1.3 Board Governance Flashcards
Who sets strategy?
A firm’s strategy is set by senior management
Once established, the board of directors is ultimately responsible to the shareholders, and it is the board’s job to over see the development of the strategic direction of the company
Authors Nolan and McFarlan
2005 Harvard Business Review,“Information Technology and the Board of Directors”
The authors contend that a board that ignores its oversight responsibilities in this area is making a huge and often costly mistake—one that can lead to misalignment of a firm’s IT and general business strategy
The board must carefully consider the degree to which the company should be involved in IT based on two dimensions: defensive and offensive
Developed the (4) modes of IT Governance
Defensive IT Strategy
Maintaining reliability
Offensive IT Strategy
Using IT as a key strategic lever
(4) Modes of IT Governance
- Support Mode
- Factory Mode
- Turnaround Mode
- Strategic Mode
Support Mode
Little need for new IT and a lower need for reliability
“Don’t waste money”
Factory Mode
Low need for new IT but high need for reliability
Requires systems availability to be essentially uninterrupted, as systems failures that last for even a minute will cause a significant loss of business
“Don’t cut corners”
Turnaround Mode
Companies are undergoing a major upgrade in their systems, complete with business process re-engineering (BPR) efforts
meant to significantly improve IT functionality and advance the company’s strategic position and/or IT reliability
“Don’t screw it up!”
Strategic Mode
Need the reliability of factory mode, but also view IT as a means to pursue competitive advantage through process improvements, increased customer responsiveness etc..
“Spend what it takes, and monitor results like crazy”
Governance has become a key topic in information systems in recent years for (3) reasons:
- The continuing need to align IT and business and to ensure that IT provides appropriate business value
- The concern over corporate governance following the accounting scandals and collapse of share prices
- Ethical considerations with respect to governance for example, Cambridge Analytica
SOX
Sarbanes-Oxley Act of 2002:
- Applies to all publicly traded companies in the US
- CEO and CFO have to certify financial disclosures as accurate, and are held personally accountable for errors
*ERP systems connect the entire company and generate information which is fed directly into the financial statements. THEREFORE, by certifying that the discourses are accurate, the CEO is certifying that the IT systems are operating within the legal requirements
Base II Capital Accord
Similar to SOX for companies that operate internationally
