THE CORE COMPONENT OF AN EFFECTIVE INTERNAL CONTROL ENVIRONMENT IS, AND ALWAYS HAS BEEN, CAPABILITY.
It’s clear that in many big legacy companies, there is a real lack of digital knowledge and capability from top to bottom, and across the organization. For example, senior FTSE 100 contact recently remarked to us that on the Board on which they served there was 300 years of collective business experience, and only 3 months of digital experience. We think they could have been overstating the latter!
What is less clear is that this represents a significant internal control issue.
Effective internal control requires the Board to provide oversight of strategy and governance. But how can it possibly do this without having a good understanding of digital technologies and their implications, and an appreciation of how they are transforming corporate governance models?
Likewise, senior management are responsible for setting direction and allocating resources. But if they don’t have a clear, informed understanding of digital developments and the changes which these are driving, then they are operating in a fog, and are unlikely to make good choices.
And that leaves everyone else. As businesses digitize the whole workforce is being increasingly drawn into this new world. How is the workforce supposed to respond if they are not provided with the basic knowledge of new digital technologies to enable them to contribute?
The core component of an effective internal control environment is, and has always been, capability – the capability required to design and operate them, and the capability to understand the consequences of different actions and choices. This applies at all levels. But today, in the new digital age, and in the context of the rapid change and uncertainty that new technologies are driving, this capability is lacking.
The lever for bridging this capability gap is education.
And what is more, such education has to be continuous. In a digitizing world traditional education has a rapid half-life. A degree or an MBA acquired even 5 years again may have limited relevance in the digital economy. Everyone, at all levels, from new hires to the Main Board, has to be prepared to learn, and to keep on learning. Only through this can an organization put in place effective internal control for the digital age.