Thought Leadership Article — Oumar Diallo, BWC mentor — Governance and Authenticity

When I started my professional journey, corporate governance was largely influenced by the outcomes that resulted from the Sarbanes–Oxley Act in the United States in 2002 and the financial crisis of 2008. The use of artificial intelligence (AI) on a large scale for business purposes was only in its beginnings. Moreover, very few dedicated risk management courses were offered by universities at the time.

I always had a keen interest in the role of public institutions in the economy, and the impact of new technologies on the daily lives of people. I had the opportunity to see first-hand all the interlinkages related to the deployment of risk management frameworks in the financial sector (e.g., Basel Accords) and how corporate cultures have evolved. Around 2017 and out of curiosity, I started to look closer at how technology could facilitate risk management and internal processes in organizations. At the time we saw how AI and blockchain technology could be used to manage risk, provide new insights by harnessing data, and provide unalterable audit trails with potential applications ranging from the shipping industry to financial services. At that time, I gained expertise at a consultancy by accompanying clients complying with national and international regulatory requirements.

I had the privilege to work later as a regulator and to contribute to the protection of consumers and investors in a period where rapid shifts in technology impacted significantly how financial products and services were used. It was also important to ensure that stakeholders in fintech ecosystems in Canada and abroad were pursuing innovative projects while remaining in regulatory compliance. Ultimately, what made the difference in successful ventures and organizations I saw were sound governance practices that were built in from design and the right tone from the top. One of the most important marks of good governance is having a system where rules and responsibilities are clearly defined and that can be challenged by independent board directors if needed. Much of this task falls in the purview of an organization’s Board of Directors regardless of its size. Usually, a well-rounded Board of Directors is comprised of people with the following characteristics:

• Integrity;
• Competencies in needed areas of expertise;
• Strategic view marked by a tactical, experimental, and agile mindset capable of responding to today’s fluid world;
• The ability to inspire a positive culture of accountability and responsibility;
• Commitment to safeguarding the intrinsic interest of the organization as well as creating long-term value.

With a strong Board in place, an organization can then systematically go through the process of ensuring that certain key attributes of good governance needed in 2023 are deployed, namely:

• The Right CEO: The Board’s ultimate responsibility is to appoint a CEO who exemplifies similar characteristics as the Board itself and who aligns with the core values of the organization. This could be a person with the following attributes : 1) Genuine leadership and managerial courage, 2) Integrity, 3) Capacity to mobilize and nurture other leaders, 4) Strategic vision and 5) Intellectual curiosity
• Process Oriented: Establishing processes with the management team to detect problems ahead of time with a mindset of ownership
• Culture: A proactively built strong culture from the top where risk management and responsible innovation are a core focus that is supported at each level of the organization.
• Authenticity: Leading by example and emphasizing values that are compatible with the operations of the organization

The quality of authenticity is particularly important in the context of the emergence of social media and technology, especially today. Individuals have a plethora of tools they can use to communicate, and as such consumers can pick up on the authenticity of an organization’s messaging much more effectively than before. This reality was highlighted in 2020 with the murder of George Floyd. Individuals and organizations pledged their allegiance to the crusade against racial injustice in all its forms. The public did not take these pledges at face value and instead considered whether organizations were doing as much as they claimed they were. Rather than blindly accepting the rhetoric of organizations, the public rapidly tied the idea of credibility to actions that were tangible and measurable. Over time, consumers and more broadly the public were able to tell which initiatives and leaders were authentic and which were not. The public’s ability to identify authenticity extends beyond the news cycle and can be seen when we look at the increasing number of companies pledging support for ESG initiatives. There must be substance behind messaging and that substance must be in keeping with how an organization operates daily. Without these factors, we have seen that the world is increasingly adept at identifying this lack of authenticity.

In addition to focusing on authenticity and sound governance qualities discussed above, organizations more broadly must have a keen eye on exogenous factors as well if they wish to truly be marked by good governance. What we noticed in late 2022 and early 2023 was a moment of reckoning in the technology sector. Investors are increasingly looking for organizations and companies with solid business models. High-interest rates, decreasing access to capital, and inflation have all resulted in investors focusing on the identification of business models and value propositions that are achievable in a relatively short period of time (2–3 years). Companies whose success is largely driven by positive and abundant press are becoming uncommon and the emphasis has shifted to companies with business models that are well planned out and will lead to rapid profitability. Investors are lifting the hood on how these companies are operated and this has become an item of great importance in due diligence around governance practices.

This increased scrutiny of fintech and tech companies presents an opportunity for early-stage companies to build strong governance systems and compliance systems by design. Early-stage companies and SMEs could save a significant amount of time and energy if mechanisms for good governance are developed early and by design in their service offerings. The time and money invested in these mechanisms on the front end can pay dividends long-term. For mature and later-stage companies, there are still opportunities to review processes and ensure they are up to date. Ultimately, the culture of good governance is something that can always be emphasized and prioritized, even if it was not an original priority of a company. Irrespective of size or growth stage, there are two closing fundamental principles I would impart organizations to consider and revisit frequently:

1. People: Organizations need people with the right governance training and education at all levels, including management teams and the Board of Directors. There are several offerings available to help individuals become trained board members. Programs offered by the Institute of Corporate Directors (ICD certification) or the Collège des administrateurs de sociétés (ASC/C.Dir. certification) are a few to consider. With the right training, people are better equipped to manage the overall direction of a company and contribute to strengthening governance.
2. Governance systems and critical functions: People and systems must go together. The right systems and means need to be in place for individuals to achieve their goals. If trained individuals operate without proper systems, success will not be achieved. For example, many organizations have carried legacy systems over the years. The systems that are in place for key functions (e.g., finance, HR) must be agile, dependable and capable of evolving as necessary, especially to leverage data that facilitates decision-making.