Rewriting the book
Change is one of the few constants in the world of business. When it comes to technology, US companies have become famous for being at the leading edge and driving change. But one area that the majority of companies seem reluctant to change is the compilation and distribution of the board book. While technology is now in common usage throughout many areas of corporate life, those at the top appear, for the most part, to be stubbornly resistant to change.
The pressure on board members to ensure they are effectively supervising management and fulfilling their fiduciary responsibilities is more intensive than ever. And the need for accurate and timely information is vital. This raises an important question: Can a board truly be considered to be discharging its duties as effectively as possible if it is stuck in the past and not using the latest technology to assist in the decision-making process?
While it is widely accepted that the online distribution of board meeting packages is faster, more efficient and, in almost all cases cheaper, only a handful of boards at public companies choose to use the technology. An informal survey by this magazine of board portal service providers reveals that only 700 companies, at best, currently use the technology. Some experts believe the number could be closer 500. This represents between 5 percent to 7 percent of the entire listed-company community in the US.
Why won’t they do it?
Many reasons are put forward to explain the reluctance of boards and the professionals who serve them to use online distribution channels for the board information packet. Andrew Moore, head of governance services at Computershare, says that to understand the situation you need to better analyze the types of directors and their attitudes. He asks: ‘How many [corporate secretaries] can honestly describe their board as willing to accept change, embrace technology and are really looking for ways to improve efficiency and save money in their own operations?’ There is no doubt that some boards are ready but most are not.
At the moment the vast majority of boards seem to have the attitude of, ‘this is the way we have always done things so why should we change?’ Joe Ruck, CEO of BoardVantage says that, ‘when looking at the listed companies in the US, I think around 20 percent of boards are just not ready [for board portals].’
When questioned on the reason for relatively low adoption rates the most common response is ease-of-use. There is little doubt that the vendor community has put a lot of time and effort into improving the products they offer to the marketplace. However, Ruck believes that a lot of the earlier tools were not effectively targeted. ‘For all the advancements we, and other vendors, made in terms of improving the product it was not until recently exactly what the market needed because it really wasn’t as easy to use as it should be and it did not cover a wide enough process.’
Nick Puschak, vice president of product management, Bridgeway, agrees. ‘Usability is a very important point,’ he says. ‘There is a lot of technology out there in this space but will directors and boards really want to use it?’ With so many different offerings out there to choose from it can be hard for the board to figure out exactly what it needs.
Alex Sodi, CEO of Diligent Boardbooks, which is teaming up with Bridgeway, says there is no doubt that there is a section of the market that ‘is just not ready.’ He does highlight that there is some growth and as understanding of the technology and its uses increase, so does adoption. ‘For those boards that are ready, some vendors to this point have not always given them enough to really get them interested. That is likely to change as new functionality emerges.’
Making the tool simple is important. One format that is becoming increasingly popular presents the information in an online platform that looks and functions the same way as a book. It has pages that are turned. There can even be sound effects. And this helps those directors who are not comfortable with new technology to make the transition.
It’s the functionality
But ease of use is far from the only issue. An online system is very useful but people aren’t online all the time and often want to read information while they are on a plane, train or otherwise out of the office. Puschak says this is why ‘offline functionality is just as important as the online tool.’
So, there are still quite a number of questions that need to be asked: How can directors download information for later review? What format will it appear in? Can it be secured properly? ‘A good offline tool will look and feel the same as the online offering,’ says Puschak. ‘You don’t want people having to learn two different architectures.’
Removing information from the system raises another very important point: security. Many corporate secretaries cite security concerns as a major reason for not adopting online board portals. PDF has become a very popular method for distributing documents but for this purpose it may not be the best option. A board book is often a very substantial document and converting and saving it as a PDF can take a long time. So can opening them at the other end.
With a PDF ‘you have to wait until the entire document downloads before you can start reading it,’ explains Puschak. Another concern is that the PDF format is not particularly secure and when a document is downloaded a version of the file then exists on the laptop. This presents a number of problems for security. Some portals allow offline functionality that does not use PDF and instead has all information stored in a central database that is heavily encrypted.
It’s easy being green
The security and usability questions have been around for a long time and it is interesting, according to Sodi, that new considerations are starting to emerge. Companies are coming under a lot of pressure to cut costs and ‘there is a compelling ROI argument for the adoption of a board portal. There is an initial cost, obviously, but there are great savings to be made in the reduction of printing, paper and fulfillment services required to get the books to people. Long term this is a cost saver as well as a time saver.’
It is the reduction in paper that also has people interested. Sodi sees a growing awareness of CSR issues and a number of companies ‘tout the ‘green’ benefits of using this tool.’
For Moore, process is extremely important and he points out that board portals have applications beyond the boardroom. ‘At the end of the day it is a collaboration tool. We collaborate at all other levels of an organization, why not at the very top?’ A board portal can be interfaced in such a way as to allow easy access to analysis from other parts of the company including legal, auditing and treasury. This will help the ability of directors to perform their duties. Moore concludes, ‘I think board communication changes are the last thing directors should worry about – accept them and the advantages they bring and focus your energies on the important issues like compensation, oversight and navigating a path through the increasing complicated regulatory environment.’