Board Practices in the Digital Era: Maximizing the Benefit-to-Cost Ratio of Information Technology

Abstract

Information technology can improve the quality of the deliberative processes of corporate boards of directors. Yet, if used imprudently, these technologies can reduce the integrity of corporate decisionmaking and increase business, legal, and reputational risk.

Regrettably, rather than evolving to keep pace with technological developments, corporate governance practices often involve an admixture of obsolete past approaches and ad hoc new ones, a combination that underutilizes the benefits of technology and increases its potential risks. In this article, we look in particular at two types of board-level practices that should evolve to take into account technological developments:

i) board information policies involving (a) the transmission to and use of information by the board of directors and (b) the documentation of action taken by the board and board committees; and

ii) board meeting practices in the wake of the COVID-19 pandemic and the ubiquitous use of web conferencing platforms to conduct director meetings remotely, rather than in person.

These topics are related, because virtual meetings put pressure on board information policies. Virtual meetings require directors and managers to be self-disciplined so that the efficiency advantages that come with virtual meetings are not undermined by inattention, unproductive online interaction, and insufficient in-person time for the board and key managers to meet and develop the chemistry and expectations for information flow vital to successful governance.

This article is not theoretical, but practical. After situating board practice in its historical context, we make recommendations about affirmative steps — “do’s” — that companies could take to improve their board information policies, positive steps that imply actions to avoid — “don’ts”— which we set forth in correlative footnotes. From there, we recommend “do’s” and “don’ts” for board organizational, calendaring, and meeting practices, an understudied area. We then explain how our recommendations facilitate informed, efficient, and credibly-documented decisionmaking.

Keywords: Corporate governance, boards, directors, digital information technology, recordkeeping, information & document retention, risk management, liability, fiduciary duty, committees, meetings

JEL Classification: G34, G38, K22