New technology offering enhanced data, analytics and communication for chairmen and their boards is useful, but often fails to recognise the importance of culture and competitive advantage, says Professor Andrew Kakabadse of Henley Business School.
Speaking at the launch in London of ICSA: The Governance Institute’s ‘The company secretary as changemaker’ series, as part of an expert panel discussing how technology is likely to impact the future of governance, Professor Kakabadse continued:
“The environment in which companies are currently operating is increasingly prioritising high levels of conformity and compliance, while markets grow in complexity. A focus on compliance is one of the best ways to kill your business because it mentally and emotionally limits choice-making behaviour.
“Technology is a vital resource in industries such as insurance and finance, where big data gathering is viewed as improving efficiency and reducing information conflicts.
“An insurance broker, for example, no longer needs a big HQ to operate from. They can assess and process a claim in a matter of seconds using artificial intelligence that analyses a customer’s circumstances, personal history and likely levels of profit and compensation.
“However, you can have all of the latest technology available to your board but when it comes to doing business in Bucharest, if you don't know who the relevant minister is, you won’t win the contract.
“Of course the general manager could tell you this, but board members have to go to where strategy is being delivered to find out for themselves.
“Our ongoing research into 19,500 organisations across 35 countries shows that there isn't a company board in existence that doesn't know its own problems in advance.
“A prime example is Marconi. The precise timing of its bankruptcy was predicted by senior figures within the company five years before it happened. Everyone knew the strategy wasn’t working, but this uncomfortable issue was never formally raised.
“We have identified two key ‘fracture points’ which explain this. The first split is between boards and top teams, and the second is between top management and general management.
“No matter how much technology is available, success or failure comes down to understanding the competitive advantage of your firm, and sadly some 80% of board members can't say what this is.
Looking to the future, Professor Kakabadse added: “Greater centralisation of data means that governance needs to change. Apps and machines will not take over from boards, but they can distract them from what they instinctively know is the reality of a particular situation.
“On average, 40% of UK management team members underrate their boards. In the US this figure leaps to over 70%, with the main reason being given for this rating is that ‘boards are out-of-touch.’
“The solution is that we need improved stewardship. Boards must stop behaving like committees and focus on improved communication at all levels. ‘Implicit information,’ or the reality of an organisation’s culture, as well as the detail given to stakeholders is crucial.”