Mind the Gap-Technology and Board Governance

This article was written by Ian Webb and first published by the IoD Jersey in 2019, but it remains topical, and we thought it would be helpful to publish it again.  We all needed to embrace technology rapidly during the pandemic to keep working efficiently.  As a result, many organisations are now more focused on digitally transforming their businesses and adding new capabilities faster than before.

At the same time, Boards are being asked to review their capabilites and skills and consider whether they have the full coverage of skills to support the strategic decisions required for their businesses.  To align the two, Boards need to enhance their digital skills and understand how that will enhance strategic decision-making.

This year, the  IoD Jersey Digital Sub-Committee’s annual event will focus on enabling and supporting digital innovation decision-making for Boards and management teams.  While the event isn’t happening until July 2023,  the Committee plans a series of activities in anticipation of that event.

We’re delighted to support this project and are happy to hear your thoughts on what focus you’d like to see for the event.  Reposting this article is the first step and we look forward to hearing from you.

We’ve extracted a few of the key points from the article here.  Please click on the button below to download the full article.

“Mind the gap” – lack of digital skills on boards is hurting organisations

Ian Webb, IoD Jersey, Digital Sub-Committee October 2019

Introduction

​The IoD is the UK’s leading voice for business leaders, campaigning on a wide range of issues such as trade, skills, and corporate governance.  Whilst there is much focus on the performance of companies and their good governance, there has been little in the way of analysis or direction on the required technology or digital capabilities of a modern board.  This paper analyses the current situation, the importance of technology representation on the board and explores the means the IoD could influence and make it better.

As businesses increasingly become digital, corporate boards are beginning to realise that technology expertise is a powerful asset. Technology-competent directors can help corporate boards understand and oversee tech-driven initiatives and opportunities, over and above the usual IT activity of “keeping the lights on”.

Where are we now?

Many studies over the last five years have raised the fact there is a low level of technology-competency in companies across the globe, so this is not a new or unknown phenomenon.

A UK government report published in 2016¹ found that the digital skills gap is costing the UK economy £63 billion a year in lost GDP. Studies such as this tend to focus on the lack of computer science teachers and the struggle to recruit graduates with the necessary skills, however technology and digital capabilities are also in short supply at the very top of organisations.

A report by PWC in 2013² reviewed Fortune 500 directors and found that less than 1% are currently CIOs, indicating there was a low level of directors on boards with IT experience.

By 2016 this had seemingly risen to just five percent of board members having digital competencies, a report by Amrop³ shows the figure has barely moved in the last two years.

And Deloitte’s analysis⁴ indicates that only three percent of all public companies appointed a technologist to newly opened board seats in 2016.

This review of the various studies shows in 2019 the number of technology-savvy directors—with meaningful technology experience— on company boards remains low.

A worrying trend shows that fewer CIOs are sitting on the board – although the influence of the CIO remains, fewer CIOs now sit on the board – dropping from 71% to 58% in just two years⁵.

….

Recommendations

In the previous section we have discussed the actions company boards should take in improving the technology capability within their own areas of governance.  We believe the IoD also has a role to play in making this happen, kick-starting organisations into making the necessary changes.

The IOD could take on these activities within current portfolios, since this is doing more of what is already offering to members and wider industry.

1. Raise awareness of the correlation between technology competence and business success

The IoD is positioned well to raise awareness using studies into board make-up and technology innovation, and then communicating this to its membership, and wider industry.  Partnering with other organisations may prove beneficial to perform studies such as those recognised in this paper.

2. Enhance the Good Governance Index (GGI) indicators to include technology competence in corporations’ boards

Up until 2017, the Good Governance Index report “was an innovative way for external stakeholders to assess the overall standard of corporate governance at the largest UK-listed companies. Launched in 2015, it is now in its third year.  The GGI initiative is an important component of the IoD’s Royal Charter commitment to promote the study, research and development of corporate governance.”

For the preceding three years, there is no indices for technology competence on the board.  If this was introduced, there would be a measure of how this is changing over time, as well as potentially creating a measure for organisations to aim for. (i.e. what gets measured gets done).

3. Create good practice guides on board competency in technology for board members and for technology directors

IoD already has guides in areas such as leadership, director’s role and responsibilities, strategy development, a series of guidelines in the areas such as,

• Technology capability requirements at board level
• Technology oversight for boards
• Technology Strategy development

4. Build curriculum of education for non-technical directors to learn (similar to finance for the non-finance director)

It would be good practice to not only have strong C-level technology representation on the board (i.e. good technology depth), but also for a wider appreciation of technology across other board members (i.e. good technology breadth).

This could be achieved with IoD creating a course for non-technical directors allowing them to build an appreciation of strategic elements for IT, and how to make technology-related decisions, how to manage IT risks, and plan for the future.

The course could, over time become part of the diploma curriculum.

Conclusion

The bottom line

As technologies continue to evolve, board directors will likely face more IT oversight responsibilities. Therefore, boards need to have a plan on how to address increasing disruption from technology, whilst delivering internal process improvements and digital change. The increase of technology capability by appointing technologists with depth of knowledge, and at the same time developing good IT governance enables directors to bridge the IT confidence gap.

A tech-savvy board can be a competitive advantage

Technology “keeps the lights on” for businesses, but it can also be a powerful force for driving business growth and performance. As a result, many boards are re-thinking the use of technology in their organisations and considering how they can create a more tech-savvy boardroom.

Likewise, many C-level technologists are realising that developing broader business skills positions them to help deliver technology transformation to businesses at both the strategic and operational level. The alignment of boards and technologists can help businesses drive growth, increase competitive advantage, and effectively manage risks.

“Many boards today still look like they did 20 years ago,” says one board leader. “It used to be good to have a bunch of CFOs in the room, but we are at a crossroads in corporate board structure. We need to get to the point where the majority of the board is tech-savvy.” ⁴

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