As businesses become increasingly digitized, companies are beginning to realize that technology expertise is an extremely useful intangible asset for Boards.
Tech-savvy directors can help Boards understand and oversee tech-driven initiatives and opportunities. As part of their strategies to enhance long-term business growth prospects, Boards juggle many responsibilities, including technology oversight. Yet even as technology cements its place as a vital component of business strategy and operations, many Boards do not have the appropriate technical know-how to oversee critical technology-driven initiatives, opportunities, and threats.
A US study conducted by Deloitte in 2016 found that more than 85 percent of new Board positions were filled by CEOs, COOs, or Presidents (38 percent); those with financial backgrounds (25 percent); or business, division, or other functional leaders (23 percent). The same Deloitte study found that the number of technology-savvy directors i.e. those with meaningful technology experience on public company Boards is low, and that many executive Boards are only now slowly beginning to add technology expertise. The percentage of public companies in the US that have appointed technology-savvy Boards has grown over the last six years from 10 percent to 17 percent. However, the 2016 Deloitte study found that this figure almost doubled (32 percent) for high performers i.e. companies that outperformed the Standard & Poor’s 500 Index (S&P 500) by 10 percent or more for the previous three years. Although having tech-savvy Boards may not necessarily be the only reason for their success, many high-performing companies appear to recognize the advantages of having technology expertise in-house within companies.
All the available data indicates that many Boards presently provide IT oversight and guidance without having the requisite technology expertise. Adding tech savvy directors to Boards can bring both new skill sets and fresh thinking to the boardroom. Tech-savvy directors can help Boards better oversee technology related issues such as risks beyond cybersecurity, opportunities and disruptions, complex digital transformations, and technology spending. Even as technology delivers value, it can create vulnerabilities. Security threats remain a top focus of Boards, but technology-related risks can extend far beyond cybersecurity to data protection and privacy, business resilience, and intellectual property protection. The ever-changing business environment and competitive landscape leave little room for error or delay as missed IT deadlines or failed project implementations can negatively impact businesses.
Tech-savvy directors can help Boards better understand and anticipate such disruptions and guide risk mitigation discussions beyond cybersecurity. Technology can rapidly make businesses or entire industries obsolescent even as it creates opportunities. Nearly every industry faces the prospect of technology disruptions. For example, free online courses, telemedicine, and robot-advisors can pose the risk of disruption to their respective industries, but can also offer opportunities for growth. Tech-savvy directors can be well-positioned to explain the promise, hype, and threat of such technologies to Boards to help them make better business and strategic decisions. Digital is more than a set of technologies, it is the new business model. Digital transformations can require a ruthless focus on organizational agility, data analytics, rapid prototyping, and customer needs across all aspects of the business. Tech-savvy directors can contribute by helping Boards oversee complex digital transformations as well as the corresponding technology and process integrations.
IT spending is a significant component of corporate budgets and continues to increase. Thirty-seven percent of participants in the Deloitte 2016 study said that their technology budgets increased by up to 20 percent since the previous fiscal year, while 12 percent said their budgets increased by more than 20 percent. Boards are ultimately responsible for the oversight and governance of spending, but without the insight of tech-savvy directors, they may potentially view technology outlays as just another overhead. Just over a third (34 percent) of directors surveyed in the Deloitte 2016 study said their Boards are not sufficiently or at all engaged in overseeing/understanding the company’s annual IT budget.
Relevant IT know-how can dramatically change Board discussions and perspectives. Some Boards employ external experts or consultants to meet this need, but outsourcing this function is an approach that can frequently lack accountability, eschew specific business context, disregard the organization’s technology capabilities, or rely on generic recommendations. Boards can therefore address this shortcoming in three ways: by appointing business and tech-savvy directors to Boards, by taking on a more offensive technology position, or by appointing a technology committee. Although current or former CIOs, CTOs, CISOs, and other C-level technology leaders could provide valuable input and perspective to Boards, Deloitte’s 2016 study found that only 3 percent of all public companies appointed tech-savvy directors to fill Board vacancies.
Although experience in managing technology operations is critical, business acumen and a strategic mind-set are equally important. Ultimately, Boards must be able to operate wearing two hats, as business people and as technologists to be effective. When it comes to technology, Boards adopting proactive approaches have marked advantages over those that maintain purely defensive postures. Boards can go on the offensive by involving the company CIO in Board meetings on a proactive and regular basis. CIOs often interact with Boards less frequently than other members of the C-suite whose roles are more historically enmeshed with Board requirements. As CIOs’ business responsibilities evolve, Boards are slowly increasing the level of communication and engagement with CIOs. The Deloitte 2016 study found that, 25 percent of Boards reported that they met with the CIO at every formal meeting, up from 18 percent in 2012. A more proactive approach to technology does not necessarily reduce Board’s concerns about security and privacy, but it can provide additional space for technology conversations about technology-driven business opportunities and digitizing the enterprise.
With responsibility for so many other oversight activities, some Boards delegate technology oversight to the audit or risk committee largely because of the importance of cybersecurity and cyber risk. The Deloitte 2016 study found that only 9 percent of S&P 500 companies had a technology committee, but that this number has been increasing over time. In the long term, assigning these tasks to a technology committee could help relieve some of the time pressures faced by Boards (and other committees) whilst still enabling Boards to oversee the joint business-technology agenda. The technology committee typically includes representation from Boards, executive management (that is, the CEO or CFO), as well as tech-savvy directors. The committee can serve as the primary link between Boards and the growing number of C-suite executives responsible for various aspects of technology (for example, the CIO, CTO, CISO, chief digital officer, and chief data officer). Establishing Board committees have some associated overheads and could have other potential downsides. For example, some committees might make critical decisions that should be left for the full Board, or conversely, they might micromanage activities. However, over the longer term, the benefits of having technology committees in-house will likely outweigh any potential downsides.
Dr. Shafi Mohamad PhD MBA FCCA