Corporate board members are the custodians of corporate governance: their oversight and decision-making set the tone for the entire organization. In the fast-paced tech industry, balancing innovation with responsible governance is crucial. This post explores key governance considerations that demand boards’ attention and strategic guidance.

You may have noticed that regulations and standards have played a frequent role in my discussions of “E is for Environment” and “S is for Social.” In truth, E, S, and G are not mutually-exclusive categories but more like convenient, often-overlapping labels. Though G is the last letter in the ESG acronym, governance metrics are the most established and well-known, typically focusing on an organization’s board, executives, controls, certifications, self-regulatory organization membership, and political lobbying.

The Value of Strong Governance

It is worth noting that even without any extrinsic motivation, companies typically benefit from strong governance, starting with the board of directors and executive contracts. Long before researchers began to investigate diversity and social capital, economists and management researchers had documented the positive benefits of strong, independent boards. In fact, the presence of an independent chairperson and competent board has been a critical factor for decades among US investors. More recently, research has shown that diverse boards can help break the cycle of “groupthink” and can help organizations adapt in the face of changing environments.

Executive Compensation and Team Composition

Likewise, the contractual terms and incentives that an organization negotiates with its executives can also have a strong impact on the perception of an organization, not just its performance. Organizations that align executive compensation with sustainable equity growth instead of base salary or other benefits are typically viewed more favorably by investors. Furthermore, organizations with well-rounded executive teams are often better positioned to build and maintain relationships with the wide variety of internal and external stakeholders.

Boards are responsible for designing and approving executive compensation packages that align with long-term value creation and ESG goals. They should also actively participate in succession planning and ensure a diverse pipeline of talent for executive positions.

Organizational Controls and Policies

Much like a “real” government, the rules and processes that an organization lives by are often more important than the leaders who come and go. These “organizational laws” most often take the form of controls, policies, and procedures (P&Ps). Strong controls and well-designed P&Ps can help organizations reduce the risk of fraud, information security issues, or other misuse of company assets or opportunities. These concerns are typically addressed through strong compliance programs, and many software or data organizations could benefit from a technology-focused compliance maturity assessment.

Industry Standards and Certifications

Just as countries sign treaties or agree to international standards, so too do organizations when they interact with self-regulatory organizations (SROs) or obtain audited certifications. SROs may exert authority in addition to or in place of direct government regulation, like in the case of Financial Industry Regulatory Authority (FINRA). In other cases, popular standards like the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Enterprise Risk Framework, the Control Objectives for Information and Related Technology (COBIT) Framework, and Diversity, Equity, and Inclusion (DEI) Frameworks guide businesses in their internal controls, policies, procedures, and decision making.

Board-Level Risk Oversight

Board oversight of a company’s risk management processes includes ensuring that the company has robust systems to identify, assess, and mitigate risks related to technology, cybersecurity, and data privacy. The board should regularly review risk reports and challenge management on their risk mitigation strategies, especially if they’re working with or to develop new technology that could carry previously uncontemplated risks.

Board Effectiveness

To ensure that boards are providing the best possible governance, they should implement regular board evaluations. This includes assessing the composition, skills mix, and performance of the board. Seismic shifts in technology, such as the swift adoption of AI, should trigger an assessment of the current board’s expertise on the matter. Board members should also commit to ongoing education about emerging tech trends and ESG issues to stay ahead of potential risks and opportunities. A great way to ensure that your board has a sufficient high-level understanding of highly technical topics is to provide training sessions.

The Bottom Line

Regardless of whether a business is technology-focused, employees, customers, and investors want to know that they’re committed to good governance. Luckily, the benefits of easier access to capital, reduced risk, increased management performance, and happier employees add up to more than the costs.

Board members in the tech industry are in a unique position to shape the governance of companies in a rapidly evolving tech landscape. By prioritizing strong governance practices, they not only fulfill their fiduciary duties to their companies, but also to society more broadly.