Tuesday, April 9, 2019

The BoD’s Strategic Oversight of Three Important "Soft" Corporate Capitals

An effective corporate board enables and directs management towards good outcomes by overseeing strategy management and scrutinizing important capital investments.

The board of directors as the de facto guardian of modern organizations plays an important role in steering the organization towards the better future, helping business management identify and close blind spots in decision-making, pinpoint the root cause of critical business issues, set good policies to drive progressive changes, and monitor business performance closely. The corporate board is also responsible and accountable for protecting the shareholders’ investment and improve the business’value proposition. Besides physical capitals, here are three critical "soft" corporate capitals that the board of directors needs to oversee in order to improve business governance effectiveness and lead the company forward successfully.

Information/Knowledge capital oversight: Information is one of the most invaluable assets and knowledge is a powerful force in today’s digital economy. The key to ultimate business success today is intangible knowledge assets which are extremely important in the digital era. These intangible assets and innovation capital drive the business value, marketing growth, and organizational performance for the long run. The unprecedented digital convenience brought by the internet, lightweight technologies and abundant information make customers more selective; the well-educated consumers need to learn more about your organization before purchasing your products or services, but unlike the "hard" business assets, information and knowledge are intangible "soft asset," which is accumulated with time and business growth. The organizations across the vertical sectors, who proactively invest in strategic information management solutions today will be able to move forward competitively. However, in many organizations, information and knowledge are not well-managed or measured as well as it should be. Thus, the board’s information capital oversight helps business shareholders feel more comfortable with continually investing in these “soft assets” by enforcing information integrity, availability, and confidentiality. A well-governed information management cycle enables the organization to improve the speed of business transaction and transformation, idea-generation, decision-making, innovation management, the velocity of capital flow, and thus, the organizational responsiveness and maturity.

Human capital oversight: People are always the most critical asset of the business, but often the weakest link. The digital era upon us is people-centricity. The true value of people, especially today’s knowledge workforces include many tangible and intangible factors. Traditional organizations think people as human cost or resource. The term “Human Capital” makes sense to convey the vision of running an organic digital business which needs to keep investing, nurturing, and growing. In fact, Human Capital is always the largest intangible asset of a company which has to keep investing in to ensure the long term prosperity of the business. The board plays an important role in overseeing the strategy and setting good policies to value people and unleash their potential. The board can help business executives clarity some fundamental talent management issues by asking - how do you define talent? How do you measure talent? How to ensure the right people with the right capabilities are put in the right position to solve the right problems? Etc. Human Capital is about potential, if unleashed, can bring the quantum leap in the business growth, and societal advancement.

Reputation capital oversight: Organizational reputation is the overall estimation in which the company is held by its shareholders based on its past, current, or predictive future actions and behavior. Risk governance is the guiding force behind reputation management, to ensure the boundaries are appropriately set and adhered to sustain the business value proposition. Reputation management, brand protection, and risk governance become increasingly intertwined and crucial due to the overwhelming growth of information and the omnipresence of the digital business in the internet age. Therefore, keeping close monitoring of reputation management for transparency and analysis of potential long-term consequences must become the board agenda. The organization's brand equity is the key asset of concern when it comes to the question of reputational risk. A company's brand is one of its most invaluable assets, and like any asset, it is the responsibility of the board to protect and nurture it. The corporate board’s reputation capital oversight needs to ensure that the management has put in place of an effective risk-management process for protecting business brand and reputation. It also helps the management clarify what the brand stands for, how the company wants its stakeholders to see and perceive the brand name and the connotation it wants its stakeholders to associate to, and the primary activities through which the brand name gets communicated. The board directors should assess objectively whether risks are undertaken and managed consistently and monitor the results closely.

An effective corporate board enables and directs management towards good outcomes by overseeing strategy management and scrutinizing important capital investments, to ensure that the business is on the right track to reach the well-defined business vision. The board also needs to be held more accountable and it all starts with ensuring the governance are sufficiently robust to force management transparency, set the good policies to protect the shareholders' investment, drive continuous business growth, and shape a high-performance digital organization.


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