The Virtual Boardroom

Australian directors haven’t greeted virtual board meetings with much enthusiasm. Domini Stuart examines why and how uptake is set to change in the future.

Travel is woven through the fabric of Australian business. We hop on intercity planes as casually as others elsewhere jump on a bus, and we’re resigned to transit times measured in days rather than hours. But travel isn’t cheap. In his paper Telepresence, Effective Visual Collaboration and the Future of Global Business at the Speed of Light, Howard Lichtman’s list of expenses is sobering.

Firstly, there are the ‘hard’ costs – fares, hotel rooms, food, rental cars and taxis, plus the cost of your time whilst you’re in transit. Then, there are the ‘soft’ costs, such as physical wear and tear, lost productivity because colleagues can’t reach you and you’re away from information and corporate resources. In addition, there’s the opportunity cost of not doing whatever it was you would have been doing while you are out of the office, in transit or jet lagged. And, let’s not forget the personal cost of being away from family and friends and the cost to the environment.

In an interview with The Sydney Morning Herald, Tina Fawcett, a researcher at Oxford University and the Government-funded United Kingdom Energy Research Centre, noted that a return trip to Sydney emits 11 tonnes of carbon dioxide per person. Worse still, the way planes emit carbon dioxide is proportionally three times more damaging than emissions from other sources.

As more Australians sit on the boards of global companies and more Australian companies seek to attract the best directors in the world, the virtual boardroom presents an obvious alternative to such a drain on money, time and health. We have the technology. Videoconferencing, for example, has been around for a long time – AT&T built its first Picturephone test system in 1956. Yet, despite dramatic improvements in capability and functionality and a steady reduction in costs, it has never been enthusiastically embraced.

“Videoconferencing’s average usage has barely moved even as globalisation has increased, travel has become more difficult, the threat of terrorism has grown and the pace of business has accelerated,” says Lichtman. “The truth is that many people don’t like the experience and don’t view it as an alternative to an effective in-person meeting.”

Lichtman believes that, with its tiny participants, jerky motion, poor audio, limited view of body language and lack of eye contact, traditional videoconferencing fails the human brain’s ‘smell test’. As a result, it is generally used only for less important meetings within a company.

“Very few organisations would ever consider having a board of directors’ session using traditional videoconference facilities,” he says. “However, telepresence is attempting to overcome these barriers by making participants feel as if they are in the same physical space, with combinations of life-size remote participants, fluid motion, accurate flesh tones, studio quality acoustics and lighting, eye contact and environments that establish consistency of quality across disparate locations.”

After almost 10 years in the shadows, this new-generation technology took the spotlight last year when a trio of major players – Cisco, Hewlett-Packard and Polycom – all launched telepresence solutions. In April, Telstra became Cisco’s first Australian customer for TelePresence, installing four systems with the aim of improving productivity and collaboration between key Melbourne and Sydney offices. However, with some systems costing in the hundreds of thousands of dollars, there’s unlikely to be a stampede of companies wanting to follow suit.

Obstacles to overcome

As chairman of PricewaterhouseCoopers International, Paul Brasher’s global board has directors from 13 countries. They meet in person around six times a year and then supplement these sessions with videoconferences or more frequently, teleconferences.

“These work well, but there are plenty of potential obstacles that need careful handling,” says Brasher.

“A major one is access. When I’m chairing a board in Australia, I can get information out easily and responses are usually back the same day. Contrast this with a global board where everyone is in a different time zone. It could take three days to get the notes out and all of the responses back – a big issue if the matter is urgent. There are ways around it – Blackberries, for instance, give people more frequent access to their mail and are a way of sending a response even if they’re out of the office.

“Another obstacle is missing out on the benefits of personal interaction – corridor conversations and the opportunity to take in all the non-verbal elements. Telepresence is an improvement – it smoothes out that jerky, marionette effect you get from a videoconference, but I’m not sure how effective it is when you’re operating out of more than two locations. And, however good the technology, you don’t have the same atmosphere. When there’s a group of people together in a room you get a sense of the mood and when you’ve been in a lot of meetings, you can notice subtle changes. You can also pick up on things like people exchanging glances or staring at their papers and not saying much at all.

“It’s important to engage every director and sometimes you need to wrestle someone to the ground to get to the bottom of what they’re thinking. That’s also harder to do when you’re not in the same room.”

Subtleties in cultural differences can also be lost in virtual communications. “I once used the cricketing term ‘I’ll open the attack’ to convey that I’d speak first at a meeting, but one American thought I was about to launch into a literal, scathing attack on someone,” says Brasher.

“Misunderstandings like that can easily happen, particularly when not everyone’s first language is English or people have different cultural references. In a virtual situation there’s more danger that these will go unnoticed.”

For Paul Twomey, CEO of ICANN, the international non-profit organisation which co-ordinates the global system which allows computers to find each other on the Internet, says personal contact is vital, particularly when it comes to building initial trust. “The basic, instinctive animals within us are programmed for face-to-face interactions,” he says.

His board comes together for three meetings a year as well as occasional retreats. However, as they are scattered across the world, other meetings are held as teleconferences. “It would be impossible to sign people up for the job if they had to fly to every one,” he says.

Twomey would prefer visual contact – he has been a champion of the videoconference for more than 15 years. His Mac has videoconferencing capabilities and he has a kit at home as well as in each of his Sydney, Los Angeles and Brussels offices.

“I can guarantee that once every three or four months, I’ll have a conversation where I say ‘we should do X’ and someone says ‘yes, boss, we should’. Then I see them on the video screen with their legs crossed and their arms folded – their body language is saying ‘not in a pink fit’! If I were just talking on the phone I’d just assume they were agreeing with me. If our board members were just in say, Australia, Japan, North America and Europe, I’d want to use videoconferencing tools. But with directors in Kenya, Chile and parts of India, it’s not physically possible.”

Governance and law

The laws relating to virtual communications will often vary from country to country and may also fall short of the technical realities.

“For example, in California, where the laws are relatively current, an online vote must be unanimous in order to be valid,” says Twomey. “If there’s even one objection, you have to hold a teleconference.”

However, virtual technology appears to pose little threat to good corporate governance as long as it is handled with care.

“It’s a new medium and it needs to be recognised as such,” says Dr Bruce Perrott, senior lecturer at the University of Technology in Sydney. “Rather than just thinking you can carry on as before you need to create a whole new culture, with rigorous processes and procedures around how you actually communicate and conduct board meetings. The whole issue needs to be thought through in terms of the challenges the medium brings and how best to handle them. I also think you need a bit of education around the board so that they’re ready to make the most of the advantages as well as minimise the disadvantages.”

Brasher agrees that it’s vital to anticipate every potential disadvantage and make sure you have a handle on it – including virtual etiquette.

“If you’re sitting up in the middle of the night for a meeting, you’re probably not too long on patience,” he says. “Considerate behaviour will go a long way to ensuring virtual meetings run as effectively as possible.

“For instance, everyone must be on time. It’s very disruptive if someone is late or if people are coming and going. It’s also incredibly frustrating if people in one location have access to papers while others don’t – it will completely alienate some directors. There is technology for sharing documents if everyone is online but, just as in a regular boardroom situation, most board members prefer to have papers distributed beforehand.”

Brasher also recommends following up quickly on what was agreed and spelling it out precisely. “Communicate clearly and choose your words carefully in order to avoid misunderstandings,” he says.

“A virtual meeting requires just as much pre-planning and preparation as a regular one,” adds Perrott. “You can’t expect everyone to be instantly available or to have time to wait.”

A gradual evolution

Australians are noted for their enthusiastic take-up of many new technologies – but the virtual board isn’t one of them.

“It’s been almost ten years since the Corporations Law was changed to allow virtual meetings and electronic communications, but most of the people we deal with would prefer face-to-face meetings,” says Christina McGrath, an associate director at KPMG’s Board Advisory Services. “Even companies with global boards tend to have directors who travel.”

Nevertheless, Brasher believes that virtual technology is increasingly on the board’s agenda.

“The ones that I see want to have the most relevant board possible for their circumstances,” he says. “If they’re selling a lot offshore, it would make sense to have a director from outside of Australia. While virtual technology can certainly cut costs, I think an even more important advantage is that it provides access to people you couldn’t work with any other way.”

“All new technologies have an adoption lag,” says Perrott. “It takes some time before a new concept becomes mainstream – think of the resistance to on-line banking in the early 1990s. The speed of adoption will depend on the perceived advantages of the new over the old, given the operating conditions and needs at a point in time.”

When introducing technology, Twomey says it’s useful to know how each board member likes to assimilate information.

“Some want to see things on a website, some on a WIKI,” he says. “Some like emails they can print out and read. Some want to download information to read on their laptop when they’re on a long flight.

“You have to pitch it at the right level – but, on the other hand, I believe very strongly that board members have to get to understand these tools. That’s where their customers are and increasingly, it’s the environment where risks are worked out,” says Twomey.

“This is the era of YouTube and seven million blogs, where everyone can be their own media commentator. The system we help co-ordinate does 22 billion user sessions a day, supports something like $2.4 trillion-worth of e-commerce transactions and has 1.1 billion users. This is real. This is the fast-moving aspect of how everybody lives their lives. If board members are not integrated into this … if they don’t understand and don’t run their lives that way … then there’s a risk question you’ve got to ask – do these people really understand your customers and suppliers and the environment in which they operate? If they sit up and say ‘that’s all technology – I never use that stuff’, I’d be asking ‘are you really suited to being a board member?’”

Embracing the technology

“We all tend to be resistant to change, but if you make the technology easy – and easy to understand – and do the appropriate training, it’s much more likely to be taken on board,” says KPMG associate director Michael Rich. He and fellow associate director Christina McGrath offer practical suggestions for successfully integrating virtual technology.

When you have a board portal:

– insist on two-factor authentication;

– ensure that every director understands how to log on and navigate the portal;

– keep content simple and logically structured;

– give directors reasons to log on regularly – for instance, email alerts on new content or dashboard warnings on key strategy, risk and compliance indicators; and

– if the company constitution permits, consider electronic online voting for circular resolutions outside of scheduled board meetings.

• Adopt protocols and rules for the use of technology in the boardroom – for instance, no checking the Blackberry during discussion time.

• Adopt protocols and rules for the use of technology outside the boardroom, such as response times to electronic messages and policies on forwarding emails or participating in blogs.

• Ensure that existing disclosure, confidentiality and communication policies remain appropriate for the new technologies.

• Seek legal advice on business conducted outside of the board meeting – for example, emails between board members could be subject to examination by a court in the event of legal action.

• Don’t dismiss the possibility of commercial espionage. Whatever the technology, security of communications should be foremost in the minds of directors and company secretaries.

• Consider online director training and education such as AICD’s e-Learning for directors.

• Introduce technology gradually into boardroom process. For example, most directors respond positively to a well-designed and easy-to-use online board evaluation survey as the initial step in a board evaluation process if it allows the opportunity for face-to-face interviews and feedback on key board performance issues.

The rise of the board portal

While remote board meetings are still something of a rarity, a growing number of companies are choosing electronic board papers as a more efficient and versatile way of communicating with directors. This generally involves setting up a board portal – a secure website which provides directors with online access to information posted by the company secretary.

“Electronic communications and delivery can help directors do more with less time by increasing the effectiveness of their board and committee work,” says Greg Radner, senior vice president, corporate executive services for Thomson Financial. “Since it is accessible via the Internet, directors can log in to a board portal anytime, anywhere.”

In an article for Directors & Boards’ Boardroom Briefing, he observess that features of a board portal might include:

• A high level of security to protect sensitive material;

• A central repository for board related materials;

• Easy ways to access and distribute materials electronically;

• A calendar of board and committee meetings;

• Online board book creation and review;

• Committee workspaces for online collaboration;

• Online approval of minutes and/or resolutions;

• Access to corporate and peer financial information; and

• Secure messaging capability.

“For years we’ve been seeing problems associated with storing board papers,” says KPMG’s Christina McGrath. “You have to keep them for seven years and directors generally have to store them at home. The company secretary also needs to keep a set of original documents. With electronic board papers, storage isn’t an issue. You also have easy access to archived material which is another huge advantage, especially in a situation where, say, a board is required to make a large capital expenditure decision over a long period of time. Directors can go back at any time and check what’s been said at previous meetings.”

Carrying around hard copy board papers can be tiresome, especially for a director who travels frequently. And, they’re also easy to leave in a cab or hotel room, or on a plane – a point that’s often overlooked when people question the security of online systems.

“Security is an issue, but paper-based systems aren’t secure either,” says McGrath. “There are a number of global companies providing a service with first class security for online systems.”

Radner agrees that protecting access to potentially sensitive data and other information is critical, but adds that security also needs to be balanced against accessibility. For example, requiring directors to remember answers to a list of security questions may place an undue burden on them.

“Passwords do offer a certain amount of protection, but they are a weak foundation for authorisation and access control,” he says. “In fact, according to Secure Computing, 12 per cent of audited network accounts had the word ‘password’ as the password and 35 per cent of passwords can be found in a user’s work area – like on a sticky note!”

More effective options include tokens, smart cards, digital certificates and biometric readers.

“These methods combine something you know – like a password or PIN – with something you have – like a fingerprint, iris, voice scan or hardware token – into a system referred to as two-factor authentication,” he says. “Two-factor security tokens with rotating pass codes have emerged as a good balance between security and accessibility.”