Technology is now more central to the strategy and operation of organisations than ever before. CSj looks at what impact this is having on governance practices and on the roles of Chartered Secretaries and Chartered Governance Professionals (CS/CGPs).
If there were any doubts about whether companies needed to speed up their adoption of new technology, then Covid-19 has given a clear answer. Many of the big tech companies were already, of course, taking full advantage of the opportunities presented by new technologies, such as artificial intelligence (AI), blockchain, data analytics and the internet of things, but Covid-19 has resulted in a dramatic levelling up of the use of technology across all companies and industries.
‘A new tech-heavy and tech-savvy organisation, consumer and governance model is emerging’, says Dr Jag Kundi, an Adjunct Professor at City University of Hong Kong, who specialises in governance, fintech and big data. ‘Moreover, a shift back to the analogue way of doing things prior to the pandemic is not happening.’ He cites the widespread retention of some form of remote working even as lockdowns are being lifted or reduced as a good example of this.
A study by tech giant Microsoft – the 2021 Work Trend Index – found that 65% of Hong Kong business leaders plan to redesign offices in such a way as to accommodate both in-office and remote-working arrangements. Furthermore, close to two out of three full-time employees interviewed from more than 1,000 companies said they want remote work options to remain after the pandemic ends.
‘The reason why companies are not rolling back the tech innovations introduced during the pandemic is not hard to see’, says Lennard Yong, Group CEO, Tricor Group. Companies pushed further along the digitalisation path by Covid-19 have discovered the benefits this has had for their strategy and operating efficiency.
‘There is a very high risk today to not being digitalised,’ Mr Yong says. ‘Companies that focus on the risks involved should also consider the risks of not being digitalised. Have they thought about their ability to run their next annual general meeting (AGM), for example, if their local health authority announces a total ban on gatherings and puts travel bans in place?’ He predicts that the next few years will continue to see a greater uptake of new technology platforms for AGMs and business communication.
Technology and the boardroom
Navigating the current technology landscape requires having your board in the driving seat adapting to the challenges that this brings. When the board is up to speed with technological changes, better direction from the top cascades down to the different business units, points out Christine Chung FCG FCS, Company Secretary, AIA Company Ltd.
‘If board members think the company needs to invest in technology, they can set technology as a strategic priority and steer management in the right direction to drive technology implementation across the business,’ Ms Chung says. This has obvious implications for the board’s composition and skills matrix. She points out that, while directors do not necessarily need to be technology experts, they do need to have a much deeper understanding of technological trends and their implications for the business – not only to mitigate the potential risks but also to direct the business to capture the opportunities that these trends will bring.
Philip Miller FCG FCS, Institute Education Committee member, Technical Consultation Panel (TCP) member, TCP-Technology Interest Group member, Deputy Corporation Secretary and Deputy Regional Company Secretary, Asia-Pacific, The Hongkong and Shanghai Banking Corporation Ltd, emphasises the role governance professionals can play in ensuring that directors individually, or the board collectively, receives briefings and information to develop their understanding of leading areas of technology. ‘A board should have a clear line of sight of developments in the area of technology, and who are the key members of management leading these technological initiatives and responsibilities,’ he says.
As with any major change to the status quo, however, governance professionals should not assume that all directors will be willing passengers in this journey. ‘Technology is about change, it’s not about maintaining the status quo, but rather about being adaptable and flexible,’ Dr Kundi points out, and in this context the age and background of board members are important factors.
The 2018 Hong Kong Spencer Stuart Board Index found that the average age for board members in the Hang Seng Index was 61 years old, and the average age of independent non-executive directors (INEDs) was 65. ‘Coming from an older generation would likely impact directors’ awareness of the commercial impacts of technology,’ Dr Kundi says.
When you add to this other factors such as infrequent board meetings (boards in Hong Kong typically meet on average three to four times a year) and the fact that not all board members will be present at every meeting, it quickly becomes apparent that boards are often not optimally positioned to respond to fast-moving tech developments. Dr Kundi believes that setting up a technology-focused subcommittee of the board will help speed up and focus boards’ adaptation to tech challenges.
‘Some of the smarter boards are looking at setting up a fintech committee,’ he says. ‘We already have environmental, social and governance (ESG) committees and I see no reason why there can’t be a subcommittee for some of these new technological areas that can meet as and when needed. A smaller group of directors will be able to deal with challenges more immediately.’
Embracing tech-driven change
In addition to helping directors remain open to technological change, governance professionals themselves need to adopt this mindset, both in terms of how technology will change the organisations they work for and the impact it will have on their own roles.
Some practitioners may argue that technology is not within their jurisdiction – particularly when their organisation has officers dedicated to overseeing the tech agenda such as chief technology officers (CTOs). Mr Yong emphasises, however, that directors and managers will appreciate company secretaries ‘stepping up’ to help the board or the CEO by pushing for technological change in their line of work, even where the organisation has a CTO. ‘A company secretary can, for example, push for the use of a technology platform to improve the efficiency of board meetings so that directors don’t have to waste time shuffling paper. The CTO in any organisation will have many hundreds of technology projects to consider and the last thing on their minds will be how to digitalise the board meeting,’ he says.
Once again, however, addressing resistance to tech-driven change is an issue that has to be grappled with. Within the profession this may be partly motivated by a fear that technology will end up automating governance entirely. This prospect may seem to be out of science fiction, but there have already been experiments with creating self-governing organisations called decentralised autonomous organisations.
‘I think the most important thing is to view technology as a great opportunity, it shouldn’t be seen as a threat,’ Mr Miller says. ‘From a governance professional perspective, it can help increase the efficiencies of the administrative areas of the work. There are areas in which greater automation might be introduced, but organisations will always need experienced professional governance advisers dedicated to supporting the board – that’s not going to be replaced by technology, it will only be made more efficient and effective.’
Ms Chung makes a similar point – having the right mindset and proactive attitude to technology will be essential for the governance professionals of the future, she says. Tech tools have already become embedded in many governance processes, she adds. ‘Company secretaries need to understand tech trends, like the use of AI, and how they will impact aspects of their work. Regulators are using AI to spot potential red flags in listed company disclosures. Perhaps it will be a new norm for company secretaries and governance professionals to use AI to analyse regulations and take compliance to the next level,’ she says.
How can practitioners prepare?
How should governance professionals prepare themselves for the changes outlined above? Mr Yong points out that technology is already transforming the work of company secretaries in three fundamental areas – document storage, board meeting platforms and hybrid AGMs. He points out that practitioners have clear jurisdiction over these areas as they have always been core functions of the company secretary’s role.
Moving to digital board meeting platforms and to virtual documentation, not merely in PDF form but as data that can be used for analytics, has undisputed advantages for governance professionals. This not only helps where directors are geographically dispersed, but it also allows practitioners to instantly reply to queries from management or the board regarding board discussions and resolutions of the past. Given that email is prone to security concerns, Mr Yong also recommends that companies adopt new platforms for business communications.
Another very clear message for governance professionals is the need for practitioners to stay up to date with tech changes. Dr Kundi points out that compliance is moving into the digital space via regulatory technology (RegTech), and, as it does so, real-time, on-demand reporting will increasingly become the norm. A key part of the work of anyone involved in corporate disclosure is therefore likely to involve the use of real-time data analytics based on dashboards.
This will lead to much better transparency for boards but also for companies’ stakeholders. Currently, for example, most ESG reporting is based on historical data, but the technology already exists to capture and measure ESG data automatically. Sensors can collect, in real time, data about a company’s pollution levels, and this can be uploaded to the cloud and analysed on a dashboard independently of the company. In an environment where regulators can publicise this data, ‘naming and shaming’ companies that fall short of acceptable standards, companies will need to adapt.
From a risk management perspective, then, companies cannot afford to be blindsided by the tech developments described above. Dr Kundi urges governance professionals to widen their horizons. The old model of ‘a job for life’ is now outdated and practitioners who can bring a wider, cross-sector experience to a job, particularly if this includes an understanding of the risks and opportunities flowing from tech-driven change, will be much in demand.
‘It is both an exciting, but equally a challenging time, to be a governance professional,’ Dr Kundi says. ‘Overall, the work will become more important and the use of technology will help this shift. The role will move away from the heavy compliance basis it has today, to a more strategic, value-adding role. Governance professionals will be looking more at issues such as how the company manages its relationships with other stakeholders, and at the overall strategy and culture of the organisation. I think they’re going to be coming away from the backseat of compliance and internal controls to the front seat of strategy,’ Dr Kundi says.
Poo Yee Kai
SIDEBAR: Can governance be automated?
There has been a lot in the media in recent years about the vulnerability of different jobs to automation. The reliability of these predictions have been much in dispute, but the onward march of automation continues apace. Dr Kundi points out that partial automation is already at work in many different professions. In the audit sector, for example, the role of a ‘data scientist’ is now more common where data science is used to drive audit processes. ‘The big message is – don’t be afraid of technology, it is an enabler, nothing more,’ he says.
Ms Chung agrees. ‘We need of course to understand how our roles will evolve over time, but company secretaries are fundamental to good corporate governance,’ says Ms Chung. ‘We are the trusted advisers of the board and our good judgement is not something that can be replaced by technology. Provided that we continue to enhance our knowledge and skill sets, the value that we bring to the board will continue.’
Dr Kundi adds that, ultimately, there will always be a need for human oversight of AI to ensure that the right decisions are made, not only from the perspective of logic, but also from that of ethics. What is right or wrong from a logical point of view may be very different to what is right or wrong from a moral point of view. A classic example of this is the dilemma of how to programme autonomous vehicles (AVs) to minimise the risks of accidents. How should AVs be programmed in situations where the vehicle needs to swerve either to the left and hit a 90-year-old woman, or swerve to the right and hit a two-year-old child?
This is a moral, not a logical, question. So while AI, machine learning and data analytics are exactly the tools you need to crunch data, spot patterns and better inform good decisions, you still need an additional level of governance on top of this to ensure that the right ethical decisions are made.