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Will we need boards in the future economy?
The future economy, with its emphasis on digital disruption and hyper-disintermediated business models, augurs change in the way businesses and companies are run and governed. The changing relationship between boards and management will have significant impact on the roles and responsibilities of directors.
In traditional companies, the board is appointed to represent and safeguard shareholders’ interests. Given the information asymmetry between management and owners, the board seeks to ensure conformance with regulations and accounting standards even as it pushes management to perform.
Processes such as internal and external audits, board dashboards, and reporting requirements are assumed to reduce the likelihood of management pursuing their own interests, or performing poorly.
The new company model
In the new economy, technologies such as distributed ledger technology (i.e. blockchain), could bring about a completely new way of governing companies.
Instead of large, hierarchical, centralised entities, blockchain may enable highly localised structures connected via a distributed network.
Instead of the traditional ownership structures of the public or private limited company, it may give rise to decentralised autonomous organisations.
Instead of having shareholders, companies may create and issue crypto-currency or tokens via initial coin offerings (ICOs), which may be held by employees and customers.
Technology platforms could enable “barter” within ecosystems, wherein users could trade goods and services using each other’s tokens or coins. This could also cause a convergence of the roles of customers, employees, suppliers and owners.
Imagine a business where all the customers and all the employees were also the co-owners, thus leading to a strong purpose-driven organisation. This could result in a closed-loop ecosystem in which everybody is driven by the same purpose – good products and services, and fair wages and prices.
In this context of a hyper-distributed and hyper-disintermediated business model, what would the role of the board look like? I posit that there will be shifts in board roles, composition and dynamics.
From fiduciary to advisory
The first is a shift from a fiduciary to a more advisory role.
Traditionally, most boards focus on carrying out their fiduciary responsibilities, ensuring compliance with regulatory requirements. However, in the new economy, “smart contracts” could take over the role of ensuring conformance with regulations and reporting requirements.
With decentralised ledger-keeping, company accounts could be instantaneously verified anywhere in the world, likely rendering the audit and compliance function of the board redundant.
Similarly, companies may not need annual general meetings or boards to vote on key issues related to business strategy and organisational priorities. Advances in technology would allow for highly distributed decision-making, where all token-holders – be they customers, employees, or investors – exercise their preferences on key strategic issues using real-time voting platforms.
The focus of the board then, very importantly, would need to shift from conformance to driving company performance. Unencumbered by regulatory requirements, the boards of some new economy companies may likely evolve to advisory boards. Board members would become more like internal consultants to the CEO and management.
These advisers would need to have deep knowledge and industry expertise, relevant experience and track records, helpful networks and connections. Ideally, they should have shared interests with management. The advisory board would also need to act as custodians of the corporate culture – by helping to place the right people in the right jobs, determining what performance is valued, and which behaviours get rewarded.
Stronger need for diversity
Given the focus on the advisory function, it will be particularly important to ensure appropriate diversity of thought and experience.
Board members of different skills, gender, age and culture will likely continue to provide varied perspectives. But the new economy company board will need to move beyond these traditional visible dimensions of diversity. They would also need to focus on the non-visible aspects of diversity, such as stewardship styles, emotional and social intelligence, and functional domain expertise.
In addition to the traditional skills of commercial, accounting and legal, companies would also need directors with specialist skills across domains such as public relations, crisis management, cybersecurity, cryptocurrency design and cultural transformations. Technology disruptions and disintermediation behoove boards to have deep expertise related to digital transformation and organisational development.
The argument for directors with long tenures on the board would become redundant in new-economy companies. Technology and artificial intelligence (AI) could replace directors valued mainly for their insights into the company’s history and context.
AI for directors?
It is not inconceivable that the board of the future would be supported by an AI function or a bot; which can keep up with any boardroom discussion, contextualise the premise, have instant access to data and analytics, and also provide historic context and precedence as required.
Indeed, companies in the new economy will continue to need boards, albeit with a different mandate. Whilst blockchain and other technology advances will change its role, the board will still be required to guide and advise management, and help drive company performance. Even more so, this makes it critical to have the right, and diverse, skillsets and experience represented on boards.
Yes, the board of directors will still be needed for the future economy company. After all, you can’t come up with an algorithm for experience and judgement.
The writer is a member of the Professional Development Committee of the Singapore Institute of Directors.