The implementation of corporate governance technology has moved higher on corporate to-do lists amid the pandemic, and its success depends on bridging the gap between corporate boards and governance professionals.
Underpinned by a solid governance foundation
Risk management is more essential than ever for companies to remain resilient in today’s volatile and fast-changing business environment – and effective risk management can only be built on a foundation of good corporate governance.
The business world has moved on from the days of rubber-stamp boards and triplicate forms. There are now high expectations for corporate governance frameworks to deliver value, efficiency, transparency, ethics and competitive advantages. Any company that tries to meet these expectations with traditional paper-based workflows will quickly be left behind, which is why the shift to digital governance technologies has moved to the top of many corporate agendas.
Moving manual processes online has obvious advantages in terms of substantial savings in cost, time, effort, and resources. Everything from banking and supply-chain management to HR procedures and customer onboarding can be managed with a few clicks, and the era of 24/7 corporate treasury is not far away. Digitization also frees up management and employees to focus more on strategic goals.
“A company must be speedy and more dynamic in reacting and adapting to the changing world,” says Joyce Lau, Executive Director and CFO at Target Insurance (Holdings) Ltd.
The digital alarm: a three-step response
The Covid-19 pandemic has made the digital transformation of corporate governance inevitable, Ms Lau says. What was once seen as a luxury by many traditionally minded companies must now be viewed as a must-have.
“A crisis brings not only risks but also opportunities,” she says. “Covid-19 is a wake-up call that made us realize our business resilience plan was not enough, and a lot of companies reviewed their rule books and started planning for the future. For example, HR needs to plan for working-from-home and backup teams, even for management. And maintaining efficient communication among team members is more important than ever.”
Good digital corporate governance has three principal characteristics, Ms Lau says. The first is risk management. There is a “risk for everything, and the important thing is to manage it in order to create a win-win situation for all parties”.
The second is to foster a change in the corporate mindset from defensive to enabling.
The third is to use critical situations such as the pandemic to develop resilience in the board so that it can ride emerging trends and steer the company towards future success.
Obstacles on the path
Bridging the gap between corporate boards and governance professionals is frequently one of the largest obstacles in the path of digital progress. Technology adoption is fraught with risk, and when it comes to issues like data protection and cybersecurity, companies often only get one chance to get it right. This means it’s vital that the process is collaborative across the entire company structure.
“Some boards are less savvy about technology, and they may not have a positive view of change, as they are attached to traditional commercial strategies and existing business models,” Ms Lau said. “When it comes to digitization, some boards may only focus on the opportunities, while the risk and governance teams will have a greater awareness of risk management, starting from vendor selection to implementation. It is fundamental for a board to understand and have a clear perspective on technology.”
Taking digitization to the next level
Even if the ultimate technology implementation is carried out by IT experts, there are several decisions corporate boards can take to move the digitization process forward.
Identifying the ideal governance structure is a crucial first step. A centralized approach – assigning a single team to manage the digital transformation – will suit some companies better from a risk-management perspective. Other businesses may opt for decentralization; letting units make their own decisions so that employees take more ownership of the process and develop individual expertise along the way. A board should instinctively know which approach suits the culture and structure of their company.
The adoption of digital governance processes means ensuring company rule books keep pace with the changes, or businesses will be exposed to more risk.
“It is important for risk and governance teams to update the rule book,” Ms Lau says, “not just for the board but for the whole company, to make sure new procedures are applicable to front-line employees.”
Finally, all businesses will need an internal team to secure the company’s IT infrastructure and manage the transition – the ownership digitization journey cannot be outsourced.
Bridging the gap with ongoing evaluation
The process is usually challenging, and the gap between planning and execution needs careful monitoring. The answer, Ms Lau says, is a bottom-up risk assessment.
“Conducting a risk assessment can not only generate a clearer understanding of the daily risks a front-line team are facing but also be an education process for the board,” she says. “How the board sees these risks can also be an education for the front-line team, so it becomes a mutual learning process.”
Once the implementation process is complete, it’s not finished. Ongoing evaluation is just as important.
“Compliance measurement is fundamental,” Ms Lau advises. “Do a tick-box exercise to make sure you have completed everything on the list, but maintain transparency helps to identify issues that was not envisaged in the first place – the more transparent the company is to its employees, the faster and higher the response rate from its employees.”
Transparency also naturally create higher employee satisfaction. Good governance increases employee engagement, which encourages belonging, improves decision-making and lowers turnover.
Solid business sense
Whether manual or digital, good corporate governance always makes good business sense. As the world looks towards a post-pandemic future, corporate boards need to accept that a traditional manual approach will soon belong to a distant past.