You are here

SIAS 9TH CORPORATE GOVERNANCE WEEK 2018

Is technology disrupting governance?

There is a need to combine digital transformation with the promotion of the highest standards in honesty and ethical values.

BT_20180920_LOW20_3567436.jpg
Mr Low says good governance practices help organisations move quickly in a volatile and digital world, with the support of their clients and stakeholders.

THERE has been an explosion in the possibilities brought about by rapid developments in technology these past few years. Many companies are reinventing their business models, or exploring digital technologies to enhance operational efficiencies and create more value.

We therefore live in an age of increasing business disruption coupled with a relentless push for greater innovation. This accelerating need for speed has brought the adage of "Just do it and ask for forgiveness later" or its cousin "Seeking forgiveness is easier than asking for approval" into common parlance.

Never before in human history have we seen so many new business models created in such a short time. Examples include those premised on the sharing economy such as search-engine related marketing, ride-hailing and home-sharing.

These models are often driven by the need for a first-mover advantage, involving a company creating a platform which collects or leverages data or information they do not own. In some instances, information agreements are also not adequately negotiated with stakeholders having rights to the information, or regulators. This belief of a need for speed increasingly lends itself to the idea that good corporate governance needs to make way for accelerating adoption and more innovation.

sentifi.com

Market voices on:

Otherwise, a company may fail to quickly land a foot in the market before their innovative solutions become obsolete.

On the contrary, this age of the "fourth industrial revolution" involving the blending of information, technology and connectivity has brought with it increasing security risks, a heightened awareness of data privacy and "fake news". In turn, this has spurred the rise of populism and nationalism in many countries.

The implication is this: when something goes wrong, the contagion is difficult to stop.

No company, clients, stakeholders or regulators exist only as an island in today's ever more connected global economy.

'Integrity' economy - Trust fuels speed, innovation and growth

We put forward the idea of the "integrity economy", where the best safeguards against these rapid changes are not technological, but rooted in our humanity.

Our push for an "integrity economy" calls for digital transformation combined with promoting the highest standards in honesty and ethical values. Good corporate governance practices can be the vanguard against reputation-destroying human behaviours.

Good governance practices can help an organisation establish a status of becoming publicly trusted. They can also help organisations move forward quickly in an increasingly volatile and digital world, with the support and trust of their clients and stakeholders.

How organisations leverage data as a source of competitive advantage is therefore important, and the fair and ethical use of this data is increasingly sacrosanct.

Good corporate governance practices should be embedded into the daily operations of any organisations.

In their tone-from-the-top, organisational leaders need to promote fair and ethical behaviour to all its stakeholders, both internal and external.

Instilling good governance practices in the 'Experience and Experiment' journey

In KPMG's 2018 CEO Outlook, 88 per cent of Singapore's CEOs see disruption more as an opportunity than a threat. However, 58 per cent cite significant challenges in transforming their business and 50 per cent are overwhelmed by the time available to make progress.

Some examples of the growing pains that corporate leaders and their boards have shared with us about deploying their digital strategy or transformation journey include:

  • Structures once created are hard to operationalise;
  • Organisational cultures that are hard to change;
  • Poor oversight of change management;
  • Legacy systems;
  • Cultural resistance to change;
  • Complacency.

The above pain-points coupled with the pressures from a mindset of "think and act fast" make the case that organisations need to regularly revisit their governance practices.

What this also means is that they need to balance being nimble and agile with placing a stronger emphasis on risk assessment, understanding risk appetite and risk culture.

We often advise our clients that a successful digital transformation requires proper control and oversight.

A freedom to innovate, and increasingly in collaboration with strategic partners, means that good governance may extend beyond one organisation. It needs to include consideration of working arrangements with partners.

For example, governance processes need to be considered even as an idea moves from a proof of concept towards deployment. At the same time, how investment cost and operational processes are controlled and governed.

A more viable governing approach is not to govern and control everything, but to assess and accept some potential risks while including appropriate safeguards as part of an effective system of governance and controls.

This is especially important when collaborating with customers in the innovation process.

For example, one CEO told us that it is possible to build something just 60 per cent the way into a minimally viable product, then co-create with the customer to bring value to the end-customer much faster.

Another example comes from Singapore's public sector agencies, which sometimes deploy a "sandbox" environment and approach to encourage experimentation.

Lessons are learnt while consequences of failure are contained.

As regulators, this allows them to proactively update the regulatory regime while ring-fencing risks and promoting transparency.

Conclusion

In the face of change, the benefits from technology and innovation can only be reaped if there is a right blend of people, skills and organisational structure practising good governance to support the whole ecosystem of integrity and trust.

It has often been said that digital disruption offers us exciting opportunities and is not to be feared but embraced. We suggest that organisations also consider risk and governance before embarking on their journey of digital experience and experimentation.

  • The writer is deputy head of advisory, KPMG Singapore