Corporate Governance & Activism

Boards & Technology: A Gap in Expertise

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Executive Summary

The Board of Directors, and a company’s corporate governance framework, are under ever more scrutiny by investors. As outlined by Federated Hermes in their April 2020 paper on ‘Guiding Principles for an Effective Board’: “Investors care deeply about how well a company Board is functioning” adding that a well-functioning Board “makes it more likely that material risks and opportunities will be well managed.”

The Board is charged with managing and overseeing the principal risks to a business – an issue which is clearly set out in Principle O of the 2018 UK Corporate Governance Code. However, beyond outlining that the Board should oversee and review the effectiveness of risk management systems, and facilitate an annual evaluation of the Board, there is limited guidance on the approach the Board should take.

The 2018 ‘Guidance on Board Effectiveness’, also issued by the UK FRC, highlights that “diversity of skills, background and personal strengths is an important driver of a Board’s effectiveness, creating different perspectives among directors, and breaking down a tendency towards ‘group think’”. They add that “non-executive directors should possess a range of critical skills of value to the Board and relevant to the challenges and opportunities facing the company.”

Company Boards will have spent much of 2020 focused on addressing the hugely challenging impact of COVID-19. While pandemic risk was unlikely to have been a feature of many companies ‘Principal Risks & Uncertainties’, one that is listed, or very much should be, is cyber and technology risk. Technology is now a central part of many business models including those in major sectors such as banking, transport and retail. Most businesses hold some form of personal data and every business has hardware and software which ensures the business can function on a day-to-day basis.

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