A DD checklist for the nominating committee
If adding a digital director is a powerful way of increasing the digital competency of a board, doing so successfully requires forethought and planning.
Every company today must confront the reality of digital transformation — how social, mobile, cloud computing and data analytics are changing the very nature of its business, its products and its place in the market. Because digital transformation affects the entire enterprise, the board is being called upon to provide oversight and counsel to the CEO regarding digital strategy and the development of digital talent across the C-suite. And because the CEO must ultimately be the one who drives the digital vision, it also affects how the board manages the CEO succession process.
Boards have begun to respond by adding “digital directors” — executives who have either management or board experience at a company where digital contributes a large portion of revenue, where digital channels are crucial enablers of business or where the company is regarded as a digital transformation leader in its industry. As my colleague Charles Tribbett III pointed out in a recent Directors & Boards webinar, 57 percent of the largest U.S. public companies now have at least one digital director.
If adding a digital director is a powerful way of increasing the digital competency of a board, doing so successfully requires forethought and planning. The following can serve as a checklist of questions and issues the nominating committee should consider.
- Know where the pain is. Often, companies increasing their focus on digital issues find that they need greater digital competency not just in the boardroom but in the C-suite as well— whether in their in-house digital function; in the overall digital savvy of their marketing and product development functions; or with the CEO himself or herself. Realize that a digital director will be able to give the much-needed advice and counsel regarding these roles, but he or she will not be able, as a director, to execute them. Adding a digital director, then, may only solve part of the company’s capability problem.
- Determine the remit. Expecting a digital director to simply be a general resource for the board on all things digital could lead to frustration for all concerned — the topic is simply too broad. Instead, think through exactly where the director is expected to add value. Will he or she be asked to sit on the strategy committee or lead the innovation committee? Act as a “door-opener” to contacts in Silicon Valley? Advise the CEO on assessing the company’s internal digital leadership? These and other questions will help the nominating committee develop a clearer picture of what they are looking for — and where to look for it.
- Know the types. Broadly speaking, digital directors come in a few varieties. One type are digital leaders who come from disruptor companies — the social, mobile, digital, cloud computing, data analytics and other firms that are actually driving the changes at a root level. Another profile includes digital leaders from transformer companies that stand as examples in their industry of successful digital transformation. A third type of executive, who can come from either disruptor or transformer companies, approach digital less as strategists and more as technologists, typically as chief technology officers. Another possibility is sitting directors who already serve on boards of highly digital companies. Each type will have its own perspective on the process of digital transformation or the impact of digital.
- Have the right benchmarks. Many of the benchmarks used in evaluating traditional director candidates need to be adjusted when examining those from the digital realm. On CVs, there is likely to be more movement and shorter tenures. The definition of “success” may be more fluid — a director who has spent time at cutting-edge digital companies that may have come and gone, as long as coupled with a strong overall track record of success, may still have the capabilities and experience needed on the board. Of course, a big part of assessing candidates is evaluating the organizations, where they are and where they have been. This is particularly challenging when considering candidates coming from “disruptor” companies because of the narrow timing window. Facebook went from its collegiate niche off the radar of most corporate decision makers to being a multibillion- dollar enterprise in a few short years. Waiting until the company fully proves itself before viewing its top executives as viable director candidates almost certainly means that they will not be available.
- Go below the CEO. Nominating committees may also need to set aside the common preference for sitting CEOs — partially because there are only so many digital CEOs to go around, but also because there is a tremendous amount of talent one and even two levels down. The trade-off, of course, is that that a non-CEO candidate may have a steeper learning curve. This concern is likely to be relative, however. Many potential directors — even those who are CEOs — have never served on the board of a company outside their own industry, and fewer have ever served on a public company board of any type.
- Measure the cultural fit. While the director might be brought on to help oversee the process of transformation, it must take place within a boardroom culture of collegiality and trust. Make sure that the director candidate has the presence and political skill to be revolutionary without causing a revolt.
- Think ahead. In the digital arena, not only do top executives frequently change roles, but companies alter their relationships to each other, as competitors become collaborators and partners become “frenemies.” The accomplished retail ecommerce leader who would be a great addition to a publishing company’s board may be at Amazon two years from now, potentially leading to a board resignation and a repeat of the search process.
- Focus on onboarding. Many digital directors will never have served on a board before, and many will, despite their achievements, have less executive experience than the board members they are joining. Particular care needs to be taken to bring the new director up to speed — not just on the company’s particulars, but on boardroom culture and expectations. Assigning an experienced director to act as mentor can help speed the process and smooth out the inevitable bumps.
Many companies would benefit from having digital directors on their boards. Nominating committees need to take extra steps before, during and after the search process if the benefits of hiring digital directors are to be realized.