Current threats to company Boards and how to address them
Author Nigel Kendall is a Chartered Accountant, Corporate Governance Consultant, and the author of several books on financial management and corporate governance. His first book gained him the endorsement of Sir Adrian Cadbury, the father of modern corporate governance.
By AnsaradaFri Dec 02 2022Governance Risk and Compliance, Board
What does the Board need to know to keep on top of a volatile environment? How should it structure its information feeds to enable it to make the right decisions?
Companies currently face challenges, both national and international, unprecedented for most of them in recent times. The task of Boards is very demanding in these circumstances, and directors depend on being served by the best possible information systems. Easy to say, but not so easy to deliver in practice.
We remind ourselves here that the fundamental role of the Board is to set a Goal for the company which is compatible with the interests of the key stakeholders and takes due account of the wider pressures such as environmental concerns and a focus on employee working conditions. The ongoing responsibility is to ensure that management is doing a satisfactory job in achieving that Goal, while modifying the Goal as necessary and subsequently putting in place a new Business Plan to secure the long-term future of the company.
The current threats to established businesses can be broadly grouped into geopolitical and technological categories.
For example, the Russian invasion of Ukraine has led to a wide, and spreading, raft of sanctions whose impact has highlighted vulnerabilities largely unforeseen, or ignored, prior to 2022. Similar effects are resulting from the growing concern in the West over China’s global ambitions and, particularly the impact of the response from the United States.
The technological developments in Artificial Intelligence and digitalisation generally present a daunting challenge to most business sectors, as does the arrival of so-called ‘disrupters’ created to capitalise on the opportunities their founders perceive through these new technologies.
Donald Rumsfeld famously used the expression ‘unknown unknowns’ in relation to the potential possession of weapons of mass destruction by Iraq. The expression currently in vogue is VUCA: Volatility, Uncertainty, Complexity, Ambiguity. How can the Boards of established businesses anticipate the impact of known unknowns, let alone unknown unknowns in a global environment of VUCA?
In this environment of uncertainty, the word ‘resilience’ is increasingly used. How can companies protect their businesses, and indeed their very survival in some cases, against both improbable and unforeseeable developments?
The answer must include information systems which tap into a range of sources and access to data so wide as to pick up at the earliest possible time any and all developments likely to impact the company. And, for these wide-ranging data sources to provide meaningful information, systems must exist which can make sense of apparently unrelated data and turn a chaotic mass of such data into an ordered flow of meaningful information.
The second broad requirement is that this data flow must bypass the established company information systems to avoid ‘capture’ and must flow directly to the Board. Only in this way can the Board expect to hear ‘unvarnished’ truths.
The inadequacy of most current information systems arises from three main characteristics:
The way forward entails creating information systems which address these long-standing problems. This means they have to be ‘holistic’ in their approach and avoid both the silo structure and a historical bias. And, of course, departmental capture.
Also, they have to be capable of producing meaningful and useful information, drawing conclusions from a large mass of data drawn from a much wider range of sources than traditionally expected. Then the information systems have to be directed at the Board and its task of securing the future of the company. Hence they must summarise what they provide in such a way as to relate directly to the company’s Goal and any implications for the Business Plan which has been adopted to deliver that Goal.
They must pick up the threats (and opportunities) presented by VUCA and put these directly on the table for the Board. This will enable the directors to judge the extent to which they corroborate the messages from the current information feeds, and the potential impact of any new information which emerges.
An approach to Board information is therefore required which is much more holistic than most current systems provide, coupled with the underlying technological ability to transform masses of chaotic data into a meaningful, orderly flow of knowledge vital for the future of the business.
Companies currently face challenges, both national and international, unprecedented for most of them in recent times. The task of Boards is very demanding in these circumstances, and directors depend on being served by the best possible information systems. Easy to say, but not so easy to deliver in practice.
Role of the Board
We remind ourselves here that the fundamental role of the Board is to set a Goal for the company which is compatible with the interests of the key stakeholders and takes due account of the wider pressures such as environmental concerns and a focus on employee working conditions. The ongoing responsibility is to ensure that management is doing a satisfactory job in achieving that Goal, while modifying the Goal as necessary and subsequently putting in place a new Business Plan to secure the long-term future of the company.
Current threats to Boards
The current threats to established businesses can be broadly grouped into geopolitical and technological categories.For example, the Russian invasion of Ukraine has led to a wide, and spreading, raft of sanctions whose impact has highlighted vulnerabilities largely unforeseen, or ignored, prior to 2022. Similar effects are resulting from the growing concern in the West over China’s global ambitions and, particularly the impact of the response from the United States.
The technological developments in Artificial Intelligence and digitalisation generally present a daunting challenge to most business sectors, as does the arrival of so-called ‘disrupters’ created to capitalise on the opportunities their founders perceive through these new technologies.
Donald Rumsfeld famously used the expression ‘unknown unknowns’ in relation to the potential possession of weapons of mass destruction by Iraq. The expression currently in vogue is VUCA: Volatility, Uncertainty, Complexity, Ambiguity. How can the Boards of established businesses anticipate the impact of known unknowns, let alone unknown unknowns in a global environment of VUCA?
Requirements for business resilience
In this environment of uncertainty, the word ‘resilience’ is increasingly used. How can companies protect their businesses, and indeed their very survival in some cases, against both improbable and unforeseeable developments?The answer must include information systems which tap into a range of sources and access to data so wide as to pick up at the earliest possible time any and all developments likely to impact the company. And, for these wide-ranging data sources to provide meaningful information, systems must exist which can make sense of apparently unrelated data and turn a chaotic mass of such data into an ordered flow of meaningful information.
The second broad requirement is that this data flow must bypass the established company information systems to avoid ‘capture’ and must flow directly to the Board. Only in this way can the Board expect to hear ‘unvarnished’ truths.
Challenges with legacy systems
The inadequacy of most current information systems arises from three main characteristics:
- Silo structure: dangers are inherent in a structure in which the marketing, operational and financial reporting will only be integrated at the level of the profit and loss account and the balance sheet
- Historical basis: information systems evolve as a business changes, but, understandably, the future is projected from the past, and information is regarded as reliable when it is presented in a familiar and trusted format
- Internal filters: the various divisions of a company will report to the Board on their progress in a way which casts the best light on their performance, and anything untoward is likely to emerge later rather than sooner.
The way forward: A holistic approach to governance
The way forward entails creating information systems which address these long-standing problems. This means they have to be ‘holistic’ in their approach and avoid both the silo structure and a historical bias. And, of course, departmental capture.Also, they have to be capable of producing meaningful and useful information, drawing conclusions from a large mass of data drawn from a much wider range of sources than traditionally expected. Then the information systems have to be directed at the Board and its task of securing the future of the company. Hence they must summarise what they provide in such a way as to relate directly to the company’s Goal and any implications for the Business Plan which has been adopted to deliver that Goal.
They must pick up the threats (and opportunities) presented by VUCA and put these directly on the table for the Board. This will enable the directors to judge the extent to which they corroborate the messages from the current information feeds, and the potential impact of any new information which emerges.
An approach to Board information is therefore required which is much more holistic than most current systems provide, coupled with the underlying technological ability to transform masses of chaotic data into a meaningful, orderly flow of knowledge vital for the future of the business.
Author Nigel Kendall is a Chartered Accountant, Corporate Governance Consultant, and the author of several books on financial management and corporate governance. His first book gained him the endorsement of Sir Adrian Cadbury, the father of modern corporate governance. With a wide-ranging career history and over 20 years’ experience as an independent consultant, Nigel works regularly with boards of all-sizes of organizations on corporate governance, good boardroom practice and strategy.Nigel Kendall, Corporate Governance Consultant, Applied Corporate Governance
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