Is Your Board ‘Technology Engaged’?
With technology clearly a material driver of change, boards of larger companies are trending toward a more strategic focus on technology. Should your board be a part of that trend?
The board community has been acknowledging the speed of disruptive innovation, largely driven by emerging technologies, for some time. Artificial intelligence as a generative force, the metaverse on the horizon, quantum computing offering revolutionary potential and considerations pertaining to speed to market, technical debt, privacy, unintended consequences, and regulation: these are business realities that companies and their boards have faced for several years. Boards, given their organizations’ needs and their fiduciary responsibilities, must focus on how to organize themselves to engage the CEO and management team in strategic conversations regarding emerging technologies, their implications for the business, and what to do with the data they collect.
The formation of a technology committee in various forms is increasingly becoming a part of how some boards are responding. Our research of Fortune 100 companies reporting on 2022 indicates a marked increase in stand-alone technology committees over the last 10 years as well as an increase over 2021. The number of boards deploying a technology committee was 7 in 2012, 25 in 2021, and 36 in 2022, with financial services and health-care companies leading the way.
NACD research into Russell 3000 companies offers additional insights relative to board committee trends over the last five years. The number of companies with technology committees, cybersecurity committees, research and development committees, and sustainability committees in the Russell 3000 increased by 13 percent year-over-year in 2022 (373 in 2022 versus 330 in 2021) and more than doubled over the last five years, an indelible trend.
The key takeaways: Various sectors have boards deploying technology committees. This is not a surprise, as every company must embrace technology in one form or another to establish and sustain competitive advantage. Furthermore, not all “technology committees” are necessarily labeled as such because the need for each board varies. Thus, boards are forming different kinds of technology committees.
Six Key Questions to Ask
Technology has become so ubiquitous that there is hardly a topic concerning a company’s strategy and operations that does not have technological underpinnings. The organization’s business model, digital maturity, market opportunities, risk profile, and exposure to digital disruption are factors boards should consider when addressing six relevant questions:
Is the board devoting enough time to reviewing the company’s technology strategy, investments, and operations? It is incumbent on the board to ensure that it is receiving and reviewing sufficient information from management on technology plans and operations. This responsibility applies whether a separate technology committee is established, an existing committee is charged with oversight of technology, or technology oversight is the domain of the full board. There should be open discussion of innovation direction—supported by appropriate innovation-related metrics—and its impact on processes, products, and services, with the objective of assessing the results the strategy is delivering, return on investment (ROI), and the effectiveness of the innovation culture.
Is there sufficient technology expertise on the board? This is square one. In today’s digital world, every director should be technology-fluent. But more than fluency is needed. Acumen and currency are vital when advising management on allocating capital to current and future technology investments in view of the competitive environment. Without these skills, it doesn’t matter how the board organizes itself to oversee technology strategy and operations.
Is the board tapping outside resources with technology expertise? In addition to company personnel, directors should avail themselves of outside experts who can provide periodic briefings on emerging technology and its impact on the business and customer and employee experiences. Outsiders can offer broader market experience regarding digital transformations, managing technical debt, emerging cyber threats, and post-merger transitions. While obtaining an external view is of value to all boards, it may be the primary option for small-cap companies.
Is the board satisfied that technology planning is aligned with strategic discussions of capital allocation to ensure relevancy? Optimizing ROI is an integral part of efficient resource allocation, particularly with respect to enterprise transformation and elevating the customer experience. The board should build its confidence in management’s track record for implementing new technologies in a cost-effective manner. Reporting on ongoing implementations and post-mortems on past successes and failures sustains the board’s institutional memory and establishes accountability for realizing the promised value of technology investments.
Should technology be positioned as an agenda item for the full board? The full board may decide to make technology, innovation, and transformation an integral part of its discussions with management regarding the interrelated topics of technology, strategy, and the CEO dashboard. Because technology is a fundamental enabler of customer and employee experiences, differentiating corporate strategies and initiatives to improve operational effectiveness and efficiency, this approach engages all board members.
Alternatively, should the board delegate its technology oversight to one or more standing committees? Often the agenda of the full board is so crowded that it is not possible to give technology topics sufficient attention. In such instances, the board may delegate its oversight role to one or more standing committees. This decision may involve the following actions:
· Assigning aspects of technology oversight to one or more of the strategy, finance, investment, audit, and risk committees. When delegating technology oversight responsibilities in this manner, the board should assess whether other items on each designated committee’s agenda may result in overload. If so, the technology conversation assigned to it may receive short shrift.
· Creating a stand-alone technology committee. If the technology discussion is of such a complex and specialized nature, a more focused conversation may be needed to enable long-term strategic thinking on the implications of technology trends for the business. As noted earlier, these committees can take different forms as the specific areas of focus may vary by organization, so the no-one-size-fits-all caveat applies. A decision to form a technology committee implies that directors with the requisite qualifications are available to sustain it.
When delegating technology oversight responsibilities, keep the following factors in mind:
· Each committee’s role and responsibilities should be defined in view of the activities of other standing committees and the full board. For example, a functioning technology committee does not absolve other committees of the responsibility to address their respective chartered activities through a technology lens.
· The designated committees are expected to escalate important matters to the full board for further discussion.
· Retaining a whole board view can be challenging but is nonetheless important. A technology committee is an extension of the full board. A splintered focus on technology does not support the board’s best interests.
Regardless of the approach taken to engage management on technology matters, every director should be technology engaged. In a digital world, knowledge of and attention to technology should not be limited to a separate board committee—whether it be a technology, an audit, or a risk committee. Because technology is a strategic enabler, knowledge of technology-driven opportunities and risks is relevant to the board’s strategic conversations and holding management responsible and accountable for results. All board members have a stake in these conversations.
Protiviti is an NACD partner, providing directors with critical and timely information, and perspectives. Protiviti is a financial supporter of the NACD.
Jim DeLoach is managing director of Protiviti. DeLoach is the author of several books and a frequent contributor to NACD BoardTalk.