The board’s critical role in building trust in the technology and data-driven era

Today, in certain important respects, every business might be considered a data and technology business.

This idea holds significant implications for corporate boards of directors, as companies across every sector chart their future against a new era of technology innovations and data management, including generative AI (genAI), blockchain and the 'bio revolution,' to name a few. Our new tech- and data-driven backdrop arrives at a time when investors are relying more than ever on boards to provide strong oversight and governance.

What is the board’s role in this new environment — and what unique demands does this super-charged, tech-driven era place on boards? Overseeing strategy and ensuring effective risk management are a given. Ensuring data security, integrity, privacy and location are newer oversight obligations.

As a result, having in place a rigorous and trusted data transformation programme has become a must-have resource and a critical means of differentiation and competitive advantage. Indeed, research shows that firms with a holistic data strategy are already enjoying meaningful benefits across various performance metrics.

A recently published State Street report, Capturing the Data Opportunity: Institutional Investors in the Age of AI, examines the data opportunity for institutional investors worldwide in the age of AI. The first comprehensive study to quantify the data opportunity in economic terms, the report presents research based on a survey of more than 500 asset owners, asset managers, wealth managers, official institutions and insurers from around the world. It provides deep insights into where firms stand in their data transformation, the challenges they face and the tools they have at their disposal.

The survey results found that more than 80% of financial institutions surveyed rated the opportunity that comes from improved data management and usage as either 'medium,' 'large' or 'transformational.' That said, the survey revealed a very surprising finding: while surveyed firms with a data strategy reported on average a 24% increase in customer satisfaction, a 21% increase in customer retention, a 19% increase in new client acquisition and a 19% increase in revenue growth, fully two-thirds of participating firms reported a lack of an overall data strategy, with asset owners lagging by financial institution categories surveyed.

This is where corporate boards step in. As shareholders’ fiduciaries, corporate boards are charged with overseeing the development and execution of strategy within a clear risk framework and holding management accountable for the same. It is among the board’s chief responsibilities, therefore, to work closely with management to set a long-term strategy that puts technological innovation at the core.

Understanding the general tech environment and its corresponding opportunities, challenges, and risks in a given sector has become a board imperative. Equally important is being cognizant and keeping abreast of governance issues surrounding new technology, including regulatory challenges and pitfalls. Inculcating a deep understanding of new technology, beginning at the board level, also helps to generate familiarity and trust through organizations.

A good example of this might be some of the popular narratives that have arisen around AI. While this past year, ChatGPT put AI large language model technology on many people’s radar and into the hands of everyday consumers, many AI applications have been around for decades (including face ID and image recognition, chatbots that mimic human conversation in customer service messages and expert systems designed to solve complex problems like self-driving cars and chess-playing computers).

While the media is awash with scare stories about deep fakes, hallucinations, cat-phishing episodes, and bad actors using AI in nefarious ways, a different, powerful story also exists to be told about how AI can be used in defensive ways, including its deployment for cybersecurity risk controls and verification measures. Boards must understand how AI is used in their respective organizations, take a leading role in determining what 'responsible AI' looks like and ensure that issues, such as privacy, bias and equity, are being addressed in AI development and deployment.

Clients, regulators and markets expect new business drivers to be integrated quickly and effectively into business strategy — and building trust among internal and external stakeholders around new technology is an integral ingredient in that mix. Cybersecurity, climate risk and AI are but three examples. Multiple constituencies now expect companies to identify, measure, disclose and adapt to the related strategic opportunities and risks around these important trends.

What steps might a board take to best equip itself to oversee the long-term evolution and growth of their respective companies amidst a continuing stream of new and complex opportunities and considerations? What if a board — for all the expertise, diversity, experience, smarts and adaptability individual members might bring — lacks specific knowledge concerning an emerging risk-related concern?

The first and perhaps most vital way to bolster a board’s technical expertise around new technology and/or risks is to draw deeply upon internal company resources, which begins with fostering trusted engagement between the board and internal management and teams. Another possibility is for board members to go where the knowledge is — assigning select board directors to visit company offices and operations centres and attend small group sessions, production tours and interactive town halls to see up close the application and effects of new developments and how they align with and help propel long-term business strategy. Finally, boards should welcome external subject matter experts and educational opportunities, including attending conferences and events that specifically foster board-level understanding and socialization.

Modern innovations are introducing tremendous technologies that promise to propel business growth. The board is responsible for maintaining a long-term vision and preserving management’s focus on a foundation for continuous innovation, growth and return — a mandate that means working together with management to understand and embrace transformational technology.

When building trust in our new technology and data-driven era — proactively managing challenges and risks while leveraging technology-based opportunities as a lever for long-term strategic growth — look to board leadership.