Disruptive forces

  • Date:01 Jun 2015
  • Type:Company Director Magazine
There is growing recognition that some boards may not have enough technology expertise. Tony Featherstone considers the strategic risks and opportunities that have emerged from digital disruption.
A new business buzzword, the “disruption director” seems an unusual way to describe the interplay between technology and boards. But directors who can govern disruptive or disrupted organisations are in higher demand for new board positions.

As technology radically reshapes geographic and industry boundaries for business, boards must have sufficient skill diversity to understand the opportunities and threats from the digitisation of business models, big data, social media and other emerging technologies.

That does not mean nominating technology specialists to boards, although some search consultants expect more chief information officers to transition to directorship this decade. It does, however, mean some boards will question their ability to understand how management is addressing strategic risks and opportunities from digital disruption and technology.

“There is a growing recognition that boards generally do not have enough technology expertise,” says Alison Gaines FAICD, global practice leader of board consulting at Gerard Daniels, a prominent search firm and board consultancy. “It is becoming a much bigger theme as boards assess the threat of disruption to their business and other technology risks.”

Recognising technology’s influence on business is reflected in surveys and recent board appointments. Assessing cyber-security was ranked the second-highest priority for directors in 2015 at the Harvard Law School forum on corporate governance and financial regulation.

The next priority was assessing the effect of advances in technology and big data on the organisation’s business plan. About 85 per cent of directors said technology and digital media experience were important skills on boards, according to PwC’s 2014 Annual Corporate Director Survey. But 40 per cent said their organisation harnesses the power of big data. “IT is now a business issue, not just a technology issue,” wrote PwC.

More boards are responding to this challenge. The Commonwealth Bank of Australia (CBA) in March appointed Wendy Stops as a non-executive director after long-serving member Carolyn Kay FAICD retired. Stops spent 32 years at Accenture, most recently as senior managing director, technology, Asia Pacific, until her retirement last year. Her appointment was widely viewed as an astute move by chairman David Turner FAICD, to deepen the CBA board’s technology skills.

Skills in demand
Gaines says more boards are seeking candidates with experience in disruptive technologies. “They are looking for executive-level candidates who are used to working in business-to-consumer environments, and understand big data and social media.”

This requirement extends well beyond large listed companies, says Gaines. “Sophisticated membership organisations need directors who have had executive experience in using technology to understand, segment and communicate with customers. Universities that communicate with a large alumni are another example. Their boards must be capable of understanding the opportunities of technology-driven marketing and e-commerce.”

An ability to help organisations understand online risks is another attraction of appointing directors with a technology background, says Gaines. “Cyber-security continues to rank as a top-five issue for boards globally. Directors who bring good insights around information security risks, data management and privacy risks are in demand.”

Gaines says directors with technology skills can help with reputation management and issues relating to corporate social responsibility, another skill in rising demand on boards. “More boards are assessing their skills in stakeholder relationships and public affairs, here and in Asia. They are aware of how the organisation looks externally, particularly in social media.”

Higher demand for technology-versed directors is an opportunity for younger candidates, says Gaines. “Boards will look at younger candidates more closely than they normally would if they have a strong technology skills background. They still need to have broad management experience and if they are going to make it to boards, they need to have been an executive at a younger age. I would expect to see boards looking at well-credentialed chief information officers as
candidates.”

Other search consultants have a different view. Egon Zehnder partner Neil Waters understands the dilemma but is concerned about this trend. “All of a sudden, aspiring directors are starting to market themselves as ‘disruption directors’ even though they have had a reasonably standard executive career.  I am not sure all boards are buying what they think they are buying.”

Further, Waters is concerned that the appointment of technology experts to boards could send the wrong message to executive teams. “If the organisation is concerned about a new entrant damaging its business, is the appointment of the disruption director going to solve that problem?”

He says boards could consider a range of options based on a fundamental question: How much of the solution should be delivered by management and how much from the board? “The board can spend time assessing if management has sufficient depth in understanding how technology will affect the organisation and its industry. If the board still feels it needs more technology expertise, it could look to get the best advice possible from a range of people by forming an advisory board or committee.”

A board, for example, could recruit six tech experts to advise it and the executive team on technology-related issues. “Overseas banks have formed digital advisory boards, with people from Silicon Valley, to advise the main board on emerging technologies. Depending on the organisation, that makes more sense than appointing one director with a tech background.”

Waters says a focus on technology skills among directors risks overshadowing the board’s broader responsibilities. “We need to be reminded from time to time that the full job of a director is to govern across a range of issues, not just technology.  The best directors are typically those who have dealt with issues of real scale and complexity in their executive careers. It’s hard to get that experience if you have only worked as a technology specialist.”

The push for younger directors with technology skills could backfire, says Waters. “I understand chairmen thinking more about age diversity and refreshing the board with younger directors. But there seems to be an emerging bias against older directors. Experience should come with a premium for boards, not a discount.”

He says boards are now much more sensible about the skills they need. “They know technology is important, but not at the expense of appointing a director who cannot govern across a range of complex areas.”

If more tech experts are appointed, it is likely to be on boards of large, established organisations that are disrupted by technology, rather than those doing the disruption, such as emerging fast-growth ventures. History shows how quickly incumbent companies can fall when their markets are disrupted. They will need directors who can help the organisation survive in a new market and reorganise its resources – not just fend off the predators.