The Digital Age brings unpredictable and sudden changes to organizations. Board structures and governance processes built in the Industrial Age are being gravely challenged in dealing with new realities from the Digital Age. Here we look at the six key factors driving the need for change and explore Board characteristics that need to adapt accordingly.
Corporate governance has existed for centuries, but truly came of age after World War II. Since then, many of the developments in corporate governance have been driven by corporate scandals and the accompanying legislation. While this ‘bandaid’ approach has worked for the past 60 years, it is creaking under the weight of new and different demands, emerging from the advent of the Digital Age, and resulting shifts in the corporate landscape.
The step changes demanded in almost every facet of business in the Digital Age are straining this current board structure further. Six drivers are fuelling an increasingly urgent need to rethink governance and board structure:
Real-time Responsiveness – in a time when many critical events can occur in minutes and go viral, the current pre-set board meeting structure and agendas leave boards continually playing catch up
Intangibles – in a Digital Age where intangibles increasingly dominate balance sheets, companies’ offensive and defensive strategies have to reflect heightened sensitivity to particularly volatile valuations
Radical Transparency – businesses are less able to shield their activities, developments and communications from unwanted scrutiny in an age of whistle-blowers, leaks and hacks. Digital Age boards will need a highly nuanced and more pragmatic approach to what sits behind the confidentiality wall
Multi-stakeholder – accountability to an increasing number of influential parties, some of which can have a disproportionately outsized effect on company operations and valuations in given scenarios
Exceptional Complexity & Uncertainty – the Digital Age, with its increasingly influential complex algorithms, multi-vectoral tipping points and knock on effects is ratcheting up complexity exponentially, and the lack of visibility on trajectory and speed of change is generating enormous uncertainty
Concentration – the Digital Age rise of Winner-Takes-All business models creates a host of challenges for the governance of both dominant firms and those in their ecosystem
Future-fit boards, investors, leaders and stakeholders will need to innovate and design new structures that can synthesise these drivers. Five key areas of initial focus are:
Composition– that considers functional, cognitive and psychological diversity
Structure – developing more agile governance structures and practices
Priority –agendas focusing less on repetitive, business as usual, items
Greater symbiosis – establishing more rapid-response feedback loops with stakeholders
Education – continual education for informed, relevant input
Investors, especially those participating in private markets, have a significant role to play. The growing trend in Environmental, Social and Governance (‘ESG’) investing requires an adjustment to what we call ‘Digital Age ESG’: that is, ESG objectives that take into account the Digital Age and its challenges to all three pillars.
We invite you to join us in tracking, aggregating and highlighting the best toolkit for Digital Age ESG.