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6 Governance Deficits That Create Blind Spots in Board Oversight

Now more than ever, boards and executive teams need robust and comprehensive governance to effectively fulfil their duties to the companies they serve. The intensifying regulatory environment, investor focus on ESG performance and heightened consumer scrutiny following high profile scandals that have negatively impacted customer trust are all putting significant strain on boards.

Directors and senior leaders need to stay ahead of emerging risks, spot opportunities and develop strategies to respond to competitive pressure. In today’s fast-paced, information-rich world this is no easy task, but it is essential for an organisation not only to survive, but thrive.

Here are six ways that governance deficits create blind spots in board oversight:

1. Miss trends and opportunities – a lack of visibility into market evolution

In 2001 movie rental company Blockbuster failed to appreciate the impact that video-streaming and the rapid increase in internet download speeds would have on the home entertainment market. The company turned down an offer from a nascent Netflix to run the online arm of its business in return for $50million and in-store promotion. Instead, wedded to the fees it earned from late DVD returns and with a Chief Executive whose High Street retail background made him determined to save physical stores, the company stuck to its business model and began its downward spiral into obsolescence.

The importance of anticipating market trends and identifying opportunities – or threats – to a company’s business model cannot be overstated. Today, those opportunities and threats can be distilled from analysis of social media trends, technological developments and corporate performance, all of which can be gleaned from publicly available open data sources. Having a process that delivers key market insights to directors is essential to avoid intelligence gaps that could result in missed opportunities.

2. Introducing unnecessary risks

Risk oversight is a fundamental board responsibility. Risk can arise in any number of areas from cybersecurity, supply chain, and compliance to political, social and economic factors.

An important way to avoid introducing unnecessary risk into the business is by conducting rigorous due diligence on prospective partners and suppliers. Without this, the organisation risks creating associations that could later impact the reputation, performance and profitability of the business.

Due diligence should include robust health checks and monitoring of the target organisation’s activities, political affiliations, and any public sentiment associated with it. With this visibility, boards and senior leaders are better placed to make judgement calls on the risks associated with forming new corporate relationships.
Once the partnership is formed it is also valuable to continue monitoring the company’s activities, public opinion and business health so any new risks are identified early and mitigation plans can be developed.

3. Being exposed to PR liabilities

A corporate scandal can erupt in moments and quickly spread to partners and associated organisations. Without regular monitoring of news outlets, social media channels, business commentary and legal intelligence sources, boards risk being on the back foot when a public relations crisis breaks. This is a major liability in an environment where a fast, informed response to an emerging problem can make the difference between reputation protection and PR disaster.

4. Lack of board diversity

Homogenous boards are a significant risk to organisations. Indeed, improving board and business diversity is becoming one of the most urgent challenges companies need to address. The growing activism around the rejection of racial and gender prejudice, allied with the risk to organisations when boards lack perspectives that come from differing backgrounds and skillsets, are key drivers to improving board diversity, but progress has been slow.

Organisations need to accelerate change but one of the barriers that contributes to this particular governance deficit is a lack of visibility when it comes to including a more diverse range of candidates. Historically boards have typically reached out to personal networks to identify potential appointees, resulting in recruitment that is tied up in their own image. To combat this, boards need to objectively benchmark their own composition against others in their sector, but also go further, reaching out to a broader pool of diverse board director candidates.

Tools such as Diligent’s Nomination and Governance application allow boards to get instant insights into their board’s composition, strengths and weaknesses in comparison to their peers. As part of our own commitment to equality Diligent has also launched its Director Network and Modern Leadership initiative that connects the Diligent Board community with qualified, diverse candidates who have the skills needed to serve the boards of tomorrow.

5. Missing changes in regulations

The regulatory ecosystem is evolving fast to keep pace with changes in technology, privacy, environmental safety and numerous other factors that move at lightning speed in today’s corporate landscape. New regulation can have a major impact on an organisation’s operations, policies and liabilities and, as such, they must stay alert to avoid missing crucial changes.

Major new introductions, such as the GDPR and CCPA privacy regulations, have seen unprecedented public and corporate information campaigns leaving businesses in no doubt that they need to act. However, smaller, more industry-specific regulatory changes risk slipping under the radar if the business doesn’t have a process in place to monitor announcements from authorities and get confirmation on any actions they will be expected to take.

6. Surprises from competitors

It is natural for businesses to want to get a jump on the competition, but boards and executives should do all they can to insulate themselves from suffering a total shock when a competitor launches a new product or strategy. Careful monitoring of relevant sources often delivers clues about the direction a company is heading, whether that is by tracking new patent or trademark filings or keeping watch on analyst or other third-party ratings organisations.

Avoiding information overload

Looking at the six governance deficit areas above there is one clear common thread: information overload.

Busy directors simply don’t have the bandwidth to conduct ongoing monitoring across all of the myriad issues and sources that could deliver the crucial insight they need. Similarly, corporate secretaries and legal teams haven’t the resources to gather and curate reliable, relevant and contextualised information and deliver it to directors in a timely fashion. In fact, information overload is often such an issue that governance professionals try to “protect the board” from analysis paralysis caused by receiving too much information without context.

Resolving this tension is the principle behind Diligent Governance Intel, an AI-powered application that enables companies to glean the information that’s relevant to them, their competitors, markets and stakeholders.

Drawn from 70,000 global news sources, social media channels and industry publications, the data is intelligently curated through tailored search criteria so only the headlines and information of direct importance to the business are aggregated and delivered. From company health checks to public sentiment analysis, it represents a shortcut to insight that saves the corporate secretary time and, as a result of the high value information it provides, is trusted by directors and earns its place in their inbox.

In this time of unprecedented complexity boards need reliable, relevant data that is accessible and concise. Closing the gaps in governance intelligence should be a priority for governance professionals to ensure the board has the right data in the right format, at the right time.

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