Digitalisation of board processes: What’s at risk?

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Mark EdgeBy Mark Edge UK Country Manager at Brainloop

 

 

 

Seven years on from the global financial crisis and the pressure on boards and directors to raise their game and perform more effectively is growing. The aftermath of the 2007/08 crash, and a spate of highly publicised corporate scandals relating to poor risk management and fraud has seen the scrutiny placed upon company boards intensify. As a consequence, today’s board now confronts significant oversight accountability – alongside personal liability – as part and parcel of an increasingly complex compliance landscape.

What’s more, the uptick in shareholder activism means boards now need to evaluate deals and decisions with greater diligence than a decade ago as investors and regulators have become less forgiving and are quick to issue challenges to board decisions perceived to impact on shareholder value. As the definition of board effectiveness changes, boards are embracing digitalisation in a bid to become more high performing and respond to globalisation and today’s fast-paced business environment pressures.

A confluence of digital drivers
Board processes typically involve significant quantities of ‘paperwork’ but traditional document production is both resource intense and costly. Board books need to be manually compiled, printed and distributed in a timely manner, with all pre-publication updates and amends being managed in a seamless fashion. But these paper-based processes are proving increasingly inefficient, expensive and cumbersome for today’s boards, which are becoming more complex both in terms of the number or location of members.

International companies and organisations need to ensure the integrity of document delivery and today’s FTSE 100 and 250 companies, for example, can spend an average of £40,000 a year developing and distributing board books, burning a further £3,500 in additional administration preparation costs for each board meeting. Compliant meeting preparation involves the distribution of dossiers in line with regulatory timeframes that are formulated to ensure members are able to prepare appropriately and in good time for meetings. It’s a challenge not just confined to global organisations. An increasingly volatile business landscape means many boards now meet with increased frequency, fuelling the need for fast, effective information flows.

“Today’s high-performing boards need to be able to successfully accomplish tasks and digitalisation enables streamlined practices and processes”

Today’s board members and executives also need to be able to collaborate and participate in accelerated decision-making and be prepared for the unexpected. That means enabling geographically dispersed board members to participate in votes and resolutions, even when travelling, or respond in real time to issues as these evolve. High-performing boards also look to operate a transparent and rolling board agenda that ensures everyone stays informed on events and developments as these occur. All of which explains why digitalisation is proving to be a game changer for many companies and organisations, especially when it comes to more effective board preparation processes and communications among board members and executive committee personnel.

The digital board – what’s different?

The advantages of going digital in terms of board practice are significant, especially when it comes to the fast and efficient provision of documentation and data that directors need to make fully informed decisions.

Board books can be compiled and distributed quickly and with ease – and for the fraction of the cost of traditional paper-based methods. Indeed, today’s cloud-based digital solutions can generate an ROI on the production and distribution of board packs in just four months.

Board members are able to instantly access completed agendas, draft resolutions and reports, 24/7, no matter where in the world they might be and are assured of always seeing the latest document version.

Digitalisation also delivers powerful new collaboration and communication capabilities. Board members can electronically annotate documents, sharing comments instantly with executives and other board members. Changes and modifications are automatically captured, time and date stamped, version controlled and tracked. What’s more, digital solutions make digital voting possible so directors can participate in approval processes and ad hoc or formal board meetings, even when physically ‘not present’.

As well as streamlining the information exchange process, the digital board is well equipped to demonstrate process compliance with local regulatory requirements. The ability to provide an electronic audit trail of documents sent and received, together with the capture of review notes and commentaries, is especially crucial for organisations operating in countries where variants of the Business Judgment Rule apply – typically, this includes most common law countries, such as the US, Canada, Australia, Germany, England and Wales.

This facility enables the digital board to respond more effectively if decisions are challenged by regulators or investors, demonstrating due diligence and effective governance processes in relation to risk oversight liabilities.

Benefiting a range of stakeholders

Today’s high-performing boards need to be able to successfully accomplish tasks and digitalisation enables streamlined practices and processes that deliver a framework for consistency and excellence.

Board members can access information anytime and in a timely manner to prepare for discussions and votes, participating with ease in related committee communications and approvals. This streamlined capability is essential for companies operating in geographies such as Germany where local governance requirements stipulate that supervisory boards must review the legality, propriety and expediency of board management. With corporate governance codes around the world becoming more stringent, management and supervisory boards are under growing pressure to adhere to a ‘comply or explain’ principle in relation to demonstrating good corporate governance.

A key characteristic of high-performing boards is that the responsibilities of board committees and their reporting processes are clear and supported by effective communications among the board, the company secretary and executive committees. This includes the provision of a structured engagement process that enables non-executive directors to make timely and informed contributions.

Digitalisation also delivers significant advantages for the corporate secretariat. Board assistants spend less time preparing board packs, using automated workflow functions to create, distribute and update board packs in native environments, such as Microsoft Office or SharePoint. All of which makes it easy for board secretaries to update documentation fast, implementing last-minute changes instantly and to manage document version control and distribution. What’s more, digitalisation delivers electronic audit trails that make it possible to achieve full visibility of how board materials are used – and by whom. This is a capability that’s essential for the secretariat when it comes to demonstrating the delivery of board papers within appropriate timeframes and in full compliance with local country policies and regulations.

Securing boardroom communications

According to the UK Combined Code of Corporate Governance 2003, “every company should be headed by an effective board, which is collectively responsible for the success of the company”. That’s especially true when it comes to the security of confidential boardroom data.

Data breaches pose a substantial risk to directors, executives and corporations. As a recent survey of ICSA members reveals,¹ a staggering 70 per cent of board members still print and carry around board documents. Larger organisations, those with 251-500 employees, proved the most reliant on hard copies, with 80 per cent of this group admitting they still used physical documentation.

When it came to the secure disposal of confidential board documents, 40 per cent of those questioned could not confirm if this was done in line with compliance policies and 16 per cent admitted that they ‘sometimes’ destroyed documents in line with compliance policies.

The digital boardroom is able to eradicate the inherent risk involved in the production and manual distribution of paper-based board papers via insecure post and courier methods. Confidential documentation can be provided via a centralised secure vault that’s protected by strict access controls – ensuring the board’s activities stay confidential at all times and that documentation no longer needs to be printed out and carried around by board personnel in preparation for meetings.

“Secure information exchange is an essential element of an effective risk management strategy. But recent cyber breaches at major corporations have highlighted the increasing sophistication of cyberattacks”

It’s an approach that has delivered a secure and energy-saving way of making confidential meeting documents available to board directors, and in compliance with statutory regulations, for BBBank in Germany. Its board members are now able to access confidential meeting dossiers held in a secure boardroom, alongside regular reports on business development and risk management, using a password and a one-time PIN that’s texted to their mobile device.

Tackling the cyber-breach challenge head on

Secure information exchange is an essential element of an effective risk management strategy. But recent cyber breaches at major corporations have highlighted the increasing sophistication of cyberattacks and the reputational and regulatory implications of failing to protect critical information assets.

Yet, the Brainloop ICSA member survey revealed that 34 per cent of organisations surveyed are still using commercial email accounts – the number one threat vector for organisations, according to Verizon’s Annual Data Breach Survey – to send confidential board information. That figure increases to 40 per cent of firms in companies in the 51-250 and 251-500 size brackets.

It’s a challenge that the insurance company Helvetia has addressed by utilising a highly secure web-based boardroom to eliminate the laborious burden of encrypting and distributing confidential board papers by email. Helvetia now uses a secure purpose-built centralised board portal to ensure immediate and secure information exchange that features advanced document encryption alongside a fully-compliant audit trail.

A two-factor authentication procedure ensures Helvetia is able to maintain strict access controls to its data repository. A password-based registration system is supplemented by a second authentication layer in the form of a one-time code that is sent by text to an authorised user’s mobile phone that is valid for one user only and only for the current session. The approach also ensures secure mobile access for members working on the move is maintained at all times. To make screen captures difficult, each screen viewed by the user contains a dynamically embedded watermark.

Navigating user challenges

The introduction of digitalisation involves the use of tablets and browser-based solutions that may be a challenge for those who are not digital natives. For this reason, digital solutions need to be intuitive to use and a carefully planned phased introduction programme needs to be put into place to ensure everyone can get up and running smoothly.

It’s an approach that paid dividends for Helvetia, which implemented iPads for its members and support for board members as they transitioned from paper-based processes to fully digital documentation access and collaboration processes. Additional support services were put in place to respond to help requests and user uptake and acceptance was fast. Today, around 40 people in multiple locations are using the system, which is fully compliant with the privacy policies of a number of global territories, to securely access and work with documentation and participate in digital voting processes.

Moving security and efficiency into the boardroom

Today’s high-performing boards need to be able to successfully accomplish tasks and add value to the business. But as the definition of board effectiveness shifts, pressure is mounting on boards to respond to the demands of increased globalisation, deliver greater visibility into board operations and optimise the process steps that help keep board members engaged and able to fulfil their responsibilities.

Digitalisation enables boardrooms to maximise cost and time efficiencies – from eliminating the expense and time involved in the production and distribution of board papers to enabling new and better ways of communication and collaboration for members and executives that deliver transparency alongside voting support for faster, improved decision-making.

Corporations are also able to generate significant process efficiencies in relation to board management, utilising automated workflow functions to save time and money and to enable the faster flow of information and approvals between the board and executive committees.

In relation to risk management, making the move to digitalisation can also address security concerns and compliance requirements. Documents can be protected from unauthorised access and all interactions – including reviews, notes and annotations – are tracked and archived. It’s a facility that’s proving of increasing value for those companies and organisations that need to undergo formal third-party board assessments or performance oversight procedures.

In an era of shareholder activism, today’s organisations need to demonstrate their ability to drive well-evaluated decisions quickly and securely. The digitalisation of board processes can go a long way to enabling boards to perform more effectively and with greater security than ever before.

About the Author:

Mark Edge joined Brainloop in September 2014 and brings over 20 years of sales experience in the IT, security and networking industries. In his current role he is responsible for building out Brainloop’s UK team and driving the company’s growth across the region. Prior to joining Brainloop, Mark was Regional Vice President of Sales, UK and EMEA for Watchdox where he was instrumental in establishing what was then a little-known brand in the region, creating and building a pan-EMEA team.

Mark’s career has also seen him deliver senior sales roles for a number of blue chip technology companies including IBM, A10 Networks where he grew revenue year on year for three consecutive years and Citrix, where he ran application networking solutions sales for North America and EMEA. Mark has a degree in Economics and Russian from the University of Surrey. As well as speaking Russian, Mark can also speak in French, Dutch and Swedish.

Footnotes:

¹ Brainloop, ICSA Member Survey, ICSA London Conference, 12 March 2015