The High Costs of Governance Deficits
Recent reports have shown that the lack of good governance quickly becomes apparent. A May 2019 report by Diligent Institute showed how shortfalls in governance occurred at 14 companies, costing shareholders $490 billion in value as compared with figures a year later. While those are devastating figures, the same report also shows how good governance can quickly move corporations in the other direction. The top 20% of companies with strong governance outperformed the bottom 20% by 17 points, or 15%, over a two-year period. That's proof positive that good governance is the best way to gain a competitive advantage.Modern Governance Is the Key to Managing Governance Deficits
Governance practices have been slowly evolving to keep up with the fast pace of the corporate world, technological advances and the volatility of our economic times. In many ways, governance principles and practices haven't kept up with the pace of business.
Modern governance is a new category by Diligent Corporation. Let's take a look at what that means. Modern governance is the practice of empowering leaders with the technology, insights and processes that are necessary for good governance. Boards and leadership teams need digital tools to bring them up to the pace of our digital world.
Diligent has the privilege of working with over 650,000 board members and governance professionals. Across the globe, we've noticed that good governance is dynamic. Each organization approaches it in a slightly different way, but a few modern governance principles hold constant.
Board directors begin their work with a preset governance structure of rules, roles and processes that govern the board, and in turn, also govern the organization. Keeping up with the modern corporate world requires revisiting the organization's current governance structure. Boards must be able to explain to their investors with confidence why the board operates the way that it does. A few companies have broken out of the mold and shown how progressive boards are modernizing the approach to governance. Here's a look at what they did:
- Netflix designed and adopted a transparent board management communication model in which they cap the board's materials at a 30-page outline, which allows board directors to more easily focus discussions on strategy.
- Prudential's board reformatted their proxy disclosure so that it aligned with six internalized governance principles that they adopted from the Investor Stewardship Group.
Modern governance means revisiting board composition, improving visibility around key risks and opportunities, and avoiding cyber mistakes.
Today's boards need to focus on diversity and independence so that they have the right mix of perspectives to bring into board discussions. Modern governance requires boards to align the board's skills with the company's long-term strategy. Diversity and independence aren't suggestions or requirements. Modern boards see them as advantages. Data and analytics are the key to the modern approach to succession planning. Diligent Corporation designed the Nom Gov tool with that in mind. This tool brings the profiles of over 125,000 board director and executive profiles to nomination committees simply by doing a granular search.
Cyber risks are growing in number and sophistication. Boards that fail to recognize this and that fail to take action risk becoming complacent. Boards that become complacent and that fail to innovate will be left in the dust. Modern governance entails being able to identify key organizational risk and then designing the dashboards, reporting frameworks and information to identify red flags and actively monitor risks. Digital solutions alert boards to predicted shareholder actions, enable reputational risk monitoring, and enhance visibility across peer groups.
Boards often unintentionally make simple cybersecurity mistakes like using personal text messages, personal email accounts and public file-sharing applications for board use. Even when messages aren't sensitive in nature, merely sending them opens up entry points for bad actors. With a centralized board management system, boards can and should be managing all communications, regardless of size or importance, through a highly secure, fully integrated digital software solution.
Tackling the governance deficit and taking a modern governance approach are innovative steps that can only be enhanced by actively monitoring corporate and industry news to identify market trends, sentiment scoring, risks and opportunities.
Providing Boards With The Right Governance Intelligence
With an understanding that board directors and executives need a way to stay current on governance and aggregate the news and research that matters most to them, Diligent now offers governance intelligence software to give visibility into the real-time information they need to maintain a competitive edge.
Diligent's Governance Intel software combines and securely aggregates a company's subscription sources and internal data with over 70,000 authoritative open-web business news sources using a single powerful research and discovery tool.
This tool eliminates the time-consuming task of pulling up individual articles and sites by leveraging artificial intelligence to make quick work of pulling together key insights, developments and trends. It quickly consolidates market research and competitor insights for more informative strategic planning. Custom reports and alerting flag corporate health changes and specific events.
Board directors will appreciate the convenience of being able to customize the tool to their needs and expectations by setting their controls to the sources, volume, frequency and modes of consumption according to their personal preferences. For added convenience, they can retrieve their news on their mobile devices, through email, on dashboards, via curated newsletters or in finished reports.
The pace of business will assuredly continue to pick up speed. This is the time for boards to revisit their current governance structures and make decisions about how to effectively innovate for the future. Diligent's Governance Intel puts the right tools in place so that good governance becomes a powerful enabler that gives your company a true competitive advantage.
