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The tech impact: Empowering boards

What do Hillary Clinton, Frederick Winslow Taylor and Ray Dalio all have in common? Each, in their own way, is a poster child for one element of the holy grail of board work.

That holy grail is the judicious balancing of risk management, efficiency and effectiveness, as the board fulfils its role of advising, supporting and challenging company leadership while that leadership manages the company on a day-to-day basis. Today’s director juggles the imperatives of being efficient, effective and managing risk in a timeframe that is finite. That same director appreciates the reality that boards end up prioritising one of these three elements at the expense of the others.

Unearthing and managing risk is very much on the minds of board members across all continents, industries, ownership structures and size. It should be. The focus of the board as it advises, supports and challenges management is to stay focussed on performance, strategy and risk and in the service of finding the additional time needed to ascertain and manage the latter, more and more boards are creating separate committees to supply the expertise and time needed to address risk.

But boards need to think about risk in two ways: a capital R risk, if you will, related to actions of the company, and a little r risk, as in managing risk around the board’s own activities. Capital R risk is so much on the minds of some boards, they pursue it at the expense of efficiency and effectiveness. Other boards hyper-focus on efficiency while others are all about effectiveness. In and of themselves, risk management, effectiveness and efficiency are worthy pursuits. The trick is to balance these three to achieve appropriate oversight of performance, strategy and risk as the board pursues its work across increasing geography and thought diversity.

Our three poster children offer some lessons. Let’s start with Clinton.

Hillary Clinton and emails

Who can look back at a picture of Secretary of State Hillary Clinton reading emails on her cell phone and not conjure thoughts of the risks of email? You know the picture I’m talking about. There she is, sunglasses on, leaning forward from a large leather chair, peering into an iPhone encased in a dark blue protector. Always on the go, globe-trotting, but never out of touch, thanks to technology. Yep, she’s tech savvy. At least that’s what we thought. And then with the news that much of that always on and available status was via email, and email on a personal email server at that, we realised she disregarded risk in the pursuit of efficiency.

For board directors, the photo and the story line are a chilling reminder of the constancy of cyber threats facing their organisations. Every week there is another victim. And yet, boards regularly, often unwittingly, contribute to increasing that risk. Even those directors who think they are cyber risk aware, often increase that risk by their actions and choice of tools with which to work.

Oh, for the good old days when we didn’t even have any tools that could trip us up. We just had board meetings and board books to go with them. In the good old days, board books were printed documents produced by companies, usually bound up in three-ring binders and shipped out to directors in advance of meetings. Little got emailed, so risk exposure was limited to the forgetful director who left such book on a plane or in a public space. At the time, we thought the risk of information leaks via a paper board book was real, and in a limited sense it was. In retrospect, the likelihood of serious industrial espionage or reckless and damaging insider trading resulting from lost board books is much lower than the risk of unsecure electronic submission of the same materials.

In reality, while the old board book contributed to managing the risk of the loss of sensitive corporate information, there was a high cost in terms of efficiency. Let’s say you got lucky as a director; your organisation got your information-rich board book to you a week in advance and you didn’t have plans for the weekend before the board meeting. Then you had a shot at assimilating hundreds of pages of information. In reality, demands on those company employees who try to provide the most current information meant that books arrived last minute via yeoman’s work on the part of company, but without enough time for directors to do justice to the material. Directors came to meetings less than ideally prepared. From the directors’ perspective, it left an uncomfortable feeling of being behind the eight ball, unable to bring considered advice and counsel to the table. From the company’s perspective, board meeting time was wasted re-presenting information, answering uninformed questions and occasionally feeling like the company was paying a lot for directors who hadn’t done their homework and were not engaged in the job.

The price of abandoning the security provided by paper was a huge loss in efficiency. What began as a win for efficiency, the expansive use of email came at a high price to the management of risk. How can we keep the efficiency gains, without increasing risk?

The introduction of the board portal has gone a fair way towards improving the efficiency of the work in the boardroom. Boards no longer need to rely on printed board books to share corporate information. Board portals provide commercial-grade document management with features that focus on helping boards build those board books, and then let boards share access to board books via apps or via the Cloud. But there is an unintended consequence created by even the best of these portals.

Because of their focus on board books and episodic meetings, most board portals fall short in their promise of increased board efficiency. The information codified in a board book is static and often lacks three critical dimensions of context that boards need: time comparisons, standards measurement and competitive comparisons, all of which change constantly in real time. And decisions requested in today’s board book/meeting lack ready access to actions taken in the prior period on related and relevant matters. Boards can be sent on wild goose chases, digging for information buried in past board books.

Also, even with these so-called efficiency tools in hand, the amount of time boards spend with companies has been increasing since 2007, according to the National Association of Corporate Directors (NACD). The 2015-2016 NACD Public Company Survey report found that directors, on average, spent 248 hours on board-related matters. That’s 26 hours or almost 4 days/month and almost a day/week!

Because the work of the board is, in fact, not all about reviewing board books for scheduled meetings, boards looking for efficiency continue to rely on workarounds to communicate and share corporate information and process it together. Directors of companies owned by large private investors don’t wait around for the board book to get the context and answers they need to be effective at challenging management and providing on-target advice and counsel. Email is the go-to channel for distribution and communication, and that cuts back to the efficiency/risk dilemma. And there’s the third element of the holy grail of board work – effectiveness. Is the board even focussing on the right things? Effective in doing so? And able to measure that success?

Boards must have real-time communication and information sharing to be effective and the current board portals have just not come that far. For the efficiency and risk management gains made, the current state of board portals leaves a huge gap in the effectiveness department. The problem with the current state of board portals is that we have violated the golden rule of technology implementations, and that is we’ve automated old process, periodic meetings and static board books, rather than freeing the board to think critically about strategy, risk and performance. We must bring science to bear in the management of board work. And that is work started by our second poster child over a century ago.

Taylor’s influence

Frederick Winslow Taylor is the father of what is known today as process management, and his work has much to contribute to rethinking board work. A mechanical engineer by training, Taylor pioneered the introduction of scientific methods in business to improve industrial efficiency. His techniques were codified in The Principles of Scientific Management, named one of the most influential management books of the 20th Century.

“WHEN ARMED WITH SMART TOOLS, CORPORATE LEADERS WHO HAVE INCREDIBLE POWER TO IMPACT SO MANY OTHERS FROM THEIR LOFTY PLATFORMS WILL HAVE THE TIME AND INFORMATION TO ACT WITH WISDOM”

Arguably, the increases in efficiency and the resulting increase in economic prosperity in the 20th Century were possible due to Taylor’s success in bringing to business and management the disciplines of 1) analysing tasks to find best practice, 2) using science in the sourcing, training and development of talent, and 3) using standardisation to measure and monitor results. One of his most famous disciples was H.L. Gantt, whose charts have become a standard tool for scheduling tasks and displaying the flow of work. But Taylor’s work influenced businesses, governments, management consultants and education giants across the globe.

The acceptance of the work of Taylor and his successors has focussed boards on efficiency as a goal in company management. But for a variety of reasons, that clarion call for efficiency, powered by science and standardisation, has stopped at the boardroom door. Just as Taylor’s early 20th Century detractors felt scientific management and even teaching management had no place in business, it would appear that today’s corporations have concluded that while invaluable down in the organisation, Taylor’s principles have no place in the boardroom. Forward-thinking boards know better than this, but far too little has been developed to facilitate their efforts to bring standardisation, science and effectiveness into their activities. The work of our third poster child is pushing the limits of technology and process to produce results.

Dalio makes his mark

Ray Dalio, head of one of the largest hedge funds in the world, has put his money where his mouth is when it comes to using process and technology to make the management of companies more effective. Employees at Bridgewater Associates are provided with devices that use algorithms to ensure real-time adherence to Dalio’s own principles of management.

Those principles centre on a belief that radical transparency and truthfulness enable better, merit-based decision-making. While Dalio’s detractors argue that he is trying to immortalise his own grandiose vision of the right way to manage people, in a sense Dalio is following the lead provided by the likes of Apple’s Siri, Amazon’s Alexa, and IBM’s Watson – smarter technology. And Dalio argues pretty convincingly that flawed decisions based on either democracy or autocracy waste precious time and resources of the company in its quest for value creation. For Dalio it is all about effective management.

So, the question is, how do we use technology to increase efficiency, manage risk and drive more effective board process? The answer lies in deploying the science and process that Taylor promoted and Dalio represents without falling prey to the risk that Clinton introduced. The challenge is to use technology to empower boards to more flexibly juggle these three imperatives without dropping a ball. Boards need a cyber secure space to share ideas, engage in best practice process and exchange information in a far more free-flowing way. Technology can provide the platform, but it must be embedded with best practices and wisdom. And it must provide for a way to measure in real time progress against best practice and company-specific goals and metrics. Such is the promise of technology in general and of mass customisation, in particular.

This is what we spend our days thinking about and working on at The Concinnity Company, an organisation built by veterans of the boardroom and the C-suite to solve problems that we know intimately. We realise that we must build tools that both handle everyday tasks effortlessly and provide the board with the right amount of information in the way that is meaningful to the team and at the right time. This frees the team to focus on the company’s risk, performance and strategy, on their unique challenges and to find their common purpose.

We know that continuous improvement must be embedded in board tools to ensure sustainability of best practice and successful value creation. The most common leadership problems are just that, common. They can be avoided with awareness of the problems, with intention to resolve them, the application of best practice and a tool to facilitate all of this. A smart tool. At our company, we started with the most common governance mistakes and analysed their root causes and what needed to happen to avoid them. Thus, the Concinnity FrameworkTM was conceived.

And now the clarion call

It is time for the promises of technology and results of process management to serve the highest levels of corporate work. When armed with smart tools, corporate leaders who have incredible power to impact so many others from their lofty platforms will have the time and information to act with wisdom. We just need to support them in ways that free them to do the work for which they are intended. We need to give them the Freedom to ThinkTM.

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Ethical Boardroom is a premier website dedicated to providing the latest news, insights, and analyses on corporate governance, sustainability, and boardroom practices.

ethicalboardroom
Ethical Boardroom is a premier website dedicated to providing the latest news, insights, and analyses on corporate governance, sustainability, and boardroom practices.
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