The Digitisation of a Firm Process and Its Impact on Corporate Governance

Overview of Digitisation

The concept of digitisation can often be misunderstood as digitalisation, but there is a difference between these two terminologies. According to the study conducted by Ritter and Pedersen, (2020), digitisation means the members of the organisation are changing important information of the organisation from analogue to digital. On the contrary, digitalisation means technological transformation in the entire process of organisational activities. The author states that digitisation is generally adopted by internal stakeholders of an organisation because it has significant capabilities. It helps the internal members of the organisation to generate, store, transmit and access data by using advanced technologies. Furthermore, data theft is one of the most discussed risks in the business environment (Schumacher et al., 2016). Hard copies or files are often stolen, which causes major disruption within the workplace. Digitisation helps in reducing this issue. Data can only be used or accessed with permission and legislations are attached when it comes to usage of data.

Digitisation and Transparency

Corporate governance and its future are highly dependent on the process of digitisation and transparency. It is found that digitisation makes the entire system automated that further can have a positive impact on corporate governance. According to the study conducted by Moerel (2021), digitisation is closely associated with innovation within the workplace, and it also enhances rapid transformation in the entire process of the business. Furthermore, initiation of digitisation in firms also changes the business model. This shows that while the firm experiences innovative business models and processes, it might also make it difficult for the employees in getting accustomed to them. It mainly occurs because of lack of technical expertise and knowledge (Neffati & Gouidar, 2019). New privacy issues along with dilemmas come into action after digitisation, and transparency is integrated in the functional departments of organisations across the world. This is how corporate governance focuses on the rules and procedures of the business gets impacted with the initiation of digitisation in a firm. On the other hand, as opined by Sibanda et al. (2020), digitisation helps in addressing the tastes and preferences of the customers. A spectacular shift in the business model has helped the organisation to become more responsible for their business decisions. The constant approach to enhancing the operational excellence of the firm is also marked as one of the responsible behaviours of the organisation. One of the major principles of corporate governance is to make sure that the senior management of an organisation is committed and responsible of their actions or not (Tricker & Tricker, 2015). Thus, from the above discussion it can be said that digitisation and initiation of digital-based activities within an organisation is having a positive impact on corporate governance.

Digitisation of Information

Additionally, as opined by Sibanda et al. (2020), organisational members are making sure to focus on the great digitisation of information within the corporation. Efforts of digitisation in organisations across the world are increasing, and board meetings are constantly focusing on discussing implementing digitisation in the core activities of the organisation. The author states that few major responsibilities of corporate governance include streamlining meetings, scheduling meetings and many more. It is found that digitisation makes the entire system automated that further can have a positive impact on corporate governance. Digitisation has been generating an impact on the corporate governance through different other ways. According to Daluwathumullagamage and Sims (2020), a newly digitised world of corporate governance framework can be formed with rising digitisation of the firm, which results in a decentralised autonomous organisation. The authors have opined that such digitisation would enable the stakeholders, blockchains, technologies, organisations and users for transacting and communicating with minimal friction, thereby enhancing the quality of corporate governance in the company. However, excessive decentralisation arising from digitisation results in loss of control from the top management. Different units or departments might start working for fulfilling their own interests instead of focusing on the overall interest of the organisation, thereby hampering the quality of corporate governance (Fenwick et al., 2019). While this digitisation might seem to be far away from reality, the outbreak of the pandemic has paved the way for such a process in the firms. It is because digital representation of physical objects during such uncertain times because useful as organisational members had to work from their homes.

Transformation of Various Processes

Digitisation transforms various areas of a firm and its processes. In this regard, Moro Visconti (2020) has pointed out the role of digitisation in the global supply chains of firms operating in the international market. The author has opined that digitisation is growing rapidly in this area because of the shift in values observed from physical artefact to smart products data, growing importance of services, radical change in the competitive structures, displacement of industry borders, creative destruction of established structures, transformed business models and changing behaviour patterns. The author has further argued that digitisation of supply chains helps in a fast end-to-end integration of the supply chain members, enhances traceability and visibility of deliveries, generates cost-effective cloud solutions, standardised transactions, enhanced collaboration, increased networking and enable sharing of real-time information (Moro Visconti, 2020). All these help in increasing the transparency and information flow in the entire supply chain of the global firms, which in turn contributes towards high-quality corporate governance. On the contrary, Scholz et al. (2018) have opined that digitisation creates various difficulties or problems as well because of the change in processes, systems and business models occurring within the organisation. Employees often resist this change because of the fear of either losing their jobs or embracing something new. Their lack of expertise in using digital tools also makes it difficult for them to undergo this change. Such resistance creates a disruption of corporate governance. Furthermore, digitisation process in the firms also affects the audit quality and audit process. Some of the changes observed include rethinking and optimisation of audit process, encouraging the emergence of new audit offerings, improving audit quality and redefining future auditor’s profile by embedding a new culture of innovation (Manita et al., 2020). It has also been observed that digitisation of audit processes results in improved peer review and practice monitoring, which further enhances the quality of corporate governance through authenticity of the firm’s financial and operational performance. It also ensures proper use of data exhaustiveness, offering new services of real-time auditing and supporting firms in digital transformation and evolving their audit processes for meeting changing customer needs (Manita et al., 2020). Thus, the audit quality can be enhanced from an overall perspective that further positively affects the corporate governance of the firm by making it more transparent and accountable to various stakeholders.

Good Corporate Governance

One of the essential elements of ensuring good corporate governance is the effective use of information. According to Brown and Toze (2017), in digitised public firms, information governance is one of the significant parts that enables the administration in efficient use of all information resources including records, published and electronically held data present at the heart of governance and public administration. This shows that digitisation enables the government in effective handling of information that is critical to both the economy and society. These data are also sensitive to various individuals and corporations being of national interest. In this regard, dishonest people handling such data or information can use it for their own benefits and advantages, which might negatively affect corporate governance and hamper transparency and authenticity (Trittin-Ulbrich et al., 2021). Thus, alongside reducing complexity and ensuring better governance in the firms, digitisation can also decrease the governance quality.

Effects on Corporate Governance

Companies and businesses always try to seek out new ways of lasting and long-term solutions for ensuring corporate governance transparency and openness. In this regard, digitisation and new technologies have become significantly important. This is because such digitisation enables in fast communication and positively influencing the way in which companies operate in the business world (CECGA, 2016). Thus, it has created an impact in the area of corporate governance. One of the significant reasons identified for this is the faster, transparent and safer sharing of information across all the management levels and external partners of the corporate firms through digitisation. The transformation from physical data into electronic format makes this possible by ensuring coordination and integration of information across the entire firm. This enhances the transparency and accountability of information being shared, thereby consequently ensuring compliance towards corporate governance principles (CECGA, 2016). Thus, it is evident that digitisation indirectly enables firms to undertake good corporate governance.

Furthermore, digitisation has been supporting modern governance in corporate firms consisting of evolving leadership, board and operational practices. These practices constantly focus on driving sustainable performance and inspiring stakeholder confidence by combining technology, insights and processes. These have improved with the introduction of digitisation in corporate firms, thereby leading to organisational transparency and enabling businesses to effectively respond to the emerging pressures in the external environment (Rashid, 2018). In this regard, the effectiveness of corporate governance depends largely on how leaders are able to embrace digitisation and technology for changing the way they lead in the organisations. Digitisation generates various challenges and developments that affect leadership in modern organisations (GCG, 2021). They are now required to lead virtual teams, build new proper structures and facilitate employee development. However, failure to respond to these developments because of inadequate skills hampers corporate governance. Thus, digitisation can also lead to a negative impact on governance because of its associated challenges.

Effects in Boardroom

Digitisation has generated various effects in the boardroom alongside its digital transformation. The effectiveness of board functioning depends extensively on the communication and information exchange between members and the management (Srinivas et al., 2019). Digitisation has been affecting this communication and interaction through the transformation of information into digital format by undertaking various digital tools and technologies. These technological advancements have supported the easy sharing of documentation and data between the management and board members that traditional depended on paper-based communications without coordination and centralisation. Digitisation has further eliminated the need for tracking multiple communications because of digital records, thereby reducing errors and duplicity of data and information (Dibb et al., 2015). This helps in enhancing accountability, integrity and transparency, leading to improved corporate governance. On the other hand, they also face challenges as all information cannot be accessible through laptops, tablets or smartphones. Besides, they also face a lack of standardisation about information being organised and present that further increases the time for processing data or information. Moreover, security becomes a major concern in digitisation of information because of the varying features and functionalities of portals and information shared across them (Srinivas et al., 2019). This often questions the integrity and authenticity of information sharing and dissemination, thereby generating negative impact on corporate governance. However, from an overall viewpoint, it has been observed that digitisation of communications alongside data enables managers to reduce their document review time and instead invest in complying with governance guidelines. Additionally, it also enhances information sharing, thereby improving the transparency and accountability at the board level of the organisations. Thus, this shows that digitisation can both positively and negatively affect the corporate governance of companies.

Effectiveness of Governments

Digitisation has also been evident to enhance the governance effectiveness of governments. It increases the transparency of various government activities improves the delivery of e-government services and enhances the provisioning of public education (Sabbagh et al., 2012). This is because digitisation makes a society more transparent through public participation. It further helps the government in disseminating information to the public in an accessible manner, thereby providing the population with deeper insight into various government policies and functions. It also ensures efficient delivery of various government services by positively impacting human development (Sabbagh et al., 2012). This, in turn, encourages the government to enhance their governance. Furthermore, digitisation also takes place in governance practices that help firms in improving their services, reducing costs and improving the quality of community people where they operate. Such practices are essential for ensuring long-term survival of the firms and creating greater value for the stakeholders (Sarrazin & Willmott, 2016). Modern governance practices take place through digitisation of data and information, making sharing more effective amongst the board members and management. Such enhanced information sharing further improves transparency and accountability, thereby enabling the firms to achieve good corporate governance (Sarrazin & Willmott, 2016). In addition, it also helps in better protection of the shareholders’ interests through effective corporate governance, thereby benefitting the firms.

It is essential for firms to operate effectively with good corporate governance. In this regard, digitisation has been playing a significant role. While this transformation of data into digital format helps in smooth information flow across different organisational members, it also magnifies security, legal and reputational risks for the firms (Kannan, 2018). However, digitisation improves the internal audit through effective monitoring and review, thereby ensuring effective corporate governance. Digital governance has gained widespread importance for firms to develop new business models, improve organisation’s agility and enhancing customer engagement. In this regard, firms are also required to handle cybersecurity risks, regulatory requirements and brand reputation (Kannan, 2018). This has led to the setting up of digital governance model through a flexible system for ensuring accountability and transparency in the firm. In addition, a governance delivery structure through digitisation is also important for ensuring good corporate governance of the firms. Corporate governance forms the basis of people, processes and performance. It is of utmost importance to ensure digitisation and an effective digital strategy for gaining better control over the company’s direction (Tricor Global, 2020). The digital corporate governance model can enable the board to use digital tools and digitisation for undertaking better strategic decisions, which consequently enhances transparency and accountability of firms. This impact of technology and digitisation generates various effects on the corporate governance of the firms. They result in lower cybersecurity risks, high efficiency, guaranteed fairness, high interactiveness, guaranteed information symmetry and high transparency (Tricor Global, 2020). It also ensures improved and secured collaboration, improved information flow, increased participation, access to historical records and managed conflicts of interests. Thus, it indicates that digitisation ensures good corporate governance in the firms by transforming the business models in them.

Issues with Digitisation

Numerous scholars have also identified adverse outcomes of digitisation on corporate governance. Grove and Schaffner (2019) argued that the assimilation of various technologies has negative implications for organisations. The decision by the board of directors to adopt technological developments with every advancement and introduction of new products in the business environment adds a different set of risks and potential threats to the organisation. Cybercrime has been one of these prominent issues. Defined as any crimes committed with the aid of a computer and/or computer network and often used as an umbrella term for offences such as fraud and money laundering, it has grown to be known as one of the biggest threats in both public and private organisations (Sofaer & Goodman, 2006).

A study by Pricewaterhouse in 2014 with 13,300 respondents across 79 nations revealed that 45% of financial institutions have suffered from a form of a cyberattack (Pricewaterhouse 7th global economic survey, 2014). The financial losses of these crimes to the business world have been estimated to be $30 billion annually. A report produced by McAfee (2018) reflected that costs incurred due to cybercrimes have increased from $1.6 trillion to $2.2 trillion as a result of attacks occurring only in 2017.

The Wannacry ransomware attack in 2017 was one of the global impacts of digitasation as it targeted businesses using computers. Affecting almost all countries, the ransomware put all electronic provision of goods and services to a halt. Furthermore, it was costly for businesses to recover from such an experience as companies had to invest in stricter security safeguards to ensure that they are not left vulnerable again (Akbanov & Vassilakis, 2019). Cybercrimes due to digitasation therefore results in financial losses which compromise a business’s profits, intergrity and accountability; principles that are core to corporate governance. These crimes are especially challenging to shareholders as they are complex and are usually of an international nature therefore difficult to contain and regulate (Swain & Panda, 2009).

Livingstone and Smith (2014) argue that huge financial damages due to cybercrimes in business have been due to a drop in sales, loss of classified information and destruction of various technological equipment used in production. Ponemon Insitute (2014) highlighted that the investigation and detection of cybercrimes are one of the most expensive costs incurred by businesses which, then, compromises profits. This is due to the fact that corporations who are frequently victims lose the trust of customers and other stakeholders that may eventually lead to a loss in business altogether.

Cyber espionage as a result of digitisation is one of the major threats to corporate governance. According to Okereafor (2008), it is a type of cyber attack that comprises the stealing of intellectual property, sensitive and classified data to gain a competitive advantage over another business. McAfee (2013) argued that the theft of trade secrets is a growing problem that has a bearing on the economic sustainability of businesses. This is due to the fact that they are part of assets that greatly contribute to their success and ability to attract and retain customers.

A study conducted by Pricewaterhouse 7th global economic survey (2014) in Europe highlighted that cyber espionage affects both public and private institutions alike. An upward trend was identified with in crimes increasing from 2010–2016. Exposure and vulnerability to cyber espionage were said to increase with digitisation with losses expected to reach one billion in loss of jobs and profits. Furthermore, Gimpel and Schmied (2019) argued that these crimes are also costly for institutions as they result in reputational losses and increased security costs in order to successfully combat them.

Digitisation is therefore a threat to corporate governance as its main role is to drive the company to long-term success through profit-making and cost-cutting (Price, 2018). It also involves effective leadership and strategic management to promote company processes and the ability of the board to contain threats and risks to business activities. This, however, has not been possible as there is still lack of awareness among shareholders and stakeholders on digitisation and its contribution to cybercrimes (Okereafor, 2008). In addition, the global nature of these crimes as well as a lack of policy in many countries to regulate them has left it almost impossible for corporate governance to prevail (Pricewaterhousecoopers, 2019).

The main literature gap exists in the fact that the majority of the articles have focused on the concept of digitalisation instead of digitisation. There are very few articles present that have explored the impact of this digitisation on corporate governance. They have mostly emphasised on digital technologies, instead of automating processes or information to improve data quality.