Topics:   Corporate Governance,Regulations & Legislation,Technology

Topics:   Corporate Governance,Regulations & Legislation,Technology

May 24, 2019

Understanding Strategy, Regulatory Risk Key to Innovation Oversight

May 24, 2019

In April, NACD and Grant Thornton hosted a roundtable discussion designed to help directors better grapple with innovation oversight. Nichole Jordan, national managing partner, markets, clients, and industry at Grant Thornton, and Ron Markham, executive innovation and risk leader of cloud computing company ServiceNow, led the conversation. After discussing the ways in which leveraging technology, seeking outside perspectives, and ensuring that the board itself has the requisite digital savvy to oversee this issue, two reflexive questions shaped the remainder of the conversation:

  • Do you understand the transformation strategy?
  • Do you receive updates on the future of tech-related regulatory risk facing your organization?

Do you understand the transformation strategy? “One of the first questions I ask when I’m working with CIOs is, ‘Tell me about your digital transformation story.’ Everybody has one. Any time I ask that question, 90 percent of the time I get the standard response: ‘The strategy is about people, process, and technology.’ Now, tell me why you’re pursuing a digital transformation program. That’s where I get a lot of song and dance in their responses. What they don’t realize is that there’s a difference between innovation and transformation.”

As such, Markham said that it’s best to divide those conversations, as innovation and transformation each require the board to ask different types of questions. And with the transformation piece, once boards determine why a transformation initiative is being pursued, it’s then easier to figure out how leveraging new technologies can best drive that transformation.

Another piece boards need to be concerned about is ensuring that a transformation initiative stays on track. “Often the management team is so focused on day-to-day results in short term results, and the responsibility of the board is to hold the management team accountable for long-term strategy,” one participant remarked. “Some of the tactics that we’ve used on our board is first insisting on a strict long-term strategic plan that’s focused on transformation and innovation, and then holding the management team accountable for progress against that plan.” Here, requesting regular updates from management and discussing these points at board dinners or in some other forum may prove helpful.

Do you receive updates on the future of tech-related regulatory risk facing your organization? Those updates from management should also encompass the risks that the organization assumes from pursuing innovation initiatives. The regulatory risks can be particularly aggravating because, as Jordan noted, “those rules are not well-formed today.” Jordan did, however, surface a new piece of legislation that was introduced in the US Senate this past April: the Algorithmic Accountability Act.

“It basically describes many requirements from a governance perspective on what needs to be in place for companies using AI, requiring an independent audit to test for biases in AI.” Another bill, the Growing Artificial Intelligence Through Research Act, also introduced in April, proposes that the US government invest $1.6 billion in the research and strategic development of AI applications in the private sector in an attempt to catch up to other countries, such as the United Kingdom, in how they are using AI to cultivate workforces of the future.

Regulatory burden aside, this point raised the concern of companies being able to compete in a global marketplace. “For those of us who serve global companies, it’s infinitely more complex,” one director remarked. Jordan observed that many boards are focused on technological developments in the United States and lack a global view of how the private sector approaches, embraces, and advances innovation. She offered that some companies are taking a proactive approach. “Grant Thornton is a member of the Information Technology Industry Council, a global organization that is part of the process of designing many of these rules and standards. Many tech companies are on in the ITIC —Facebook, Amazon, Google—and their interest is in trying to find a balanced approach with the regulators in rules that are practical and meaningful, and will address some of the problems that are on the table.”

For more from this discussion on the board’s role in overseeing innovation, read the first part of our roundtable coverage. In addition, visit the NACD Resource Center on Emerging Issues, which offers members insights into technological change, the current operating environment, and regulatory changes, among others.

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