Culture, conduct and reputational risk in the digital age
Sometime after the decision to introduce a major automation program, board members may be looking at an organisation transformed from what they have been charged with oversight. Digital transformation is a challenge to the board as well as to management that implements the program.
15 December 2020
Digital transformation is not just a technological challenge. It modifies, updates, and overhauls business models, processes and the organisation. It affects people within the organisation. Successful digital transformation requires the organisation to coordinate so that its people, culture, structure and tasks are aligned as technology evolves.
Boards oversight on culture and organisation in digital transformation
Boards’ role is to understand the strategic direction that management has chosen to take and its impact on the organisation. The impact on the people and culture should not be underestimated, as it affects how people conduct themselves. It also affects the organisation's ability to manage and monitor risk, and take actions when it materialises.
Board and CEOs appear to differ on risk. They are closely aligned on their perception of security risks, crisis response capabilities and extended enterprise risks as potential sources of reputation risk. However, only half of the board members and CEOs had discussed the organisation's reputation or how to address reputation risks in the year. (Deloitte survey, 2018)
Steps for directors to take
The board needs to support but also challenge management in setting digital transformation in the organisation’s context. Its role covers understanding the purpose, setting the boundaries, assessing its impact on its people and culture. It is management that leads the cultural change. It can be a major strategic and organisational challenge, and not something that technology can solve. The board’s role is to assess and support management’s efforts in doing so.
The board’s role goes on to monitor and review the planned changes, monitor plans to manage risks related to conduct and reputation and how such efforts are working. Finally, the board and its committees, such as the risk committee and audit committee, receive adequate assurance from risk management functions and internal auditors as to how risk is managed.
In order to provide credible challenges to recommendations from management, the board need to stay informed. This does not mean that all board members need to be experts, but they may improve their skills by seeking input from internal or external experts or consider enforcing the board’s collective knowledge base by bringing in a new member with exposure to cognitive technologies or from successful digital businesses.
This article sets out some of key points discussed in Look before leaping (into the future), in Directors' Alert, which discusses boards' role in facilitating successful digital transformation and intelligent automation by focusing on the culture, conduct and reputational risks.