How technologically savvy is your board of directors? How many directors have the necessary knowledge to evaluate your company's technology strategy or approach to cybersecurity? And, as we move into a new era of cognitive automation, how many directors understand your company's approach to innovation?
Now is an ideal time for visionary boards to establish standing committees that focus on innovation and technology, both from the standpoint of what their companies are doing today, and looking ahead three to five years and even further into the future. It's hard to believe that in 2016, when technology has never been more important in corporate affairs, or a more disruptive force in the economy, that we even have to ask such questions. Yet, despite this growing importance, most Fortune 500 companies do not have standing board committees with responsibility for innovation and technology oversight.
These concerns were top-of-mind for many directors from across the globe who participated in the WCD (WomenCorporateDirectors) Americas Institute in Atlanta last fall.
“The board should be looking at a company and asking itself: Are initiatives praised? Are they celebrated? Are failures embraced?” observed Giannella Alvarez, chief executive officer of Harmless Harvest and a director of Domtar Corp. “Is the innovation ecosystem comprised of internal and external stakeholders? Do we involve our employees in innovation? Do we involve our suppliers? Do we involve academia? Do we involve start-ups?”
Boards need to be aware that the corporate culture is what will make the company open to new business models. As a result, boards must drive a culture that fosters innovation, even when it has the potential to disrupt the corporate status quo.
Finding the Right Balance
Another challenge I see for boards today is helping their companies find the right balance between innovation and risk. It's important for companies to have a balanced innovation portfolio that includes incremental innovations where you're tweaking existing products. The portfolio should also include more disruptive innovations, ones with a longer return on investment and more risk.
Though I would argue that the innovation and technology committee should be one committee, there is the risk component of technology that may support separate committees. Cybersecurity is seen as the top current risk: Many board members who participated in the Americas Institute discussions expressed concern that their organizations are falling short in cybersecurity preparation.
Indeed, cybersecurity was cited as one of the three most significant concerns in the WCD Foundation's 2016 Global Board Survey of more than 4,000 global directors, female and male. It's important that boards recognize that they are responsible for creating the conditions upon which a culture of preparedness and accountability can be built.
A Definite Trend
There is a definite need, and trend, toward creating risk, technology, or security committees of boards. The escalating level of risks surrounding cyber, technology, and operational risk management are a heavy burden for the audit committee. These new committees are usually headed by board members who have the expertise as well as relevant management and staff. They serve as a way to educate other board members as well.
One example is the security committee of the board of El Paso Electric Co., chaired by Catherine Allen, a cyber and risk management expert on the board and WCD member. The committee addresses cyber and physical security threats to the utility and monitors management strategy and activity, then reports back critical issues to the full board. Examples include use of drones, budgets for security, and new regulatory requirements.
An emerging risk — and innovation opportunity! — is the rise of advanced robotics and artificial intelligence. The potential disruption to business models, academia, and the global economy is significant.
Is your board focusing enough on these risks? Does your board have members whose expertise can assist management through these disruptive days and years ahead?
Refine the Board's Thinking
Establishing a standing committee on innovation and technology, with carefully delegated authority, responsibilities and members who possess the appropriate knowledge and skills, can help ensure that boards are thinking about innovation and technology in the right way.
A separate committee would not relieve the full board of its core oversight responsibilities, but the structured approach of a standing committee and the expertise of its membership should help boards make better, more informed decisions in a world increasingly affected by technology.
As you consider any gaps in your board members' qualifications around technology and innovation, keep in mind that many of the potential board members will be much younger than current board members. This younger generation board member will provide valuable insights on the technology and innovation committee and also to overall board discussions around millennial employees and tech-savvy customers.
There are numerous studies around the benefits of thought diversity on boards — this diversity should include a generational lens, in addition to gender and others. Starbucks Corp. made headlines in 2011 when it added a 29-year-old Internet entrepreneur and technology pioneer, Clara Shih, to its board of directors. But, since then, not enough companies outside the technology industry have taken the cue. Maybe your board should be next.
In any case, it's important for corporate governance to more clearly assert itself. The board's agenda and commitment of resources with respect to innovation and technology must keep pace with changes in the relevant technology and its relationship to strategy and competitiveness.
An innovation and technology committee is certainly not the only option for boards to consider, but it may well prove to be a very effective one. â–
The author can be contacted at ncalderon@kpmg.com.