The bursting of the dot-com bubble in the late 1990s pushed the mandate of building of technology and digital competencies in boards to the back seat. However, with the embedding of the Internet of Things into our daily lives, and the advent of Industry 4.0, the tide is turning.
Recent years have seen a resurgence in technical director appointments on boards, as companies grapple with digital disruption brought about by new technology-enabled business models and changing consumer behaviours.
Companies today are, in one way or another, tech companies. Even traditional brick-and-mortar businesses are hard-pressed to adopt some form of digitisation in order to remain competitive. Best-in-class companies have both the board and management teams aligned towards the organisation’s digital strategy.
Research points to an increasing consensus that board leadership and engagement are absolutely essential in this respect: 53 per cent of respondents in Russell Reynolds Associates’ Digital Pulse Survey 2018 feel that the board is critical to the success of the organisation’s digital initiatives, compared to 27 per cent in 2017.
The good news is that we are seeing significant increases in digital representation on boards across all companies.
Analysis of the 300 largest publicly traded companies around the world based on the S&P Global 1200 shows that in Asia Pacific today, 26 per cent (8 per cent in 2016) of companies have a director with some form of tech background on their board, while another 10 per cent (1 percent in 2016) have two or more such directors, (see box, “Digital Representation on Boards – Comparison Across Geographies”).
It comes as no surprise that most Asia Pacific companies with digital representation on their boards are in the technology, financial services and industrial sectors (see box, “Digital Representation on Boards – Comparison Across Industries”). Companies like Tencent, SoftBank and TSMC are at the forefront with three tech directors each. That said, companies in the other more traditional sectors like manufacturing and retail are not sitting still, and have also started to incorporate more tech-savvy directors onto their boards.
Broadly, tech directors tend to have executive experience in technology and in board work (see box, “Typical Profile of a Tech Director”). But exactly what kind of tech director a board will need will differ across organisations, depending upon the business of the company, the extent of its digital journey and its current board composition.
It is therefore important that boards have a holistic and honest review of the company to ensure compatibility. That said, there are five areas for a board to ponder over when seeking to add another member who can help guide tech transformation in the business (see box, “Five Areas to Consider Before Appointing the Next Tech Director”).
Companies may consider taking additional steps in the process of searching for directors to ensure that appropriate individuals are found. Psychometric assessments and evaluations may prove useful in determining the span of their competencies and personalities, while the team conducting the search ought to have adequate technical and board experience.
Introductory events for first-time board members allow potential and current board members to meet in a less informal environment.
What are the expectations of the board when it comes to tech expertise? It is not the role of the board to execute transformation. Rather, it needs sufficient expertise and know-how such that it can provide oversight and advice, knowing when to rely on the experts, and to make sure the right questions are getting the right answers, especially from the business perspective. That means that tech directors must also be comfortable in contributing to a wide variety of strategic topics beyond technology.
It therefore comes as no surprise that many companies would favour a technology company chief executive officer (CEO), who knows both technology and business, over a deep subject matter expert, such as a chief technology officer (CTO) or chief information officer (CIO), when it comes to choosing new board members.
What are the specific areas which need strategic guidance and expertise? Answering this question requires the board to understand where the company is in its technology journey and where it hopes to go.
Is the company in need of a sweeping overhaul of enterprise technology to become more efficient, or is it facing pressure to better engage with customers through digital tools – or both? Is it a traditional company – say, insurance or manufacturing – that is looking to jumpstart innovation efforts? Or a technology company looking to move into new verticals? Or is there a specific issue, like cyber security, e-commerce, or monetising digital services, that dominates all else?
The answers can often help a board choose between a technology expert and someone who has overseen digital initiatives in another executive capacity.
Does the candidate have the right experience for what the company needs? In the rush to infuse technology expertise into the board, some boards are willing to take nearly any executive from a company like Apple, Facebook or Google. However, it is important to look beneath the surface to ensure the candidate has the right experience and skills to contribute to board-level discussions on a range of topics.
Conversely, boards often overlook candidates who have exceptionally relevant experience in overseeing a transformation at a company in a more traditional industry, such as the insurance or automotive sectors. While people with this kind of experience may not look like a technology expert on the surface (for example, they may be the chief financial officers or heads of human resources rather than CIOs), their guidance on when and where to invest or pull back can be invaluable.
The key questions are: Has the candidate experienced multiple cycles of technology investments at another company that successfully shifted business models? Can he or she translate that experience into useful questions or guidelines for the board to ensure management is making the right bets?
Is the company (really) open to a new director profile? The reality is that the board candidates with the deepest experience in digital business models tend to have less overall business experience than the average board member, and often come from organisations with different cultures from those that are considering them as a board member.
Research shows that globally, the average director with technology experience is about four years younger than his or her traditional counterpart. In some cases, it can mean a distinct difference in seniority within directors’ primary organisations, or journeys to their current roles.
However, in Asia Pacific, there is no significant difference between the average age of all directors and tech directors in particular. This suggest that companies in the region prefer directors with more years of experience, yet this would likely come with trade-offs.
Is the candidate expected to be the main source of tech expertise on the board? Appointing a director with tech expertise is generally just one part of a board’s role in strengthening the company’s technology strategy. That’s in part because one person typically cannot cover every area of interest. It’s also for liability reasons: Few directors want to feel they are dependent on the views of a single peer to make major decisions.
What is reasonable to expect from a director who is designated as a technology expert is that he or she will be an effective voice for change, particularly if that person is tasked with convincing a reticent CEO that big changes are necessary, or educating a lesssavvy group of incumbent directors.
In such cases, subject-matter expertise needs to be balanced with a propensity to persuade and even disrupt; qualities that careful behavioural interviewing can unearth.
All in all, the key is to look for directors who are fit-for-purpose, rather than expecting technical directors to be the be-all-and-end-all solution to technology transformation.
Successful strategic change is the mandate of the board working alongside the management team and stakeholders. To do so, it is crucial that boards have broader involvement to understand technology in the business of the company.