In this first episode in Protiviti’s podcast series on the Responsible Technology Firm of the Future, Managing Directors Gordon Tucker, Matt Moore and Jim DeLoach discuss the changing landscape that today’s technology companies face.
This is Kevin Donahue, senior director with the Protiviti Marketing Group. With the pace of change and the technology industry landscape moving so fast, tech companies face new and emerging risks, evolving stakeholder expectations, and greater scrutiny from government agencies around the world.
The future success of established technology organizations, as well as emerging and mid-market companies, requires innovative products and services, together with a deep understanding and effective management of these emerging risks and heightened expectations from stakeholders. These issues are the focus of our Responsible Technology Firm of the Future white paper and podcast series, which you can find at protiviti.com/techbalance.
In this first episode, our leaders discuss the overall landscape that today’s technology organizations are facing. Gordon Tucker is a managing director with Protiviti and global leader of our technology industry practice. He notes that tech companies are renowned for innovation, but to become a responsible technology firm of the future, they need to balance that with governance and social responsibility.
Innovation is the lifeblood of every organization, and that will never change. I think that what we see happening in the boardroom today is an increased focus on governance and regulatory concerns, social responsibility to the greater community, and other matters germane to preserving enterprise value. In other words, the successful tech firm in the future is one that will be as adept at corporate governance, social responsibility, risk management and compliance as it is at technical innovation and delivery. That balance itself is a fundamental underpinning to the firm’s success.
The firms in this industry are heavily focused on value creation and value capture. Up until recently, compliance, in general, was a nuisance in their efforts to do that. The landscape has rapidly changed such that it’s a real barrier to capturing and creating that value such that this is something that they must pay attention to. Many are looking at and trying to determine, “What’s the best way for us to retain all the qualities that define who we are and how we innovate, but allow us to operate in a way that enables us to both develop and capture that value?”
Unfortunately, when very bad events happen, it drives a very strong and sometimes overcorrecting response. Really, the patterns that emerge are industry organizations grow. They grow in size and strength and influence and control. Their impact on society can result in negative consequences, and then the society overreacts.
What financial institutions have learned through this pattern is, often, painful lessons: by not investing early, by not building processes in the delivery of products and services to customers that ensure compliance, there is a great cost and a great degree of disruption after the fact when the overcorrection occurs. What financial firms have learned is the painful lesson that it costs much, much more, takes much, much longer, and often is not quite as effective to fix problems after they occur than it is to design processes, programs and delivery mechanisms in a way that ensures that customers are being treated fairly, that societies are reasonably protected from some of the harms of certain activities. Then, ultimately, the greater responsibility to society is balanced with the individual objectives of the enterprise.
Between BlackRock, Vanguard, Fidelity and State Street, they own 21 percent of the entire public equity market. Every S&P 500 company has at least one of these four institutional investors among their five largest shareholders. So when Larry Finks, CEO of BlackRock, sends a letter to CEOs of public companies and tells them that superior financial performance is no longer good enough, that brings home some mail.
Particularly also in Mr. Finks’ letter, he indicated that the firm will be using a concept of selective investing. It’s called ESG. I’m sure many of our listeners are aware of this and that it stands for Environmental, Social and Governance. The emphasis on ESG is to assess non-financial performance. So, all that adds to a higher level of engagement that no public company board can ignore.
When you look at tech, ESG matters. It matters for early stage tech companies looking to monetize sweat equity. It applies to moderate stage tech companies looking to IPO. It applies to more mature stage tech companies looking to build and sustain long-term value. ESG is a solid efficiency play when the tech company improves the cost-effectiveness of internal processes. For example, computer manufacturers integrate alternative, recycled, and recyclable materials into their product and packaging design, which reduces waste and operating costs. And it can become a strategic play when, in addition to improving process efficiency, the tech company offers services to help customers compute more while consuming less energy and design for end-of-life and recyclability.