Friday, July 19, 2024

Digitisation: Strengthen Corporate Governance With Digital

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“There are always new, grander challenges to confront, and a true winner will embrace each one”—this famous quote holds true for every corporate. Digital business models add significant value in the form of process agility, allowing business users to work in a fast-paced, collaborative environment where they can achieve more with less. However, with all these opportunities, digital technology also brings with it several challenges in the form of compliance and security.

Corporate governance is a hot topic in boardrooms. With digital really opening out an organisation’s ecosystem engagement with external stakeholders in the form of increasing social presence, its brand needs to be protected. Reputational, legal and security risks of the enterprise magnify in a digital world where enterprise information can be accessed anywhere and from multiple devices. While the strategy, internal audit, risk and quality groups have their stakes in monitoring and improving governance, the Board has an equal stake to put together a mechanism that proactively identifies and scrutinises unpredicted risks.

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Globally, almost half a billion mobile devices and connections were added in 2016. Smartphones led a large part of that growth followed by M2M modules. Over 600 million application downloads are estimated to have taken place daily in 2016.

Interestingly, Gartner had predicted in 2016 that the demand for enterprise application development will outstrip supply by five times. Citizen development (creating new business applications for consumption by others using development and runtime environments sanctioned by corporate IT) is poised to significantly grow in the next five years. What this means is that business users across departments can develop their own applications using the infrastructure and environment sanctioned by IT. The introduction of agile development process, DevOps, service-oriented architecture, virtualisation and cloud, are all supporting the huge growth both in terms of volume and complexity in application development.

According to some recent reports, majority of the CEOs (over 75 per cent) recognise that technology is going to be a major influencing factor to drive the future of their organisation. It is probably as influential as market or economic factors.

While digital technology adds immense opportunities to create new business models and improve agility and customer engagement, it also brings with it several risks. While this is true for every organisation, the need for digital governance gets only more critical for companies that operate in a regulated market. Several enterprises are putting digital governance into their corporate agenda, which takes into consideration regulatory requirements, cybersecurity risks and implication on the brand reputation.

The old ways of addressing corporate governance may not be entirely valid in the new order. Yet, placing too many restrictions to stay overly safe from a corporate governance standpoint may not allow enterprises to fully leverage opportunities.

Enterprises have adopted their own ways to manage corporate governance. These methodologies have typically been variants of a framework consisting of the following components: creation of a digital governance model, robust delivery structure and Board restructuring.

Setting of a digital governance model

This involves creation of a flexible system to maintain accountability, roles and decision making for all the digital initiatives, taking into consideration regulatory, legal, compliance and market risks. Once in place, it forms the foundation of all digital initiatives that should conform to the stated governance model. It should be flexible for process owners initiating such a change to understand the impact and also see the output in the form of adherence to metrics in order to ensure compliance. For instance, in the case of posting online assets, this could include a set of bare minimum and non-negotiable guidelines that provide a direction based on which employees can act, thereby leading to greater process agility.

Creating a governance delivery structure

Several enterprises have created a shared organisation to work with local units and deliver various digital initiatives. While this ensures adoption of the defined governance model, it also brings down the overall costs and redundant activities. The shared unit can bring in good practices and learnings from the various initiatives they execute from time to time. Some initiatives could be corporate wide and can be executed centrally. Think of the shared unit as a boutique specialist arm for the enterprise that can potentially also act as a strategic think-tank for new business models and innovation across the enterprise. Such a shared unit model can also bring the required digital skills into the workplace and contribute to training and knowledge sharing.

Several companies have created roles of digital subject matter experts/chief digital officers, who spearhead the organisation’s digital priorities and are also responsible for execution of the governance model. They typically work with single points of contact (SPOCs) from the respective business unit, who acts as a liaison for that respective unit to interact with the chief digital officer and the shared unit.

Board restructuring

Like Louis Gerstner once said, “The real mechanism for corporate governance is the active involvement of the owners.” Over 95 per cent of corporate Boards across industries have no technology expertise. Many Board members recognise these deficiencies.

In a 2015 survey by PwC, almost 79 per cent of large company directors said that their Boards did not sufficiently understand technology. This represents a huge opportunity. Boards could be enriched with independent directors who bring significant digital knowledge and experience and who can provide strategic direction to the Board from an overall digital strategy and corporate governance standpoint. They can no longer postpone this imperative. It would also be a good practice to open more than one Board seat for such expertise, as people with specialised experience across strategy and execution will add more flavour and value to the Board. Such a Board re-composition should be done hand in hand with changes in the management structure along the lines of the digital delivery structure.

Digital governance: Key to corporate success

Digital governance requires serious work to put a structure in place, whereby nothing is left to chance. Creation of a governance model and a robust delivery structure, including an optimal Board composition, is the key to make this change happen. This needs to be combined with continuous review and fine-tuning of the delivery and execution model to keep pace with changes.

Like Jim Jones said in Business Day, “Corporate governance is not something that is put in place and then left. Ensuring its effectiveness depends on regular review, preferably regular independent review. And, in the end that comes down to the shareholders. Outside assessment and self-assessment need to be regular events.” Corporate governance in the context of digital requires its fair share of attention in driving overall growth in revenues and profitability for any enterprise.


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