Good governance weighs in favor of pursuing long-term performance and strong risk management. Since the 2008 financial crisis, companies have been pressured into showing proof of positive performance over the short term to appease shareholders. Companies are continuing to struggle with how to put the focus back on the long term.
Across the board, there has been a renewed focus on governance as companies try to find their new normal. A major challenge along the way is how board directors can clearly communicate and analyze governance indicators. On a positive note, new technologies are driving increased capabilities to improve quantity and quality of data. Technology has also prompted a renewed culture of transparency, which is helping investors and boards to better understand and act on governance issues.
Good governance is central to a company’s performance. Having a clearly defined core business and open communication with shareholders are basic requirements of corporate governance frameworks. The work of audit, executive, nominating and other important board committees has a direct impact on good governance. Ultimately, whether a company abides by good corporate governance principles or not lies directly with the degree of oversight that the board provides.
Enhancing Governance Through the Use of Technology
It’s vital for boards to fulfill their fiduciary and loyalty responsibilities to their stakeholders. Shareholders of public companies expect boards to use technology as needed to maximize their returns. Among those expectations and many others, boards must be balanced, knowledgeable and empowered to use every tool at their disposal to oversee the company.
Strong boards hold managers accountable for the long-term solid performance of the company. Corporate leaders shouldn’t be tempted to take shortcuts on cost or quality, and technology can be a huge resource in that regard.
Data is useful to boards in many ways. Digital tools provide the best tools and resources to provide the data that boards need. Digital tools like the NACD and Diligent’s Nom Gov can help to benchmark the board’s strength, skills and performance. The tool can also help to score the board’s social balance and gauge its diversity. Of course, having access to lots of data can serve to complicate things even further.
Digital tools can help to make sense of large quantities of data because it can help to bridge the gap between qualitative and quantitative data analyses. Quantitative data is telling. When combining quantitative data with qualitative data, the data has greater context and meaning. Technology helps board directors to understand data and share it in a meaningful way.
Data is also an important instrument for shareholders. By doing a thorough review of their investments, data can help them make wise decisions about current or new investments. In particular, data can tell them whether they’re making investments in companies that have good governance principles. Data will also inform them of whether they’re investing in companies that have diverse boards with diverse viewpoints. Data is also useful to investors because it can be the starting point for conversations around how the board supports diversity and how diversity relates to the board’s goals or success. Investors are aware of statistics that have shown how the addition of women and minorities on boards have had a direct relationship to positive revenue streams.
While shareholders will likely continue to focus on short-term returns for the near future, they’re also interested in getting back to the point where they can endure some amount of short-term loss for the sake of long-term gains. The right data can be instrumental in showing that a company is on the right track with long-term investing and that the company is managing risks effectively.
The Quality of Data Gives Perspective to Quantities of Data
Quantitative data by itself only tells part of the governance story. It’s important for board directors to share quantitative and qualitative data with shareholders so they get the right context. Data tells shareholders not just who the new board candidates are, but how the board discovered them and the criteria by which they are evaluating them.
The National Association of Corporate Directors (NACD) and Diligent partnered up with a digital tool that helps assure shareholders that boards are doing their due diligence in recruiting qualified board candidates. Nom Gov is a searchable tool that allows nominating committees to search hundreds of thousands of board and executive profiles the world over. Nom Gov provides an efficient way to identify, locate and narrow down the best list of candidates. With Nom Gov, shareholders can be sure that boards have completed the most exhaustive search possible.
Data and Technology Are Game-Changers in Governance
Shareholders express interest in knowing whether boards are taking advantage of technology in their role as overseers. They’re becoming more proficient in analyzing and questioning governance issues. Predictive analytics, machine learning and data management are valuable tools for analyzing and communicating data. Data makes it possible to better predict issues like fraud and customer retention, rather than just relying on intuition.
Advancements in technology have brought forth tools like board portals and virtual data rooms to provide a secure online space where multiple parties can work on complex transactions like mergers and acquisitions.
Big data and artificial intelligence are valuable tools for auditors and audit committees. Quantitative systems with artificial intelligence programs help to spot abnormal patterns quickly, making it easier to call attention to exceptional and suspicious trades. Having access to data also improves accuracy. Manual processes made it possible to examine only a small sample of company data so there was a good chance that they would miss something. Modern tools make it possible to examine larger samples in greater depth in the same amount or less time. More accurate audits also help auditors to determine if the company is actually reaching its financial targets. Accurate data also makes it easier to detect fraud and unchecked risks.
Overall, technology helps to improve governance because it brings forth more and better data, which is useful to board directors, executives and shareholders for transparency and accountability.