Ben Daniels, Partner at international law firm DAC Beachcroft and board member, looks at evolving boardroom priorities, with a particular focus on the place of digital and Environmental, Social and Governance (ESG) on the agenda. This article first appeared in In- House Lawyer Spring issue 2021.

Our survey with “In House Lawyer”, published in the Winter edition, was undertaken to identify boardroom priorities and how the experience of COVID-19 had changed them. Digital transformation took the leading position, with 43% of respondents saying it was the highest priority pre-COVID and 46% in the prevailing COVID chronic time. Its importance was further underlined by nearly half of the senior in-house lawyers taking part saying that spending time on digital change would make the greatest single difference to the business.

The greatest change though in priority was seen around Employee Well-Being. Pre COVID 11% of respondents said it was a priority; in “COVID chronic” this had shifted to 45%. This forms part of the ESG debate, but while attention is certainly being paid to one part of this agenda, others are more neglected. Environment was a low priority pre-COVID (7%) and remains a relatively low priority, albeit rising to 14%. Attention may understandably have been deferred, but pressure for action is increasing from stakeholders, government and investors.

New ethical and legal considerations and liability issues are arising from digital change and climate change. Whether as a board member, company secretary or senior leader, in-house counsel have a critical role to play in helping boards understand the legal risks of the choices they face as they respond to new and different considerations.

Digital

Author Sakant Ratnakar, “Our future success is directly proportional to our ability to understand, adapt and integrate new technology into our work.” It seems that boards have grasped the significance, with the survey indicating that respondents were satisfied that their boards do have the skills to respond to the digital challenge.

At DAC Beachcroft our 50 strong technology team helps businesses in every sector respond to the digital challenge and all pervasive technology. Tim Ryan, Head of Technology, “While the discussion is around what technology to apply will evolve - AI, virtual reality or 4D printing for example - the approach to digital change remains the same. Lead from the top, engage the workforce, the governance framework. Digital change is an enterprise wide pursuit and the in- house legal team is the best placed to work across the business functions and explore the new risks that affect every area of the business. Having the legal function involved gives the wider business assurance that the commercial, as well as technological aspects have been considered.”

The legal risks around digital change

• Continuity: digital means even more exposure to technology. Digital resilience and possible speed of recovery need to be assessed
• Protection: digital substantially widens the attack surface. There is no traditional perimeter; instead a disparate network, an open door through which attackers can infiltrate. With your team working remotely, additional threats are present
• Supply chain: third parties have to meet organisational standards and values, with contracts carefully considered to ensure successful installation and management
• Contracts: assessment will consider whether these are collaboration-friendly for other parties involved and if they offer appropriate protection and future proofing. Procurement should be involved, but specialist support is required in this highly technical area
• Regulatory: frequently projects push at the boundaries of established practice. Work with the regulators to ensure that they understand that compliance with their policy objectives is a fundamental
• Data: data is everywhere and not hidden behind firewalls. Customer profiling needs to be aligned to protect privacy and ensure compliance
• IP and ownership: digital advancement frequently involves working with other third parties to collect and analyse data. Assessment will determine who has what rights to the output of the collaboration
• Employment: teams may need to be restructured, and updated skills training delivered – these are just some of the changes likely to impact the workforce. A robust communications plan needs to underpin every action.

Environmental

While the survey didn’t ask for a view on the skills boards have to respond to environmental change, it wouldn’t be a surprise if the response was less positive. Pilita Clark, business columnist for the Financial Times, writing on 31 January 2021, “Too many boardrooms are climate incompetent”, as part of an article which referenced a study by the Stern Centre for Sustainable Business at New York University. It found that only 0.2% of board members of the largest 100 US companies had specific climate expertise.

The UK Government has made legal commitments to reduce carbon emissions by 68% by 2030, 78% by 2035 and to achieve net zero carbon by 2050. Other voices add to the need for action. ICSA, the Chartered Governance Institute, “an effective ESG strategy is strongly recommended to build long term trust with stakeholders”. Tackling emissions goals and practising good governance are at the top of the World Economic Forum’s list of future risks. From investors Mercer, “ESG factors can have a material impact on long term risk and return outcomes and should be integrated into the investment policy”. Black Rock has made the environmental impact of business a central component of their investment strategy. Chief, Larry King, “I believe we are on the edge of a fundamental reshaping of finance”.

The corporate world is going to be as significantly affected by net zero carbon directives, just as it is by technology. Every company needs to find the environmental and wider ESG skills to ensure they remain a viable entity. Boards have a sense of urgency to make digital transformation happen. It seems the energy should also be equally applied to the environmental imperative.