What Role The Audit Committee Plays In Digital Transformation

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Blythe McGarvie, director at Apple Hospitality REIT, Sonoco, Wawa and LKQ Corp., clarifies the role of a board’s audit committee’s role as companies undergo digital transformation.
Blythe McGarvie

On the surface, it may not seem obvious, but Blythe McGarvie, director at Apple Hospitality REIT, Sonoco, Wawa and LKQ Corp., says a board’s audit committee has an important role to play as companies undergo digital transformation.

McGarvie uses the implementation of robotic process automation (RPA) technology at one company she worked with as an example as to why this is the case: “You can’t just keep auditing the old problems. And quite frankly, I think with today’s systems and people thinking that they can get away with things because nobody sees it, it’s not as evident as it used to be when you were shuffling paper. In asking the questions about RPA, we were able to ask questions about weaknesses, our strengths and where we were going to use it.”

McGarvie will join two other panelists at Building Better Boards: Committee Series in Chicago on September 10-11 on the Audit and Risk Committee’s track session, “A New Board Mandate: Oversight of Technology and Business Model Disruptions and Risks.”

Corporate Board Member sat down with McGarvie to preview this session. Below are excerpts from this conversation.

Join McGarvie and others at Building Better Boards on September 10-11, 2019
Join McGarvie and others at Building Better Boards in Chicago on September 10-11, 2019

What role does the audit committee play in this era of digital transformation?

As an audit chair you obviously touch on IT auditing. So, we want to make sure that our enterprise risk processes are working the way we expect them to because you invest millions of dollars into those systems. And unless you have to coordinate it, finance [auditing] is actually pretty easy. But audit also goes into the operations and that’s much more difficult. Do we have the right systems and the right analytical people to tell us what this is saying? I’ll give you a specific example. When I was the chair of the Accenture audit committee, one of the first things we did [with] digital transformation is we decided to take a horizontal look at our expense report. We were able to reduce travel expenses by $1 million. Accenture to me is the poster child for how to digital transformation. They found things that were duplicates and people felt they could get away with it, but they couldn’t. In this environment, you can’t. And so that is a great example of not only making sure people are in compliance with everything, but that we’re also doing it for the customers. You don’t want to end up charging customers something that they shouldn’t be charged for. That gave us the confidence that we were doing the right thing for our associates as well as our customers.

How can boards go from defense to offense in this era in terms of risk mitigation?

I think the board has three roles. The first role is to protect the shareholders and grow shareholder value. That’s the reason why we have boards. So if you want to be on the offense lead the change to improve shareholder value. I think the first thing that the board has to do is be emphatic about value. What is the value? And today, there’s so many ways that you can define what is the value, what is your purpose? You’ve heard the term purpose beyond profit? I think the board serves a role there. One of my boards is having a sustainability summit in September, inviting not only CEOs from their customers but also suppliers.

I listened to the earnings call and the CEO invited the analyst to come. This is Sonoco…we are leading the charge on sustainability. People have to understand, you don’t want plastic, you want to recycle everything? Well then your food may not last as long as you wanted it. There’s hidden decisions in there. We’re bringing to the forefront how do you become sustainable? What are the tradeoffs? The board discussed…what can we do as a packaging company to improve sustainability and in which form?  That’s where that sustainability summit has comes into play. We’re also working with the University of Clemson on how you develop packaging to keep food fresh and items fresh and pharmaceuticals fresh? All of that has to be controlled. At the board level, we are energized. We help by showing support, interest, willing to have them talking about it and focusing on it. So number one, the board focuses on shareholder value and what you focus on will give you value.

The number two way you can get offensive is through talent. You need the right talent to deliver these things. The board reviews your succession plan, do you have the right talent. If we’re going digital, do we have digital natives in key spots? I mean being a digital native means you’re probably going to put somebody younger in a key spot in order to deliver what you want to.

The third area after shareholder value and talent to be on the offensive is customers. When I’ve been on boards where I will meet the customers because I want to find out what are their real concern. I don’t want it window washed through management. When I was on the Traveler’s board, I learned so much. It’s arranged through the company. We don’t go around their back. We went to different insurance companies that we worked with that were our brokers and we just learned what were their issues. What are the customer issues? Because the only way to stay relevant is to focus on your customers to win. If your customers win, you win.

What do you look forward to discussing at Building Better Boards?

I think the most interesting thing is when you get global thinkers in a room…CEOs, senior executives, board chairs, committee chairs, the first and most important thing I think we need to discuss is competitiveness. How do we remain competitive? How do we remain relevant in this world? I have learned so many good ideas from other cultures and I want to bring that back to anybody who’s in the room. It’s no longer, “The United States is going to lead the way.” You’re going to get your best ideas outside. I don’t want to say outside the U.S. I think you get some of your best ideas by looking at startups, by looking at the digital natives and what they want and how they’re changing the world. And yet you also need to include the discipline that makes us competitive. M&A has to be aggressive, but it also has to be thoughtful because not all the ideas are going to come from inside. You have to look at those companies that share your values so that you can work well together because it’s still important to agree what your values and purpose are. So that’s what I’m looking forward to.

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