater autonomy? In relation to cyber exposure and cyber fraud what needs to change (Leech, 2017)? Will cyber risks evolve to the extent of the possibility of digitally enabled and Blockchain and AI based networks and their governance being taken over by hackers? Are corporate internal and external arrangements, processes and systems risk-centric, learning and sufficiently dynamic and resilient to be able to cope? Will collaborative arrangements, law enforcement agencies, and corporate, national and international laws and regulations keep pace with and handle the diversity of new applications and models that could emerge?

How might corporate reporting better represent risk and performance? Is the ‘International Integrated Reporting System’ keeping pace with emerging sustainability and other risks? Does it provide the integrated global approach required by stakeholders of contemporary companies for performance monitoring and reporting, including at the levels of response required to deal with climate change and other threats? Are directors clear about their responsibilities for financial reporting (ACCA, 2017)? What changes are required in practice? Financial reporting could inhibit or enable new forms of corporate governance and relationships and a greater diversity of access to financial information (Baker and Wallage, 2000). For example, making a greater volume of information available electronically might open up opportunities for individualised searches and personalised information alerts.

Achieving Next Steps

Who should be involved in the discussion of future corporate governance arrangements? Should the aim be refinement or re-invention? What role should company secretaries, chief officers, auditors, consultants, stakeholders and regulators play? Who might best articulate and/or represent sustainability concerns and options? Do we need to better understand a range of external individuals and groups who exert influence over directors and boards, their decisions and corporate governance arrangements (Hambrick et al, 2008)? If recruitment issues continue the trend towards smaller boards, who will be the powers behind the thrones? In particular, how will additional and more varied conflicts of interest be handled?

There are so many questions and uncertainties to address and possibilities to explore that our current and inflexible approaches to corporate governance and sustainability may need to give way to more agile, diverse and fast moving alternatives that can evolve and mutate to benefit from innovation and accommodate changing responsibilities and new options. Might general guidance and principles governing conduct, rights, responsibilities and relationships replace detailed codes and rules? Whether or not this unleashes the creativity and innovation required in the time available to avert the worst consequences of climate change will depend upon today’s directors. Are they too cynical, jaded and distracted to respond, or will they be sufficiently alert, open and determined to provide inspired and responsible leadership?

Also Read: Board’s Opportunities and Challenges for Corporate Governance and Sustainability

Also Read: Board Committees and their Composition: Getting it Right