Tech Spectrum and Board Governance

The role of corporate boards has evolved significantly over the years, with boards now expected to play a more active role in driving corporate strategy and overseeing risk management. In today's fast-paced business environment, technology is playing an increasingly important role in shaping corporate strategy and decision-making. In this episode we will explore some of the key technology trends that corporate boards should implement in the year 2023 and beyond.

In recent years, #technology has had a significant impact on the way #boardsofdirectors govern organizations. To effectively govern organizations in the current environment, #boards need to stay up-to-date with tech trends that are changing the overall business landscape including the board governance: Board Portals, Artificial Intelligence, Cybersecurity, Virtual Meetings, and Digital Transformation.?

They also need to work closely with their IT teams and other stakeholders to ensure that their organizations have the right technology and processes in place to manage risk and drive growth.

The current and the future era strongly demand from boards and their businesses to be cyber-resilient and tech-resilient overall. Today’s Boardrooms must have a robust “Technology Survival Guide for Resilience.”

Fact: A recent 德勤 Global Boardroom Program Frontier Survey research indicates a technology deficit among many boards, with 4 in 10 directors surveyed indicating that they rely too much on management, and 4 in 10 CXOs indicating there is a deficit in technology fluency on the board.

The United States Securities and Exchange Commission (SEC) has proposed new rules for cybersecurity risk management, strategy, governance, and incident reporting by public companies. The proposed rules would require companies to disclose how both the board and management take responsibility for cyber risk.

The Securities and Exchange Commission update on March 15th 2023 proposed requirements for all “Market Entities” to address their cybersecurity risks [0]. The proposal would collectively require all Market Entities to implement policies and procedures that are reasonably designed to address their cybersecurity risks and, at least annually, review and assess the design and effectiveness of their cybersecurity policies and procedures, including whether they reflect changes in cybersecurity risk over the time period covered by the review.

The SEC determined that investors would benefit from “more timely and consistent disclosures” by public companies of several categories of cybersecurity-related information: [source: https://www.perkinscoie.com/en/] Perkins Coie

????Material cybersecurity incidents,

????Risk management and strategy,

????Governance, and

????Cybersecurity expertise among board members.

Proposed disclosures would include details of “cybersecurity governance, including the board’s oversight of cybersecurity risk.”

The proposed Item 106 ? (1) would require the following disclosures about the Board’s oversight of Cybersecurity Risks: [source: https://www.skadden.com/] Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates

????Whether the entire board, specific board members or a board committee is responsible for the oversight of cybersecurity risks;

????The processes by which the board is informed of cybersecurity risks and the frequency of its discussions on this topic; and

????Whether and how the board or board committee considers cybersecurity risks as part of its business strategy, risk management and financial oversight.

Tech-Trends for Boards:

The pace of innovation and competition is increasing rapidly, and it is becoming increasingly challenging for companies to keep up. While some companies are investing heavily in innovation, many are struggling to keep pace with the global giants and new entrants to their industries.

One of the main challenges for companies is the speed at which innovation is occurring. New technologies are emerging at an unprecedented rate, and companies that are slow to adopt them risk falling behind. Additionally, competition is coming from global giants such as Amazon, Google, Microsoft and Facebook enter new industries and disrupt traditional business models.

The tech mega-trends shaping businesses and company tech investments today include research and development funding, shifts in consumer demand, societal needs, and the future workforce [1]. Companies aware of these factors should seek to incorporate innovations into their platforms for a more customer-centric experience [1].

Additionally, 麦肯锡 predicts that 10 tech trends will shape the next decade. These include digital connectivity, distributed infrastructure and next-generation computing - Technological progress is advancing more rapidly than ever [2].

Boards can play a critical role in helping management think strategically about the implications of the latest advances in technology

Boards must challenge the CEO and his executive management team while not getting involved into operations management. However, as part of overseeing and monitoring a risk mitigation deep dive with management is needed.

Boards can assist management in thinking about the strategic implications of the latest advances in technology, from artificial intelligence, to cloud and quantum computing, to cybersecurity, IoT (and IIoT), 5G networks and data privacy.

1.???Artificial Intelligence (AI) and Machine Learning (ML)

AI and ML technologies are transforming the way businesses operate, with applications ranging from customer service to supply chain management. Corporate boards should be aware of the potential benefits of #AI and #ML in areas such as risk management and decision-making. AI and ML can help boards analyze large amounts of data and identify trends and patterns that might not be visible to the human eye. This can help boards make more informed decisions and reduce the risk of costly mistakes.

2.???Cybersecurity

With the increasing threat of cyberattacks, cybersecurity has become a top concern for businesses of all sizes. Corporate boards should be aware of the latest #cybersecurity threats and ensure that their organizations have appropriate measures in place to protect against them. Boards should also be aware of their responsibilities under data protection laws and ensure that their organizations are compliant with all relevant regulations.

3.???Digital Transformation

Digital transformation is the process of using digital technologies to improve business processes and operations. Corporate boards should be aware of the potential benefits of #digitaltransformation in areas such as customer experience and operational efficiency. Boards should also be aware of the potential risks associated with digital transformation, such as the need for new skill sets and the potential for disruption to existing business models.

4.???Cloud Computing

Cloud computing is the delivery of computing services over the internet. Corporate boards should be aware of the potential benefits of cloud computing, such as increased scalability and cost savings. Boards should also be aware of the potential risks associated with #cloudcomputing, such as data security and vendor lock-in. And certainly, more advanced protocols for the futuristic #quantumcomputing business edge.

5.???Blockchain

Blockchain is a distributed ledger technology that enables secure, transparent transactions. Corporate boards should be aware of the potential benefits of #blockchain in areas such as supply chain management and financial transactions. Boards should also be aware of the potential risks associated with blockchain, such as regulatory uncertainty and the potential for fraud.

6.???Data Privacy

Boards play a critical role in data privacy governance, particularly given the growing importance of #dataprivacy regulations and the increasing risks associated with data breaches.

Best practices on how boards can help ensure effective #data privacy governance:

i.???Set the tone from the top: Boards should set the tone for the company's approach to data privacy, emphasizing the importance of protecting customer and employee data, and promoting a culture of privacy throughout the organization.

ii.???Establish policies and procedures: Boards should work with management to establish robust policies and procedures for data privacy, including data classification, access controls, data retention, and data disposal.

iii.???Monitor compliance: Boards should monitor the company's compliance with data privacy regulations, and ensure that appropriate controls are in place to protect sensitive data. This can involve regular reporting and audits, as well as engaging with external auditors and regulators.

iv.???Manage risk: Boards should help management manage the risks associated with data privacy, including the risks of data breaches, cyberattacks, and reputational damage. This can involve establishing incident response plans and contingency plans, as well as assessing the company's insurance coverage for cyber-related risks.

v.???Stay informed: Boards should stay informed about the latest developments in data privacy regulations and best practices, and ensure that the company's policies and procedures remain up to date and effective.

How Leading Boards are thinking about the Technology Transformation opportunities:

Leading boards are undergoing their own digital transformation by leveraging digital tools to boost the efficiency of board operations and bolstering cybersecurity [4]. They are also transforming their governance of risk management as companies transform their business models [5]. Technical literacy at the CEO and board level is a strong driver of transformational success [6]. Boards have a broader role to play in helping their businesses respond and accelerate their digital transformation programs [7].

Overall, leading boards are thinking about the transformational opportunities from technology perspective by

????Understanding and staying informed about emerging technologies,

????Evaluating risks and opportunities,

????Fostering a culture of innovation,

????Collaborating with management, and

????Engaging with external experts

By taking proactive approaches to (viable) technology investments, these boards can help drive innovation, growth, and competitive advantage for their companies.

The Role of High-Performing Boards on Technology, Transformation and Governance

Overall, high-performing boards can help management think strategically about the implications of technology by staying informed, understanding the business implications, challenging assumptions, managing risk, and fostering innovation. Resiliency is most important.

1.???Stay informed: The board should stay informed about the latest advances in technology, and how they might impact the company. This can be done through ongoing education, attending conferences, and bringing in experts to brief the board.

2.???Understand the business implications: It's not enough to just understand the technology. The board needs to understand how the technology can be used to drive business value, and how it might disrupt the company's existing business model.

3.???Challenge assumptions: High-performing boards should challenge assumptions about the implications of technology. For example, they might ask management to demonstrate how a particular technology investment will drive revenue growth or improve customer satisfaction.

4.???Manage risk: Boards should help management manage the risks associated with technology investments, such as cybersecurity and data privacy risks. This can involve setting policies, monitoring compliance, and establishing contingency plans.

5.???Foster innovation: High-performing boards should encourage innovation, including experimenting with new technologies, and testing new business models. This can help the company stay ahead of the curve and adapt to changes in the market.

6.???A Resilient Board: Maintains a clear #risk appetite and adjust their business risk appetite to dynamically and successfully mitigate the risks. Based on the risk and opportunity scenarios “responsibility management” – it goes back to overall mission and strategy of the company.

“Resilience” means understanding the criticality of a business process, the capability of the underlying technology, the business impact if the technology fails, and the organization’s risk tolerance. [12]

Hence a technology survival guide for resilience is vital for an effective board governance.

“The board’s goal is not to understand the technology but rather to understand its implications.”

The complexity and speed of change in digital and technology can make it difficult for board directors to focus on technology as a crucial strategic priority that can unlock new revenue and competitive advantage.[3]

To implement its governance strategy successfully, the board will need to comprise a group of professionals who are diverse in their backgrounds, skills and experience. While commit themselves to constant learning, and new ways of adaptive thinking and communicating to adeptly steer worthwhile technology trends for their businesses.

Board Insight: What Distinguished Board Leaders advise?

????Technology is a strategic enabler, productivity enhancer and improvement driver – says Marillyn Hewson adding further, how crucial it is to have a broader board composition for addressing long-term overall needs.

????Tech has become the center of everything – Board Diversity is highly essential. – Peter Thomas Sany

????Technology creates competitive advantage and disrupts portfolio’s – Amparo Moraleda , adding further value: understanding what’s the “minimum viable enterprise” concept is critical. Evaluate what systems are to be protected, and back-up those systems for protection - do this exercise at board and management levels extensively!

The above advise was shared by distinguished Global Board Leaders at a recent 德勤 Global Boardroom event on Tech Trends for Boards:

???? Marillyn Hewson , former Chair and CEO, Lockheed Martin and non-executive Director at 雪佛龙 , Jhonson And Jhonson Limited , and NEXII .

???? Amparo Moraleda , non-executive Director at Moller-Maersk, Vodafone , Airbus and CaixaBank .

???? Peter Thomas Sany , Non Executive Director Online Group , Executive Advisor Zoom , Executive CIO Advisor 德勤 , and former GCIO and executive committee member at 诺华 , Deutsche Telekom Global Business , 瑞银集团 and SwissLife; former non-executive director and audit committee member, Swiss Post .

In conclusion, technology is playing an increasingly important role in shaping corporate strategy and decision-making. Corporate boards should be aware of the latest technology trends and their potential impact on their organizations. By embracing these trends, boards can help their organizations stay competitive and achieve long-term success.

However, it is important for boards to balance the potential benefits of technology with the potential risks and ensure that their organizations are prepared to manage these risks effectively.

Innovation is key to staying competitive in today's world. Companies that invest in innovation grow faster and more profitably than others [8]. However, innovation initiatives frequently fail despite massive investments of management time and money [9].

The pace of technology development is faster than ever, and that means innovations that once took years now happen in weeks, not only in the digital world but also in the physical world [10].

It is important for companies to pursue growth while maintaining an existing position in the market [11]. This helps protect a business against other companies affecting its standing [11].

To summarize, while some companies are investing fast enough to keep up with the pace of innovation and competition, many are not. To stay competitive, companies need to embrace a culture of innovation, embrace a culture of experimentation and risk-taking and be willing to collaborate with external partners such as startups and technology providers to gain access to new technologies and expertise.

This means being willing to invest in new technologies and business models, even if they are not proven, and being willing to pivot quickly if things are not working out.

References:

(0) SEC.gov | SEC Proposes New Requirements to Address Cybersecurity Risks to the U.S. Securities Markets

(1) How Technological Breakthroughs are Shaping the Future of Investing. https://www.visualcapitalist.com/an-investing-megatrend-how-technological-breakthroughs-are-shaping-the-future/

(2) Top 10 tech trends for next 10 years (according to 麦肯锡 ) | World Economic Forum https://www.weforum.org/agenda/2021/10/technology-trends-top-10-mckinsey/

(3) How boards can help digital transformations | McKinsey. https://www.mckinsey.com/capabilities/mckinsey-digital/our-insights/how-boards-can-help-digital-transformations

(4) Boards Are Undergoing Their Own Digital Transformation. https://hbr.org/2021/07/boards-are-undergoing-their-own-digital-transformation

(5) Top Priorities for Boards in 2019 - corpgov.law.harvard.edu. https://corpgov.law.harvard.edu/2019/01/11/top-priorities-for-boards-in-2019/

(6) What CIOs need from their CEOs and boards to make IT digital ready. https://www.mckinsey.com/capabilities/mckinsey-digital/our-insights/what-cios-need-from-their-ceos-and-boards-to-make-it-digital-ready

(7) How boards can help digital transformations | McKinsey. https://www.mckinsey.com/capabilities/mckinsey-digital/our-insights/how-boards-can-help-digital-transformations

(8) 50+ statistics on innovation – What do the numbers tell us? - HYPE Boards . https://www.viima.com/blog/innovation-stats

(9) You Need an Innovation Strategy - Harvard Business Review . https://hbr.org/2015/06/you-need-an-innovation-strategy

(10) Innovation is accelerating. Here’s how to keep up with the pace. - WIRED . https://www.wired.com/sponsored/story/innovation-is-accelerating-heres-how-to-keep-up-with-the-pace/

(11) Innovation in Business: What It Is & Why It’s So Important. https://online.hbs.edu/blog/post/importance-of-innovation-in-business

(12) A technology survival guide for resilience: https://www.mckinsey.com/capabilities/risk-and-resilience/our-insights/a-technology-survival-guide-for-resilience?cid=app

(13) 5 Questions Boards Should Be Asking About Digital Transformation. https://hbr.org/2021/06/5-questions-boards-should-be-asking-about-digital-transformation