Corporate governance in the digital age

Kath Walters explains why technology and digital literacy should be high on the agenda of every board meeting in 2016.

Next year, the gap will widen between the boards that “get” digital and those that do not. Companies with boards that understand and use digital technology in their governance roles, and that have champions for digital change among their numbers will have a decisive advantage over those that do not.

I am not just talking about digital disruption here. That is only part of the equation, even though I cannot think of any industry or profession that is not struggling to adjust to the disruptive impact of digital technology on its business.

A lack of digital literacy is keeping boards from making the right governance decisions about technology, and scaring them into making the wrong ones.

Australian boardrooms and executives are “significantly less digitally savvy than other developed markets” according to a report titled 2014 Digital Board Directors. It is based on research undertaken by global firm Russell Reynolds Associates.

The study looked at director-level capabilities in boardrooms across the US, Europe, and Asia. It found that there is an increasing demand for digital directors in the top 100 companies listed on the Fortune 500 for each market.

Technology companies are the leaders in appointing tech-savvy directors, needless to say, but the report noted that US retailer Walmart has appointed the Yahoo CEO Marrisa Mayer to its board.

Cyber security is another major concern. Many directors staunchly resist taking their company’s operations into the cloud on the grounds of security. Yet they are unaware that LinkedIn, Xero, and all our banks operate in the cloud.

Meanwhile, they leave their companies without secure protection of their email and their website. This has left hundreds of companies victim to cyber scams such as cryptolocker, a virus that encrypts a company’s files so extortionists can demand a ransom to provide the key to unlock them. Companies in the S&P/ASX 100 as well as small and medium enterprises have suffered this kind of extortion.

The most recent report by CERT Australia (2013), the body responsible for responding to cyber-security incidents involving Australian businesses found that “more than 60 per cent of respondents think IT staff, the CEO and the board of directors need to improve their IT security skills and/or practices.”

I don’t want to belittle anyone who is struggling to keep up with the tsunami of change in the digital landscape. I feel the same. Although I am in a privileged position as a journalist to speak regularly to experts in these areas, I also invest in keeping myself up to date by training in these areas.

Which brings me to my second point: board directors need to step into the digital age if they want to be effective as governors of their companies. They need to embrace digital means of preparing for board meetings.

A report by PwC found 40 per cent of board directors think one or more of their peers should be replaced, and one of the top three reasons is lack of preparedness.

Admittedly, the volume of information has grown dramatically in recent years. But that is a case in favour of changing to digital storage and retrieval of board papers.

Thought leaders in this area have told me that directors feel embarrassed by their lack of digital literacy, and feel they cannot catch up. I empathise. It’s not easy asking for help with technology.

But we are talking about effective governance here. We can’t make excuses. Or, to put it another way, those who do make excuses will fall behind those who do not.

The point is to make a start.

The first step is to appoint someone on the board as the technology “champion”. The champion’s role is to always consider the technology opportunity and risk, and to seek out expert advisers in every relevant area.

And the next step is “doing something”. I have made a list of possible starting places in this column: the cloud, cyber security, digital disruption. Pick a place to start, set a deadline and put technology and digital literacy on the agenda of every board meeting in 2016.