Few business people can have failed to notice a shift in business priorities over the last three years. The frantic pace of the dot-com boom, which peaked in early 2000, has been followed by a sustained period of caution and introspection, characterised by demands for guaranteed returns on new investments.
The collapse of Enron in 2001 and of WorldCom in 2002 fuelled post-boom pressure for tougher rules to govern accounting, auditing, investment banking and consulting practices, as well as changes to the way that all organisations are led and managed.
Today governments and regulatory bodies around the globe are creating new codes of practice and legislation, designed to improve standards of corporate governance. By imposing minimum standards of business ethics and accountability, governing bodies hope to re-establish confidence in commerce, and so to re-invigorate slow or stagnant economies and stock markets.
Last month IT Week and its sister magazine, Financial Director, undertook a major study of attitudes to changes in corporate governance, sponsored by IT supplier Unisys. We interviewed 200 IT leaders and 200 finance chiefs at organisations employing at least 250 staff, in the UK's public and private sectors. We asked about a variety of issues ranging from risk management to the role of IT in supporting business decisions. The answers highlighted areas where many firms must work to catch up with their rivals, to apply best practices, or to comply with upcoming rules and regulations.
Our research showed that financial directors (FDs) are markedly more aware of changes in the business climate than their IT counterparts. Only eight percent of FDs said there had been no change in governance within their own organisation over the last two to three years, but 21 percent of IT chiefs said that nothing had changed. Among FDs, 58 percent said they had seen a significant increase in efforts to improve management standards, but only a third of IT leaders said they had witnessed the shift.
However, a majority in both groups did at least agree that there had been changes in management practices in the recent past. Shareholder activity was most often given as the driving force behind the shift. Customer activity and insurance requirements were also given as reasons for change, but relatively few said that any changes had been made because directors felt the danger of prosecution had increased.
Not everyone agreed that an increased focus on corporate governance was a good thing. "There could be (increased) inflexibility, which would be a drawback," commented one senior finance manager. "We have lots of departments and we need to be flexible to set different goals. We also need to reflect that within IT."
An IT manager in the public sector agreed: "There could be a constraint on innovation. If there is too much control, then people may be reluctant to attempt new ideas and new strategies."
Interestingly, almost a third of our sample questioned the need for any change in business ethics, arguing that too much honesty can be bad for business.
Others were more optimistic that efforts to improve transparency would be beneficial. One senior IT manager in the telecoms sector said that any initiative that increases the board's awareness of IT projects and services, and better aligns the IT service with company requirements, was a good thing.
As well as being more aware of changes, FDs were also more familiar with government-led efforts to improve standards of management, with the majority indicating an awareness of the Higgs, Turnbull and Cadbury reports, for example. By contrast IT chiefs were more aware of the BS7799 information security standard, which is more directly related to the IT department's role in promoting effective management.
FDs and IT leaders expressed very similar views on the value of accreditation against a formal management standard such as BS7799. Both groups gave broadly positive summaries.
More than a third of each group said accreditation could make a valuable contribution to raising standards. Another quarter of IT chiefs said certification provided a useful opportunity to review processes, and around a third of FDs shared this positive view. "We'd get a tick from an auditor, as we'd have done what was asked," said one head of finance in the public sector. "[In the past] we've then be able to say we're clean - putting us in a strong position."
An IT manager in the financial sector said he hoped that seeking accreditation might make the board think more about the value of information and thus of the IT department. "There would be a greater understanding from the highest level - an understanding of the function, as opposed to the bottom line," he explained, adding that the benefits might also extend in the other direction. "People are motivated by the interest shown in their function, which is particularly true for IT."
However, another IT chief said such hopes were unrealistic. "IT is a specialist area, so getting higher [managers] involved doesn't mean they can understand or accept overnight what we do. Also, there are cost risks. [Accreditation] requires a high investment in time and people, but it might not produce results."
Many IT managers worried that corporate governance decisions were likely to be handed down by the board with scant regard for the IT implications, and 28 percent said there was likely to be little or no consultation before a change in policy that could affect their department. Less than one in five said they would definitely be consulted before any decisions were made. By comparison, 52 percent of FDs said no decision would be made without their input.
It seems IT managers need to become more involved in their firms' corporate governance efforts - if only to avoid demands for new information systems that might prove difficult or impossible to fulfil.
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