Board members and key executives need to full embrace digital transformation (DX) to rethink, reassess and redefine the corporate DNA.
Technological disruptions used to need a much longer time to take root. It took decades for the telephone to displace the telegraph, and for airlines to display ocean liners. Then, email displaced much of the postal communications within a shorter timeframe. As the technology base improves, the time taken for disruptive services and products to be entrenched is getting shorter.
Economists and analysts point out that we are heading towards a point where economic development will be based less on ownership of valuable physical assets and more on intellectual leadership in terms of data, software, analytics and communications. They call this the “intangibles economy” where, once an organization has strong technological and intellectual clout, huge numbers of customers can be added at minimal marginal cost.
Where does the executive Board of such leading organisation fit in the scheme of things? According to a report by Deloitte, a digitally transformed organization runs largely on data and digitalized processes, doing much of its business digitally. As a result, boards may find themselves facing previously unimaginable risks. Just as the business is undergoing continual DX, so must the role of the Board: to steer the ship well and to navigate calculated risks, defining a continually evolving culture in sync with the times.
Diversity and inclusivity are no longer optional
Research shows that enhancing diversity is not only the right thing to do for corporate strategy and culture—it also leads to better business outcomes. Increased diversity at all levels of the organization, including the Board, can lead to smarter decisions.
For example, with AI gaining global adoption, the question of AI bias has become an inevitable issue. The best way to reduce bias is to ensure that the people working on those algorithms reflect the diversity of society. While this is a management role, the board must work with (not on top of) management to oversee and assess how diversity and inclusion are woven throughout the organization.
Boards are uniquely positioned to oversee and set their organization’s culture and long-term direction, but only if the composition of this key group is stable and accountable for outcomes.
Additional Deloitte research indicates that organizations with boards that actively engage with technology typically perform better financially. Does that mean the median age of Board members will need to be lower than the typical age range of 50 – 60 today? After all, relatively few of today’s leading organizations began as natively digital entities, so the visionaries and senior directors would be out of their comfort zone in the DX age now. Ironically, even the tech-savvy board members of natively digital businesses have difficulty keeping up with the pace of change! So, diversity and inclusivity in Board composition may also to be complemented by additional ingredients.
Ingredients for good DX governance
In Deloitte’s 2020 Directors’ Alert, some interesting Board trends and mandates seem to be rising to prominence.
- The need for external directors
To provide diversity and objective viewpoints, more tech-savvy experts are being roped in as external directors. However, according to Hiroko Ota, senior professor at the National Graduate Institute for Policy Studies in Japan, these external experts need to create continual tension in order to fulfill their role well. That is on top of the implicit and explicit trust that management and the Board must have; when trust and tension are in balance, truly diverse and inclusive directions and exploratory strategies can be innovated.
- Reputational impact has to be managed
Reputational risks arise from operational, financial, technological, cyber-, data privacy, regulatory, legal, sustainability, third-party and other risk vectors. A 2018 survey of 200 CEOs and 200 board members found that boards tend to be more concerned about reputational risk than CEOs are. Deloitte notes that Boards and CEOs can differ on reputational risk, but that divide must be balanced by risk sensing, agile mitigation protocols to contain incidents, and constant dialog to ensure accountable oversight.
- Rubbish in, Rubbish Out
In the 2008-2009 financial crisis, it became clear that many boards did not understand the market risks that banks’ management teams had been taking on exotic derivate products. According to Shriti Vadera, Chair of Santander UK cited in the Deloitte report, we should never allow a repeat of such board failings. The latter group must understand, interrogate and put to bear their substantial weight in controlling management to avoid manipulation, quick returns, unethical practices or misdirection of any form. When the Board does not ensure that the information given to it by management is of high integrity, then it would have failed in its duty regardless of intent and technological insight.
- Succession planning, change management are crucial
Boards are uniquely positioned to oversee and set long-term organizational culture and direction. According to Deloitte Global Board Chair Sharon Thorne, this top-level leadership must itself be ready for transformation and primed for change. Companies can no longer focus exclusively (as old-school Boards tend to do) on short-term gains and profit. A Board that is in itself inflexible, unwilling to manage change, self-serving and only hears what it wants to hear (selective hearing), may lead the organization into ruts that it cannot pull out from.
- Innovation with integrity
In the DX age, there is no escaping the sustainability, environment consciousness and other aspects of corporate social responsibilities, not even at the Board level.
Of finance, audits and smart machines
It is critical for every board member to look beyond the processes and business models that need automation or disruption. However, once this is done, board members also need to oversee the operational details and execution. Such hands-on leadership was never expected of Boards of the past (especially in large corporations), but at this point in the DX age, not even the Board must be exempted from disruption.
With this in mind, how should today’s board members guide the organisation in adopting intelligent automation? In a nutshell, a DX-native Board must:
- Understand who is accountable—Assigning accountability wrongly, or not implementing a feedback monitoring loop to ensure compliance and risk management, are real possibilities because intelligent automation now offers autonomous behavior and the power to bypass mundane (i.e. involving human-intervention) oversight
- Know which areas are off-limits—one company designated bereavement and related estate-administration functions as non negotiable when it comes to the personal touch
- Establish proper governance and controls—The lack of this vital aspect led to some major brands experiencing AI bias in their chatbots.
- Gauge the regulatory implications—Most regulatory bodies are climbing the same steep learning curve as the private sector: the onus is on corporations to be diligent in engaging these bodies and understanding what needs to be done for compliance and tracking.
- Not forget actual people—automation has meant job redesigns, retraining, reforms and cutbacks. Allowing these difficult decisions to be made based on profit goals, cost savings, interpersonal biases (at the line level), poor talent management, sexism and ageism are no longer unspoken secrets that can be camouflaged or whitewashed.
It would be a mistake to see the disruptive forces that cognitive technologies and intelligent automation have unleashed within the business environment primarily as a technology issue. At the Board level, the stakes are bigger than that, encompassing cultural, ethical, moral and reputational issues that need to be made transparent and accountable. Easier said than done, yes, but that is the spirit of disruption.