Why Corporate Boards Must Develop Tech Acumen

Corporate boards are mindful of technology-focused expertise in an escalating landscape of digital strategies. These include e-platforms, AI-machine learning, cloud-based business models, blockchain, quantum analytics, privacy, and big data protection. All of these are accompanied by cyber-security pressures.

But awareness and action are not the same. Boards have been slow to educate themselves, relying instead on the CIO/CRO for information and due-diligence.

A 2017 Deloitte study found that only 28.5% of companies in the S&P500 had a tech-savvy board director in 2016, versus 16% in 2010. That’s a mere 12.5 increase in six years. When non-S&P500 companies are included, the increase is below 7%.

A 2019 Gartner CIO Survey underscores the urgency of enhancing boards’ tech acumen. Only 14 % of companies are AI vested, and just 50% plan to invest and integrate AI by 2020, even though there has been a 270% rise over the past four years of companies implementing AI.

A 2019 New Vantage Partners Big Data and AI Executive Survey found that 75% of companies cited “fear of disruption from “data-driven digital competitors” as the key driver for AI future outlay. Yet only 50% pledged to fully assimilate AI.

The aforementioned Deloitte study also found that board interactions with technology issues concentrated on operational performance or cyber-security risk. The trends of the top five technology topics discussed by boards in 2010 versus 2015 were as follows: cyber-security risk and privacy (42% vs. 48%); technology-enabled digital transformation (30% vs 32%), and Cloud (7% vs.18%).

Maintaining board conversations around privacy, data protection and cyber risk is critical. But conversations must include technology-driven business prospects and digital policy. CEOs formulate strategy. Boards should be a partner. Best practice has CEOs consulting their boards on challenges and direction. This increases diverse insights while bringing the board, well, onboard. This balanced relationship is realized only when boards are equipped to offer meaningful advice.

As the groundswell of digitization becomes integral, tech acumen on the board is essential.

Too often boards fall into the trap of not sensing urgency. Even though big data and AI investments are being ramped up, most companies aren’t seeing tangible value from their resource outlay. Corporate culture can be distracting too. First movers in the tech arena aside, most corporations will neither be data nor AI driven in the short-term because the rewards are long-term. Lethargy sets in as open board seats are scarce. Within the S&P500 companies, only 9% technology subcommittees, and less than 5% of those used openings to appoint “technology-focused” directors. The urgency for tech savvy boards cannot be overstated.

The fact is, corporations that have digital savvy directors outperform those that don’t.

A 2019 HBR study found that 24 percent of corporation with $1 billion or more in revenues had digitally savvy boards. Their performance on crucial metrics — ROA, revenue and market cap — outpaced the other 76%. Digitally savvy boards drive growth and manage risk more effectively, which drives competitive advantage in the new landscape.

Enhancing the technology acumen requires vigilance. There are 5 critical questions boards need to ask their CEO:

1. What are the strategic and competitive value of digital strategies and time-line of that gain?
2. What are the critical challenges and remedies for the digital transformation and what will a continuous dialogue between boards and senior management look like?
3. Does the digital strategy provide increased resilience to the organization?
4. Does the organization have the necessary talent to create, rollout and grow the digital strategy?
5. Does the budget model support the digital strategy?

These five questions assure that board members are proactively deliberate, as their fiduciary and resource charter requires. It is a board’s duty of care to press management to articulate the implications of disruptive technology. Boards must hold management accountable. In doing so, they balance the organization’s innovative culture and drive the velocity of transformation in their ecosystem.

Technology tends to change exponentially while people and organizations change logarithmically.

(Scheherazade Rehman is a Professor of International Business/Finance and International Affairs at George Washington University. James R. Bailey is a professor of leadership at the George Washington University School of Business)