6 Factors GCs Use to Identify Risks and Opportunities

09/16/2019
Kerie Kerstetter
As a proactive general counsel trying to give useful and actionable advice to inform your board's decision-making, it's important to be on the lookout for the most relevant trends, market developments and insights to to synthesize into effective governance intelligence.
 
More information is available online today than ever before. While this has created more opportunities for proactive governance, it has become increasingly difficult to articulate and act on insights in time. As an in-house counsel, you are (in part) relied upon for bringing fresh insights to the table.
 
"Often, gaining that industry-level understanding is not a priority for a law firm attorney mired in the day-to-day demands of litigation," says Jilana L. Miller, Senior Legal Counsel at consumer electronics firm Epson America. "However, it can mean all the difference to in-house counsel charged with making the best strategic decisions for the company."

Governance Intelligence for Proactive Decision-Making

The challenges of modern governance have seen new methodologies in decision-making arise. One such methodology is governance intelligence: the application of actionable insights (efficiently synthesized from the latest market and competitive intelligence) to inform corporate strategy and proactive leadership. Governance intel is largely centered around leveraging technology to cut through the noise and the onset of information overload or "analysis paralysis". Your goal is always learning more and reading less.

GCs generally have two forms of gathering governance intel: "active collection" and "passive collection". Active collection involves researching specific issues ahead of or in follow-up to board meetings. These issues generally relate to either the meeting's agenda items or things that arise in the course of boardroom discussions. The passive collection of governance intelligence refers to the ongoing monitoring of developments at the company, competitor, market, vertical, or industry level. This is done to keep important information from falling through the cracks, allowing directors to govern proactively; not reactively.

Six Areas of Focus in Governance Intelligence

Passive monitoring allows you to stay on top of industry, competitor, or regulatory developments and present valuable insights for the board's consideration. Applying best practices in passive collection can be play an instrumental in role in helping directors navigate the demands of the fast-paced information environment.
 
There are six categories worth taking into account for effective passive monitoring:
  1. Management
  2. Financials
  3. Operations
  4. Product and Services
  5. Partners and Competitors
  6. Government
For these six categories, each development—big and small—is like throwing a stone into a still pond. Each organization competing in a market sits on that pond like a paper boat. What kind of ripples will each stone—each change—send throughout the market? Some stones are bigger than others. Sometimes they land on the other side of the pond; hardly a cause for concern. Failing to anticipate these "stones"—accounting for the radius and magnitude of their impact—can sink the "boats" of organizations unprepared to act in time. Breaking down each category of content provides a stronger sense of why these topics, when combined, are so effective in providing a thorough "net" with which to catch intel affecting your organization (while simultaneously avoiding information disengagement). These categories and subcategories offer guidance as to the structure of search parameters used in the collection of governance intelligence. This "net" is broad enough to minimize the risk of missing out on important intel, yet (with the right configurations) not enough to bury you in information.

1. Management

Management focuses on the VIPs: board members, executives, major stakeholders, etc. There are a few things you should be trying to learn when collecting passive intel on management developments: who's being hired, who's being fired, and how do these changes impact the evolution of the market? Subcategories within this area of content include:
  1. Executives
  2. Executive Movements
  3. Misconduct
  4. Shareholders
  5. Insider Transactions
"Executives" and "executive movements" focus on noteworthy decisions, promotions, appointments dismissals, resignations, and retirements in the c-suite. "Misconduct" covers malfeasance and legal action against a company or its leadership. In this context, "shareholders" refers to the relationship between a companies key stakeholders and its leadership. Are activist shareholders pushing for an executive ouster? Is there friction in the boardroom? "Insider transactions" describes the purchase or sale of a company's securities, often by executives and directors.

2. Financials

Monitoring financials means peeling back the curtain on winners and losers in the market. The purpose is in monitoring this category of content is not simply to learn about financial news, but to drill down to the underlying drivers and trends that affect performance across a market or industry. Subcategories of content include:
  1. Financial Reports
  2. Bankruptcies
  3. Stock Market Trends
  4. Analyst Commentary
Passively monitoring "financial reports" means keeping track of publicly available data on growth and performance throughout a market as it's available. "Bankruptcies" refers to intel surrounding an organization in a downward spiral. This can provide pointers on picking up the slack as a competitor circles the drain. Collecting data on "stock market trends" means passively studying how a company's stock reacts in response to fluctuations in performance metrics and market conditions. Monitoring for "analyst commentary" means tracking forecasts, insights, and updates on stock sales or purchases from key external shareholders.

3. Operations

Passively monitoring operations activities can lead GCs towards opportunities and away from risks, often by providing opportunities to benchmark your organizations against others in the industry. Subcategories within "operations" include:
  1. Expansion and Contraction
  2. Employees
  3. Supply Chain
  4. Attacks and Disasters
  5. Cyber Issues
"Expansion and contraction" refers to hiring surges and and mass layoffs—within a single organization or across the industry as a whole. Monitoring developments amongst "employees" of a market or company means collecting intel on collective bargaining activities, class action lawsuits, labor violations, and other news related to human capital. "Supply chain" developments relate to the resources and materials involved in the operations of a company or industry. "Attacks and disasters" relate to incidences—such as fires and flooding—that impact a company or market activity within a geographic region. Unsurprisingly, "cyber issues" relate to hacks, vulnerabilities, and other developments related to a company's cybersecurity and data privacy.

4. Products and Services

The products and services content category covers a similar perspective to "operations", but with a stronger emphasis on the market itself. Naturally, you should be setting up search parameters to gather market intelligence. It's often wise to monitor for trends in clientele—whether they're individual consumers or other businesses. Your goal here should be to gain some foresight into the near-future of a market, looking for valuable opportunities to pursue. Subcategories within this area of passive collection may include:
  1. Product
  2. Sales
  3. Public Sentiment
  4. Product Liability
  5. Intellectual Property
Monitoring product developments means tracking changes and developments to the offerings—obviously the products or services—of other players in the market. To some extent, "sales" provide insight into a market's response to "product" developments. Tracking "public sentiment" can yield substantial benefits in the identification and avoidance of risk. Understanding the public's response to industry developments can be used to assess the nature and timing of how your organization would need to respond in a similar scenario. Similar to "public sentiment", monitoring "product liability" can prepare a company to better handle risk and avoid finding itself in the midst of a PR crisis. At the same time, the misfortune of competitors can spell profits for you. Finally, keeping up with "intellectual property" developments can provide key insights in competitive intelligence.

5. Partners and Competitors

Partners and competitors involves narrowing the scope of the intel collected from the market level to focus on evolution at the the company (i.e. partner or competitor) level. This can shed light on gaps and opportunities in the market on which a board might consider capitalizing. Subcategories include:
  1. Deals
  2. Mergers and Acquisitions
  3. Competition
The subcategories in this area of content are fairly intuitive. Tracking "deals" means monitoring corporate partnerships (e.g. Samsung making Apple OLED displays, Amazon offering a credit card in partnership with American Express, etc.). "Mergers and acquisitions" offers insight into competitive threats on the horizon. Monitoring "competition" means maintaining a scorecard on corporate one-upmanship, examining how best to advance your place on the leaderboard when applicable.

6. Government

Government is a category you may already have in your sights. Monitoring developments affecting compliance and reporting standards; regulatory rollbacks and expansions; and noteworthy changes to state or federal tax law. Subcategories related to government include:
  1. Regulations
  2. Taxes
  3. Politics
Monitoring "regulations" can provide a useful opportunity to learn from the legal hurdles and missteps between industry competitors and regulators. Tracking developments related to "taxes" is self-explanatory. Passively collecting intel related to "politics" involves monitoring the relationship between industry competitors—if not the industry itself—and governing bodies in local, state, or national politics. This can be a useful means of gauging the receptiveness of a politician or political party to organizations in your industry.

Conclusion

Looking through this carefully-crafted lens, the proactive general counsel is able to neatly divide the flow of information. Splitting up the passive collection of governance intel in this ways enables you to cut through the noise and stay on top of industry news without the burden of "analysis paralysis". Drowning out the flow of information can mean increasing your board's response time to developments necessitating a swift reaction. In other words, effective passive monitoring can make the difference between proactive and reactive decision-making. Structuring your search parameters to passively collect market and competitive intelligence for these six categories is both an efficient and effective means of synthesizing actionable insights with which to inform and enable proactive governance.