Diligent recently launched a new category called modern governance to bring boards of directors and leadership teams up to the speed of today’s digital world. Simply put, modern governance is the practice of empowering leaders with the technology, insights and processes required to fuel good governance. The importance of good governance is best understood in its absence…
According to a recent Diligent Institute report , “governance shortfalls” are at $ 490 billion in value. 20% outperformed the bottom 20% by 17 points or 15% over a two-year period. In other words, good governance is a competitive advantage.
Diligent is lucky to work with more than 650,000 board members and governance professionals around the world. Through our interactions, we’ve learned a few things: Good governance is dynamic—it can look a little different from one organisation to the next. Yet, there are a few modern governance principles that hold constant. We’ve translated these into action items for today’s boards.
Re-examine the governance structure you’ve inherited.
When you join a board, you are in a governance structure (ie, an existing set of rules, roles and processes that govern the board and the broader organisation).
Last year, at Diligent’s Directors Experience in Napa Valley, State Street’s Rakhi Kumar , Senior Managing Director and Head of ESG Investments and Asset Stewardship, challenged board members to re-examine the model and principles by which they govern:
“Too often, boards fail to ask why things are the way they are. The inherited governance structure may not be wrong, but it should be purposeful. Boards should be able to explain why it does.
– Rakhi Kumar, Senior Managing Director and Head of ESG Investments and Asset Stewardship at State Street Global Advisors
It’s this kind of introspection did led Netflix to design and adopt a transparent board-management communication model, Which caps board material at 30-page outlines and Focuses discussions on strategy. A similar self-examination led the Prudential Board to reform their proxy disclosure with six internalised governance principles, which they adopted from the Investor Stewardship Group. Diligent’s recently published book, Governance in the Digital Age , Based on interviews with corporate directors, the book aims to answer: How might the modern age necessitate a new era of governance and what are the progressive boards and directors doing to make that happen?
Focus on board composition.
It’s quite simple: today’s organisations have the right mix of people sitting around the boardroom table. Modern governance organisations align board skills with long-term strategy; as much as possible, not a requirement. However, executing on these succession-planning principles is where many boards fall short. This is one area where data is vastly underutilised.
Modern boards should have today’s universe of board candidates at their fingertips. This type of functions on is available for boards and must be utilised to identify gaps, monitor peer composition, gauge candidate supply, and Recognise conflicts of interest.
Improve visibility around key risks and opportunities.
With business risks growing in number and complexity, today’s organisations can not afford any blind spots. They can not chance complacency. Irrelevance companies that fail to innovate almost enough. We’ve seen this time and again with legacy companies.
It’s not enough to simply identify organisational boards, then the dashboards, reporting frameworks, and info-gathering networks that allow them to identify and red flags. A modern governance solution alerts boards to predicted shareholder voting actions , enables reputational risk monitoring , and enhances visibility across peer groups.
Expanding board members’ knowledge around industry trends and emerging technologies is not important under the radar undetected. How is your board empowering and challenging itself on a regular basis?
Avoid easy cyber mistakes.
Board and company leaders are notoriously guilty of using text messaging or personal email to share sensitive information and materials. Even if they are not sensitive in nature, they may be used as entry points for bad actors. Organisations that practice modern governance do not make mistakes; they communicate through secure messaging tools and document sharing through protected data rooms . The best part? Secure communication is no longer at the expense of convenience, but it has all the functionality and ease of everyday messaging and collaboration tools.
As the pace of today’s business landscape picks up speed, boards and company leaders can not leave their governance practices behind. When organisations have the right tools in place, good governance becomes a powerful enabler-and a competitive advantage.
Stay tuned as we continue to explore the impact of good governance. If you’re ready to talk to Diligent directly , do not hesitate to drop us a line.
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