Building trust is a critical corporate challenge. A litany of scandals and high-profile governance failings has eroded public confidence in businesses’ ability and desire to operate in an ethical, responsible manner.
Re-establishing and strengthening stakeholder trust is vital if corporations are to survive and thrive in today’s volatile and uncertain environment; it’s a topic that is high on the boardroom agendas of organisations of all sizes. At the same time, businesses and their boards are aiming to become more efficient, prioritise long-term strategy and meet their obligations in an increasingly complex compliance landscape.
Faced with these challenges there’s growing recognition of the potential of strong corporate governance to be the framework upon which renewed trust and transparency can be built. Sound governance, proactively managed across the enterprise, sets the tone for all the organisation’s engagements with stakeholders. It provides transparency around corporate actions, risk-taking and responsibilities, and helps businesses respond to the concerns of the rising number of activist investors who are making their presence felt to those sitting around the boardroom table.
Promoting effective governance, supported by appropriate processes and technology, is a key responsibility of the board and company secretariat. It’s a challenge that many boards are grappling with right now: how to apply technical tools that power effective and informed decision-making and robust strategic oversight of the organisation. In this article, we’ll examine the drivers for enterprise governance management in the light of the pressures faced by modern boards. We’ll also look at examples of UK and European businesses that are deploying enterprise governance management and the benefits that this can deliver.
The carrot and stick of corporate governance
There are undoubtedly two sides to the drive for good corporate governance. On the one hand are the tempting carrots of greater efficiency, clearer visibility of corporate responsibility and the potential for stronger financial performance and competitive advantage. McKinsey reports that ‘boards with better dynamics and processes, as well as those that execute core activities more effectively, report stronger financial performance at the companies they serve’. In this case, financial and non-financial motivations for good corporate governance align to pull in the same direction.
On the other hand, the regulatory frameworks developed in response to the failings of the past put pressure on boards to keep their house in order or risk the penalties of non-compliance. Recent updates to the UK Corporate Governance Code and its extension to large, private companies under the Wates Corporate Governance Principles are unambiguous in their requirements for effective stakeholder engagement and robust application of corporate governance principles. Additionally, as the digital world develops, more stringent regulations around data privacy and cyber-responsibility add to the burden of compliance.
Finally, acting as both carrot and stick are evolving expectations around environmental and social governance. Stakeholders are rightly concerned about the performance of organisations as corporate citizens. The risk of reputational damage and legal or financial penalties for poor performance in this area are significant, meaning organisations that perform well have the advantage.
These powerful drivers of performance goals and compliance demands are creating an understandable focus on governance in many organisations – and new pressures on those responsible for stewardship and oversight.
Mounting pressures on the company secretariat
In light of the challenges above, today’s boardrooms have broader and more diverse responsibilities than ever. The necessity of getting the right information to directors to enable robust, informed decision-making has never been higher. This is having a significant impact on the role of the company secretary. A recent report by consultancy Grant Thornton found that 80 per cent of company secretaries say their role has grown in responsibility and breadth, with the majority of this increase being attributed to regulation and associated compliance.[1] Despite this growth in workload, a survey by executive search specialists Leathwaites found that more than three quarters of company secretaries expect headcount to stay the same or decrease.[2]
With more work to do and no extra people to do it, the company secretariat is facing a resource crisis that threatens to derail their efforts to adapt to this more dynamic, demanding corporate governance environment. It’s not surprising that Leathwaites’ survey saw company secretaries rate improving efficiency as one of the most important challenges they face in the coming year, second only to improving the use of technology and data.
These intrinsically linked aims are prompting organisations to explore enterprise governance management, the discipline of applying technical tools and resources to the full range of governance needs in a bid to transform efficiency, security, communications and compliance. The focus is on enabling the board to get swift, straightforward access to all the information it needs to perform more effectively, creating a framework that supports transparency and builds trust with stakeholders.
The benefits of digital enterprise governance management – improved efficiency
Stretched resources and stressed colleagues were a familiar story for Tiziana Thomas, who is assistant company secretary at specialist retirement financial solutions provider Just Group Plc. Her experience of creating and distributing board packs was typical of many organisations: “Building board packs had become frustrating and stressful for that team. It was taking three people an entire day to print, bind and despatch packs of up to 800 pages through the post. Staff were frequently in the office until midnight in the evening preceding the board pack release and often had to request assistance from other administrators within the company to get the job done. On top of that, the post wasn’t always reliable so even materials sent out in good time didn’t always arrive when required.”
The first step on the road to enterprise governance management is often the deployment of an electronic board portal. This was the approach taken by Just Group, which implemented Diligent Boards in 2016. The portal replaces hard copy board packs, providing a central, ultra-secure location for board meeting materials. Directors access the portal 24/7 from their preferred device, so they can review and annotate materials whenever convenient.
As well as offering greater flexibility for directors, the burden on the company secretariat is reduced as printing, binding and dispatching is eliminated. Tiziana recalls: “Suddenly all that frantic activity and cost in getting board packs out to directors disappeared.” It also means that last-minute changes – unavoidable in fast-paced organisations – can be carried out quickly and easily, without the need to reprint documents.
Digital support for board activities isn’t just limited to board materials. It can also make meetings more efficient, freeing time for directors to focus on strategic discussions. Tiziana explains: “Time is precious in board meetings. We have to use it wisely and we increasingly found that procedural activities were taking up excessive time. We wanted to reduce the time directors spent on voting to give more time for strategic debate in meetings. As a financial services company, we are heavily regulated so there are always a large number of policies that must be reviewed and voted on. We recently trialled Diligent’s electronic voting facility so directors could review policies and vote on them prior to the board/committee meeting. This was very successful and popular with directors.”
Further efficiencies arise from features such as electronic meeting agendas and minutes, which can be automatically generated and completed through the board portal. Agenda items are linked to relevant supporting documents, so directors can easily access the right materials during meetings. Minutes with assigned director actions can be swiftly created and circulated and follow-up reminders of actions sent to directors via the portal between meetings.
While these are straightforward uses of technology in isolation, bringing them together via a board portal means that they are secure, accessible and auditable, supporting better board performance.
Improving security in a high-risk environment
Improving security is an important aspect of enterprise governance management. The potential impact of data breaches has dramatically increased following the implementation of the General Data Protection Regulation and boards are under no illusions about the costs – financial, legal and reputational – of suffering a breach.
While many headlines around data breaches focus on cyber risk, the regulation applies equally to hard copy breaches. This is particularly relevant to board meeting materials. Hard copy board materials, sent out by post or courier, put the company’s most sensitive information at risk. They are exposed to the possibility of accidental loss, unauthorised access and unsafe disposal. This is unacceptable. Moving to a digital solution has clear benefits in terms of controlling information access and distribution, but the transition is not without risk.
Entrusting a company’s most sensitive documents and communications to a third-party digital system requires assurance that it is protected to the highest standards. This means state-of-the-art encryption, secure servers and an ongoing supplier commitment to maintaining the most advanced defence against evolving cyberthreats.
Privileged corporate information is a prime target for industrial espionage and nation state threat actors, with exfiltration tactics becoming increasingly sophisticated. Therefore, companies must be confident when deploying a digital solution that they also understand and address third party cyber-risk to keep their assets safe.
Secure communications – enabling directors beyond the boardroom
While board materials are ultra-sensitive, communications between the company and its directors outside of the meeting schedule are equally vulnerable.
Regular communication between directors is essential to strong board performance but, historically, the channels through which this takes place have been a real pain point. Non-executive directors in particular may use personal email addresses and phone networks that are outside corporate control to conduct sensitive conversations and share documents. This introduces a further level of risk that must be managed.
Messaging software incorporated into a secure board portal eliminates this vulnerability, as all communications between directors are securely encrypted. The portal can also be used to share documents for consultation, with administrators able to set access levels and prevent documents being forwarded or saved to unsecure systems. This has been a further benefit for Just Group’s Tiziana Thomas, who introduced Diligent Messenger to her board: “There’s no need to password-protect files, like we would with email. Also, we can send large files that email systems reject.”
Adding secure messaging to the enterprise governance management mix also reduces the likelihood of spear phishing or whaling attempts succeeding, as directors grow accustomed to using only the proprietary channel for communication.
Simplifying compliance and ongoing visibility
While security and administrative benefits are an important feature of enterprise governance management, there are further advantages to be gained by applying technical tools to manage complex issues, such as entity management.
As companies grow and the compliance landscape intensifies, managing local compliance in multiple jurisdictions becomes difficult. Often compliance activities become isolated in departments, with data frequently stored in spreadsheets, resulting in inaccurate or incomplete reporting. This means the board cannot gain oversight of the full compliance picture. An entity management solution offers a single source of truth, ensuring that real-time corporate entity information can be easily viewed by the board. It also includes processes and workflows that assist staff in reviewing and measuring compliance.
This is an area coming under increasing scrutiny, not just from a point-in-time perspective, but also in terms of the ongoing processes required to support compliance. For example, the introduction of regulations, such as the Senior Manager & Certification Regime (SM&CR), which will affect 47,000 financial services organisations in the UK, will bring with it a significant ongoing compliance burden that will require support from technology to be successfully managed.
Managing board performance – evaluations and intelligence
We live in a world where data is available at the touch of a button and this is changing expectations of how we monitor everything, from business performance to personal fitness. Board performance monitoring has to evolve to keep abreast of both the requirements of the corporate governance code and the expectations of investors and stakeholders. A full external evaluation of the boards of listed companies is only required once every three years, but the fast pace of commerce means it’s increasingly expected that board evaluation will be ongoing and reported annually to stakeholders.
“BY ADOPTING ADVANCED PROCESS AND MANAGEMENT TOOLS, COMPANIES CAN GAIN STRONGER GOVERNANCE PERFORMANCE, GREATER TRANSPARENCY AND ACCOUNTABILITY, AND DEMONSTRATE A SOUND FOUNDATION AND PROOF OF PROCESS ON WHICH TO BUILD THE VALUABLE ASSET OF STAKEHOLDER TRUST”
A comprehensive enterprise governance management solution includes an evaluations module, making it easy and cost-effective to create regular director evaluation surveys and collate the results automatically into reports. This means businesses can ‘take the temperature’ of the board, assess director engagement levels over time and identify early signs of issues arising with board dynamics, all without placing undue workload on the company secretariat.
Regular evaluations enable boards to work on continuous improvement, and to achieve this it is important that directors are kept up to date with the latest factors affecting the governance world. To that end, Diligent’s Governance Cloud also includes an Insights module, offering relevant and timely content on corporate governance topics. Directors can stay up to date with the latest information and incorporate what they learn into board activities, thereby strengthening board performance.
The challenge of change
Despite the benefits of deploying technology to support all the strands of corporate governance, change of any sort can be difficult to manage. While company secretaries may be crying out for their boards to make the digital switchover, chairs and directors aren’t always so willing. This was underlined in Leathwaites’ survey of company secretaries, which found that only eight per cent of chairs were supportive of introducing technology to the function. Similarly, Grant Thornton’s study found that ‘technology use was inconsistent and has not necessarily improved quality or efficiency’.
These statistics echo with Katy Maughan, PA and administrator to the company secretary at European specialist building products distributor, SIG Group (LON: SHI). Although the business had invested in a board portal to improve efficiency, directors were reluctant to use it, preferring to have meeting materials in hard copy format, as well as hosted in the portal. This was costly, time-consuming and insecure, so when Diligent acquired SIG Group’s previous portal provider in 2012, Katy took the opportunity to get directors on board with digitisation. She carefully managed the switch over to the new system, avoiding the board’s busy periods and considering the directors’ needs alongside the technology aspect.
The difference this time was getting the right support for directors as the system went live. Directors had face-to-face training with Diligent’s customer support team and ongoing support available from the 24/7 customer support service. Katy explains: “The availability of knowledgeable, friendly support is a major bonus for us. I can confidently refer directors to the helpline with any queries, and they always report that they’ve had a great experience.”
This positive introduction worked for SIG Group. Directors became confident using the portal and soon saw the benefits for secure communications outside the meeting schedule. The biggest testament to the success of the move came from the directors themselves: “I was preparing confidential audit tender documents, and one of the directors said: ‘Why not just put it on Diligent?’” recalls Katy. “That really shows how they have come to appreciate the benefits of using the board portal.”
It’s clear from SIG Group’s experience that the way change is introduced and supported is as important as the technology that enables it. The company is now firmly on the pathway to effective enterprise governance management.
EGM: A performance advantage
Board responsibilities are evolving all the time, growing in complexity and breadth. It therefore makes sense to ensure that corporate governance is managed at the highest level. All the of benefits of digitising board processes and responsibilities are valuable, even in isolation, but when brought together under a unified, integrated approach they really represent a competitive performance advantage for organisations.
By adopting advanced process and management tools, companies can gain stronger governance performance, greater transparency and accountability, and demonstrate a sound foundation and proof of process on which to build the valuable asset of stakeholder trust. This will enable corporations to survive and thrive in today’s volatile and uncertain business environment.
Footnotes:
2. https://www.leathwaite.com/wp-content/uploads/Company-Secretary-Global-Survey-Results-Paper-2018.pdf
