Five reasons the management board needs a digital mindset

“You can’t teach an old dog a new trick”. You may agree or disagree with this common saying but, when thinking about management boards, we tend to imagine experienced people in their 50’s-60’s. And if this is the case, are they able to change and embrace a digital mindset?

We can’t deny that, as time goes by, certain habits become stuck in our lives although there is always room for change. What triggers change is a conflict of beliefs and even values, resulting in personal and professional growth.

Some weeks ago, we attended the ILA Fund Day that we had the pleasure to host in Crystal Park. We must admit the subjects discussed this year — for instance the 2018 Fund Governance Survey findings were particularly attractive. The “How Digitisation can help your Board governance and oversight” panel put the accent on aspects that are tightly linked to today’s business imperatives: trust, cybersecurity, data privacy and big data.

This article revolves around the reasons management boards are urged to embrace a digital mindset. We’ve kept it concise yet interesting. We hope. Let’s dig in!

The semantics of digitisation

During the panel, we noticed participants used the words digitisation, digitalisation and even digital transformation interchangeably. That’s not to blame, but to clarify.

Digitisation isn’t digitalisation. If you ask your search engine or your fancy voice search device about the difference, the resulting list of articles with different and contrasting ideas will probably make you anxious. We like things simple and straightforward, for you and for us too.

While digitisation deals with changing formats — from analogue to digital, digitalisation is about changing ways of doing things – habits in the personal sphere or processes in the business arena – by means of any kind of digital technology. Converting text and pictures into a digital form is digitisation; implementing biometrics technology to improve the security process in airports is digitalisation.

To be fair and transparent, this article isn’t only about digitisation; it mingles with the two of them.  After all, adopting the digital mindset current time call for, needs both.

The e-board or what having a digital mindset means

A digital mindset means being open to discovering digital technologies, from social media to blockchain, to mention a few. Quick judgements about them without a clear understanding is what you want to avoid. In addition to openness, a digital mindset requires an entrepreneurial attitude or the willingness to test, fail and test again, until you get to know the technology that best suits your business needs. Operations, product and service development, communication, governance and customer service are just a few areas where digital can be a real game changer.

Management boards are all about strategic decisions and timely and secure information that supports those decisions. In a way they are the fortress of business trust, so they need to accept that the world we live in has been seduced by the internet and digital everything. To access the fortress, stakeholders don’t want to knock on doors anymore. They want to introduce tokens that take them to virtual spaces that are personal and safe. 

One of the independent directors that participated in the panel put it quite simply,

Digitisation isn’t getting the latest version of Excel or your spreadsheet. Boards need to understand processes and what does digital has to offer.

Five reasons the management board needs a digital mindset

These are our takeaways from the warm conversation between five independent directors who took part in the panel “How digitisation can help your board governance and oversight” during the ILA Fund Day.

1. Digital trust is part of the board’s agenda

 The business trust equation has a new variable: digital trust. Both digitisation and digitalisation call on the board to update its processes as a management body, and to rethink its role as an enabler of change. For a business to go digital, the board’s involvement isn’t only desired but required. 

Going digital and building digital trust are two sides of the same coin. Both of them need profound changes to happen to operations, business infrastructure, cybersecurity strategy and data governance, among others.

Digital trust is an indispensable component in the board’s agenda. According a panelist:

[…] Everything in the system should be reportable.

2. Board members are data guardians

Digital technology eases the access to information. And information that’s accurate, timely and secure strengthens how much internal and external stakeholders trust the business. However, having an overview of how data is manipulated, stored and issued is a key responsibility of the board. This statement shared by one of the panelists is clarifying:

We, as board members, need to know how information is treated in the company. For example, are you controlling how documents with sensitive information are stored, once downloaded?

By means of digital tools, management boards can have access to real-time data on: portfolio performance, budget compliance, revenue and expenses, resources allocation, fundraising activities, distribution processes

A serious commitment to data governance makes board members true guardians of data.

3. Cybersecurity doesn’t understand hierarchy

The way board members currently deal with data management and cybersecurity was the topic that the panel discussed most agitatedly. See these six quotes:

Digitisation has pros and cons. There is more access to information but it’s harder to secure data.

The amount of information people are willing to send me is surprising; however, we need to take responsibility for how the information is provided using secure methods. We have to look at how our clients get, manipulate and save information.

[We cannot] rely only on one email. For example, I have a different email account per client.

[When it comes to cybersecurity] we have to differentiate our role as directors and as employees.

Cybersecurity isn’t only about how we work, but also about how the underlying companies work.

There is a  need for self-discipline, for being more conscious about how we send and receive information.

To us, it’s clear that board members understand the important role they play in cybersecurity. The listed quotes refer to two dimensions or roles that are sometimes blurred: how they behave as individuals and the cybersecurity measures they implement, and what the business does to guarantee the security of the data shared with stakeholders, including employees.

4. Dashboards make big data small and accessible

Automated processes help us make faster decisions but [we want to know] how processes are done and where we need human intervention.  

This selection of  quotes shows that board members recognise the advantages of automation but they are also cautious about risks. While the need for digital solutions to monitor processes and make information more accessible is palpable, the majority hasn’t taken the leap, yet. They like ideas such as creating digital tools to improve workflows or to design processes in graphical interfaces. And when considering those ideas, they include other stakeholders, for example service providers.

One of the panelists mentioned that, instead of building software, he prefers to…

… buy external solutions because of the development and maintenance costs and lack of in-house expertise.

5. Digitisation helps keep up with regulation

Unfortunately, new regulation brings new costs and new processes to comply with it. Boards cannot be more aware of that. A panelist stated:

 [Because] we represent companies with hundreds of distributors, oversee regulation with only paper, it’s fairly impossible.

This clearly shows the need for digitising compliance processes. Based on the discussion, we noticed a particular interest in using software for anti-money laundering measures (a KYC tool), to introduce client management systems (for profiling and monitoring, for instance) and for the upcoming non-financial reporting requirement ESG (environment, social and governance) will ask for.

What we think
Michael Delano, Partner at PwC Luxembourg
Michael Delano, Partner at PwC Luxembourg

Whether you are considering digitisation, digitalisation or digital transformation it’s clear that “digital” is having a dramatic impact on all businesses today. I believe the trend is only going to accelerate as companies look for efficiencies and different channels to reach the tech-enabled generation. Boards should be considering the aspects mentioned above regarding having a digital mindset. A part of this may also mean looking to add board members with the skillset to assist the board in understanding the “digital” risks and advantages.

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