This is Part 2 in our blog series on blockchain:
In Part 1 of this series, we defined blockchain and outlined a few use cases for today's companies. Now it's time to consider the board's role in oversight. Again, we loop in experts Grainne McNamara, a principal with PwC's Digital Team, and Barbara Berlin, a director with PwC's Governance Insights Center, to make recommendations for today's boards.3. Consider network risks.
Blockchain is a network technology, which means it's important for boards and management to focus on the ''who'' (i.e., the other partners connected throughout the network).
[blockquote source="Grainne McNamara, Principal, PwC's Digital Team"]If I'm going to open up my internal system of control and connect into these networks, there's a risk associated with that. That risk comes in the form of cyber risk, third-party risk, vendor risk, etc.[/blockquote]
In the Board Byte: Blockchain, PwC guides boards through various risk management questions: Would we use public or private blockchain? How does blockchain fit into our data protection strategy? How will we audit blockchain technology to ensure trust in the system?
''Again,'' stresses McNamara, ''it's really important to think through with management: 'Although [we] want to be open and collaborative and innovative...[we] do need to protect the enterprise and [we] do need to think about how these risks get managed.'''
- Part 1: What is Blockchain? An Explanation for Boards
- Part 2: Blockchain & Cryptocurrency: Keys for Effective Board Oversight
In Part 1 of this series, we defined blockchain and outlined a few use cases for today's companies. Now it's time to consider the board's role in oversight. Again, we loop in experts Grainne McNamara, a principal with PwC's Digital Team, and Barbara Berlin, a director with PwC's Governance Insights Center, to make recommendations for today's boards.
1. Don't skip the first step (i.e., education).
It's hard to have thoughtful discussion around blockchain if board members lack a basic understanding of the technology and how other industry players are using it. The responsibility to educate oneself on blockchain falls squarely on the shoulders of each board member, who is responsible for seeking out the resources necessary to get themselves up to speed. Of course, further educational opportunities can (and should) be facilitated by the board chair, head of the board's Strategy or Technology committees, or corporate secretary when applicable. In this fast-evolving business landscape, one of the common mistakes boards make is relying on one or two ''digitally savvy directors'' to shoulder the burden of new technologies. While all boards should make use of their expertise, the full board should be involved in decisions surrounding the company's growth strategies and risk appetite. We link to several further blockchain resources for board members at the end of this post.2. Assess blockchain through the lens of company strategy.
[blockquote source="Grainne McNamara, Principal, PwC's Digital Team"]At the beginning, there was lots of hype [around blockchain]. People felt like this was a technology looking for a problem to solve. It was a solution as opposed to being of business value. What we're finding is that, actually, a lot of companies are able to [identify] accretive opportunities...by using this technology to engage with other people that they're transacting with in their ecosystems.[/blockquote] In the ways McNamara outlined above, it's tempting for boards and management teams to start with the solution vs. the long-term company objectives. Barbara Berlin advises boards to start with their strategy, then assess whether any blockchain use case fits within the strategy. With long-term growth targets in mind, a transportation company may justify a substantial, front-end investment in blockchain to reduce costly errors in their freight management. Likewise, a financial institution may enter the emerging cryptocurrency market based on its desired customer profile ten years down the road. ''[Boards should be] thinking about the questions, 'How do we disrupt ourselves? How do we stay current as these technologies change?','' stresses Berlin. [embed]https://www.youtube.com/watch?v=V4tKWvBKSFs&t=1s[/embed]3. Consider network risks.
Blockchain is a network technology, which means it's important for boards and management to focus on the ''who'' (i.e., the other partners connected throughout the network).
[blockquote source="Grainne McNamara, Principal, PwC's Digital Team"]If I'm going to open up my internal system of control and connect into these networks, there's a risk associated with that. That risk comes in the form of cyber risk, third-party risk, vendor risk, etc.[/blockquote]
In the Board Byte: Blockchain, PwC guides boards through various risk management questions: Would we use public or private blockchain? How does blockchain fit into our data protection strategy? How will we audit blockchain technology to ensure trust in the system?
''Again,'' stresses McNamara, ''it's really important to think through with management: 'Although [we] want to be open and collaborative and innovative...[we] do need to protect the enterprise and [we] do need to think about how these risks get managed.'''
4. Consider peripheral risks.
Finally, there's a level of peripheral or indirect risks that today's boards must consider as more market players begin to adopt and access blockchain technology. McNamara explains that, even if your company has made a strategic decision to avoid digital currency, you must be aware of larger market trends:
''What we see is [that] you may have peripheral risk to the sector without intending to,'' said McNamara. ''Why? Because you're banking with some of the institutions that are players in the space. [And] because you have retail investors that are playing in the space and...moving in and out of cryptocurrencies and back into FIAT.''
McNamara urges board members and management to consider how they may be exposed to the risks of blockchain indirectly, whether through financial transactions, supplier networks, etc.
While the risks of blockchain are plenty, the benefits of this new technology may far outweigh the dangers in this fast-paced business landscape. As with all new technologies, effective board oversight of blockchain entails a delicate balancing act between innovation and risk--something each board must assess through the lens of its own strategy and operating environment.
Don't miss our list of further resources below. We promise more to come on this emerging topic!
Further Resources on Blockchain:
![](https://annyazommq.cloudimg.io/https://dg-staging-450520-cd.azurewebsites.net/-/media/project/diligent/master/au-whitepaper-images/whitepaper-images/a-buyers-guide-to-esg-data-management-software.png?h=511&iar=0&w=765&rev=263be577-e761-4e63-96ef-8ab461f2c7d1&org_if_sml=1&force_format=webp&hash=66FFC6017BFA4AEF4FEB228C028B7AA2)
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