In the race to remain competitive, companies need to continually tweak their business models with the goal of delivering goods and services as profitably as possible. Today's customers expect more, and their expectations can shift quickly, causing companies to have to adapt more quickly and change strategies more often than in the past. To add to the confusion, other areas of the marketplace are simultaneously evolving. According to McKinsey, about 45% of employee activities can be automated by adopting current technologies. In other areas, companies also have to keep pace with changes in methodology and regulatory matters.
All of these issues affect your board operating model because they change how businesses work, how they manage the customer experience and how they compose their boards of directors.
The Effect of Digital Advancements on Business
The McKinsey report also reflects a power curve of the top-performing companies. In essence, the report shows that the top fifth of companies capture more than 90% of the economic profit. In fact, the top 24 companies make up the top 1% and earn the same as the next 87 companies together.
For companies to be able to compete with the top fifth of companies, they'll need to change their operating models. The question is how? Many companies are wrestling with whether they should change their business model around their customers' expectations, technology or both.
Success can only be realized by companies that are bold enough to put a sound strategy in place and commit to making certain big moves. Among the possibilities for making big moves are accessing new markets and capabilities through mergers and acquisitions and investing in new capabilities and activities that create value on a significant scale. Companies will need to find ways to radically improve productivity. In addition, they'll have to allocate sufficient resources to those capabilities and activities. As part of evolving the board operating model, boards will need to plan for bold moves that reinforce each other and build on each other to positively impact success.
In today's marketplace, evolving your board operating model will involve disrupting how your business operates today and replacing your existing model with a next-generation operating model that's capable of keeping pace with new levels of speed, efficiency and adaptability. It's time for a modern governance approach to board operating models.
Modern Governance Approach to Evolving your Business Model
Modern governance is the practice of empowering leaders with the technology, insights and processes required to fuel good governance. Modern governance addresses the core issues of speed, efficiency, adaptability, visibility and security by putting the necessary tools and intelligence at the fingertips of today's board members and executives.
Why? Because better governance leads to better outcomes. In May 2019, Diligent Institute measured governance practices using criteria related to shareholder rights, board composition, independence and compensation. What they found was that the top 20% of corporations that followed good governance principles outpaced the S&P 500 index. Also, companies that held to principles of good governance outperformed the bottom 20% of corporations by 17 points.
Modern governance accounts for addressing the governance deficit. Companies are struggling in their dealings with activist investors, cyber risk, regulatory matters, diversity and uncertainty across the globe. These issues carry long-lasting effects. Companies that fell short in good governance practices underperformed their industry sectors two years after an incident by an average of 45%.
By and large, corporate leaders don't have the right information at the right time so that they can ask the right questions. Boards and executives view much of the market activity from a myopic viewpoint, which means that they lack visibility into the company, across the industry and into the future. Many boards haven't found the proper digital tools to help them communicate, collaborate and share sensitive data securely.
NACD and Diligent Nom Gov
A revolutionary new digital solution called Nom Gov combines NACD's robust network of directors and Diligent's market-leading technology to help every company evolve its board operating model. The tool takes advantage of access to the same data that proxy leaders use.
With Nom Gov, board directors will be able to spot issues around boardroom diversity, composition, effectiveness and risk profile to elevate board performance to the maximum level. Nom Gov works by providing nominating committees with a diverse database of thousands of director and executive profiles. This valuable tool provides real-time critical data that impacts board effectiveness and the ability to make data-driven decisions.
Boards have never been more scrutinized or criticized than ever before. The pressure for boards to exercise good governance and fiduciary responsibility has never been greater or been the subject of more industry-wide discussion. Shareholders and other stakeholders expect today's boards to be proactive and to have information on the latest marketplace trends and governance at their fingertips. Board directors are expected to demonstrate expertise in the areas of ESG, diversity, succession planning, competitive moves and how their board performance rates with that of their peers.
Nom Gov also provides boards with a way to gain an independent view of how their board compares to peers in its industry across multiple dimensions including diversity and composition. Diligent Corporation gives boards the tools they need to exercise good governance to build a diverse board that has the right composition and skill set to reduce reputational, governance and activist investor risks.
Today's marketplace requires the most competitive companies to be as innovative as possible, pushing beyond the traditional ways that they've thought about longstanding business practices and governance principles. Corporate leadership will need to invent new and modern board operating models to reinvent their customers' journeys. Technology plays a huge role in bringing together new project teams, task forces and groups that join employees and others from different facets of the business in a highly secure and collaborative manner. Diligent Corporation is helping companies move into cloud-based, virtualized environments in which they can experiment and innovate with the security of user-based permissions. The worst of times may be behind corporations as they look forward to digital solutions that will give them the best of times, driven by clear purpose.