Looking across industry and scholarly research about boards and technology governance I believe there’s good reason for concern. Boards know that technology is important to their businesses, but they don’t seem to be building bench strength in recruiting or developing digital directors. Neither are many boards putting the systems and process in place to ensure they are governing technology investment and risk effectively. Yet technology is increasingly integral to most business practices and processes, data monitoring and reporting and to all aspects of stakeholder engagement. The symptoms that all is not well are beginning to appear across main stream business journals and in the big consulting firms’ research on a regular basis.
Over the last month WSJ, Business Week and even the National Association of Corporate Directors have posted articles that flag a range of issues.PWC, Gartner Forbes, Eisener-Ampler and the IT Governance Institute have all weighed in. An aging board profile Carol Hymowitz and Jeff Green (1) from Business Week posted an insightful article on the long tenure and aging population of S&P 500 companies. They provide a pretty stark view of an over paid, entrenched group of (mostly) white males, many of whom have been on the same boards for well over 15 years. They highlight University of Michigan Professor Jim Westphal’s findings that the longer a director serves, the less effective he or she is at reviewing a company’s strategy or at conducting other oversight duties. Somewhat alarmingly they also highlight that the trend of aging directors sticking around is getting worse, with the number of board seats in S&P 500 companies that changed hands dropping in 2012 to just 291 of 5,184 directors. So it’s no surprise that their article also highlights that longtime directors are ‘more likely to be out of touch with technology, regulatory changes, and other important issues’. The lack of a quality talent pool to recruit from Joann S. Lublin’s (2) recent WSJ.com article also signals that there is a growing problem ahead for those boards wanting to hire digital directors.
Not just anyone, including most CIOs, can fulfill the role of a digital director. It requires high level business as well as a very wide range of technology-related knowledge, skills and experience to be effective in this rapidly emerging role. This article suggests that boards worried about their scant digital expertise are scrambling to recruit newcomers who have the capability to advise on strategies for the cloud, big data, social media and mobile. The article concludes that many directors are increasingly ill-equipped in the boardroom. There’s also another issue with those likely to fill the bill as digital directors. Those with the talent to be digital directors are often decades younger than their aging board colleagues. They’re frequently better qualified. They can weigh in heavily on digital strategy, business alliances and the strategic use of social, information and communication technologies. But, they can become isolated amid a board whose other members are often flying blind when it comes to technology, especially if they’re the token digital director and only one with enterprise business technology governance competence.
Are boards largely clueless when it comes to technology governance? Probably and here’s why.
Boards know that technology is important to their businesses, but they’re slow to build technology governance competency in their ranks. They’re also not putting the systems and processes in place fast enough to ensure they are governing technology investment and risk effectively. A lack of governance mechanisms Less than 25 per cent of boards have mechanisms such as CIO briefings and dedicated technology committees to monitor technology risk. Fewer evaluate the effectiveness of any enterprise technology governance mechanisms they have in place (3). This is surprising given the significantly increased compliance requirements introduced over the last decade. If a board doesn’t know what it doesn’t know and if it doesn’t have the means to easily find out, risk increases.
There is also a significant gap between what is being said and what is being done. Three separate surveys revealed more than 90% of senior executives and directors identify technology as competitively important or very important (4,5,6) However only 1% of Fortune 500 boards (7) and less than 16% of boards globally (8) identify having technology-relevant skills amongst their directors. Ironically in another 2012 survey, board respondents ranked technology as the most substantial missing or insufficiently represented skill set of all board skills (9). This is of concern because board decision-quality is logically premised off having the right mix of knowledge, skills and experience i.e., competencies. Directors must be competent to question both management and consultants although I do acknowledge that not all directors need digital competencies.
Without digitally-savvy directors in today’s environment, boards face potentially serious consequences in not updating their competency mix and probably their age profile at trhe same time. As blogger and thought leader Frank Feather puts it, organisations that do not competently ‘grasp the digital revolution risk failure, just like the Kodak and Xerox companies of this world, precisely the kinds of companies that ought to have been on the leading edge of this change. Their managements failed them, and certainly their boards failed them’ (10). Conclusion Boards can no longer afford to ignore or delegate enterprise technology governance, and if they do, they could be courting competitive, financial, compliance and reputational risk. Governing technology investment and risk has become a part of a board’s fiduciary duty of care whether they realize it or not. They need the competence to act, and they need more than one digital director. As Hymowitz and Green (1) suggest a balance of ages brings a balance of skills and experience, Certainly a strategy-matching balance of competemcies across the board (11) is likely the way forward.