Boards must enshrine digital mind-set

More boards are responding to the challenge of digital disruption by recruiting directors with specialist tech backgrounds.

Tech revolution in business and governance is under way. 

More boards are responding to the challenge of digital disruption by recruiting directors with specialist tech backgrounds. But this is not enough on its own and could be counter-productive if boards have directors who lack general governance skills.

Directors must ask how they can ensure a digital mindset across their organisation and combine digital thinking with critical board tasks such as executive pay, succession planning, strategy governance, corporate reputation and risk management.

Rather than trying to predict threats and opportunities, boards must know their organisation can adapt to any tech-related challenge, and that it has the right people, a culture of lifelong learning, and an ethos that thrives on change.

Boards must also move beyond thinking of technology as a specialist function or even as an enabler of strategy (arguably where most board thinking sits now). The best boards recognise that technology is the business in more industries and that a true digital mindset incorporates digital thinking in all organisation layers.

The only certainty is uncertainty

Consider the challenges facing boards as business enters the new machine age. The global digital economy will account for a quarter of the world economy by 2020, from 15 per cent in 2005, and dominate every sector, predicts Accenture in its Technology Vision 2016 report.

Technology will dramatically reshape the labour market as business experiences a step-change in machine-to-machine learning, artificial intelligence and automation. Almost half of all jobs in the United States are at risk of being displaced by technology, as predicted by Carl Frey and Michael Osborne of Oxford University in their 2013 paper, ‘The Future of Employment: How Susceptible are Jobs to Computerisation?’.

The 2015 Deloitte Global Human Capital Trends report found that cognitive computing – the use of machines to read, analyse, speak and make decisions – is affecting work at all levels. Integrating machines and human work processes will be one of the great organisation challenges and, by default, a key risk and opportunity for boards to consider.

The big unknown is how quickly organisations will respond. Evidence is not encouraging: a McKinsey & Co report found that few companies in its survey of more than 1,000 organisations excelled in speed and stability. About 58 per cent hovered near the average and 22 per cent were slow or “bureaucratic”. Only 20 per cent were considered fast or agile.

No board can be blind to these trends. Those without sufficient tech skills to guide and challenge management place their organisation at great risk. As the print media and retailing sectors have shown, tech-driven disruption can destroy billions of dollars of shareholder value in a blink when organisations move too slowly.

Governing through digital disruption

Ensuring the board has sufficient skill in technology is the obvious starting point. Boardrooms, generally, lack technology expertise. For example, only 6 per cent of board directors and 3 per cent of CEOs of the world’s largest banks have professional technology experience, according to Accenture.

So recruiting tech specialists, such as former CEOs of technology businesses, to boards is a welcome development, provided they can govern beyond their area of expertise. High-performing boards have directors who can see and join the dots across many complex issues and add value in a range of areas.

Every director must be capable of understanding key technology forces in their industries, how they are affecting the organisation and its established and emerging competitors, and be able to ask the right questions of management.

Nobody expects boards to debate technology minutiae with chief information officers. However, if a director of a retail company, for example, cannot consider how technology could change the relationship with consumers in the coming decade, or transform supply chain models, he or she should not be on the board.

Nevertheless, I am encouraged by the work of Australian boards to upgrade their tech skills. I have reported on boards, such as Commonwealth Bank’s, that are visiting Silicon Valley or other technology ecosystems to understand latest trends. Other boards are hiring technology strategists and futurists to inform on emerging topics. I know of directors who are taking the initiative to attend technology conferences, here and overseas, reading up on technology trends, and even attending software boot camps.

Systems and processes need to meet tech challenge

If boosting board tech skills is step one, then step two should be developing defined systems to assess digital disruption trends. Forming panels of tech experts to advise the main board has merit, provided the board does not abrogate its responsibility to outside experts.

The prominent governance thinker, David Beatty, Conway Director of the Clarkson Centre for Business Ethics and Board Effectiveness at the University of Toronto, argued in the March edition of AICD Company Director Journal that it is time for listed company boards to introduce a technology sub-committee, much like audit or remuneration. Professor Beatty’s views make sense, even though technology cuts across multiple board functions.

That leads to step three: embedding digital thinking in a range of board functions.

For example, are the organisation’s succession planning and talent development functions aligned with the need to develop a digital mindset? Is the executive team sufficiently versed in latest tech trends and are the organisation’s future leaders capable of leading as digital disruption intensifies?

How will technology affect the organisation’s long-term skills and capabilities? Does it have the right people as technology displaces traditional jobs and creates new ones? Are there enough staff who can incorporate technology into their role? Are staff, and the board for that matter, capable of using big-data insights for complex decisions?

The overriding point is: addressing the challenges of digital disruption by appointing a few tech-savvy directors and forming a tech committee will not solve the problem. As the digital economy revolutionises business in the next 20 years, it will revolutionise governance and the role of directors. A whole-of-board and whole-of-organisation response is required to develop a true digital mind-set.

Brief biography

Tony Featherstone is Consulting Editor of the AICD Governance Leadership Centre. He has written extensively on governance for more than a decade and was Consulting Editor of AICD Company Director Journal in 2014 and 2015. Tony is a former manging editor of Business Review Weekly, Shares, Personal Investor, CFO and Asset magazines. He has written columns for The Australian Financial Review, Sydney Morning Herald and The Age, and lectured on innovation and entrepreneurship at Swinburne University.