Boards and their companies operate in an increasingly digital world. Every director should have sufficient digital understanding to engage in strategic conversations with the CEO, other company leaders and other members of the board.
Embracing digital capabilities is a mindset that emphasizes a commitment to adapt continuously in the face of change and respond to customers’ increased desire for products and services that meet their evolving needs. As markets continue to evolve, is the value contributed by the board keeping pace? Is board composition refreshed to reflect the times? Do the board’s experience, skill sets and capabilities enable it to engage meaningfully with the CEO and management team?
One of the top trends that will have the greatest effect on companies over the next 12 months — as noted in a recent survey of public company corporate directors issued by the National Association of Corporate Directors (NACD) — is the increasing pace of digital transformation. The digital era is fostering an environment in which each director should be knowledgeable about the enabling technologies that will impact the industry over the long term, resulting in new business models, transforming customer experiences, and driving operational efficiencies and innovation. A sufficient digital understanding enables directors to contribute to capital allocation and strategic conversations around digital initiatives and thinking.
There are several imperatives that boards should consider to advance their role in digital transformation:
Mere understanding of the importance of digital and the notion of altering the board’s culture to embrace it has become very “yesterday.” The nominating/governance committee’s mindset, criteria and expectations should reflect the board’s most immediate needs. Boards needing to elevate their game in recognizing the impact of disruptive technologies on business models and growth strategies, as well as the security implications of implementing those technologies, should make it a strategic imperative to evaluate board composition. To that end, the nominating/governance committee should seek the CEO’s input on the specific capabilities and skill sets that the board needs to add value to strategic conversations in the boardroom. Also, it should not permit “fit” to function as a cover for unconscious bias or other barriers to the participation of otherwise qualified candidates, particularly on the digital front.
Continuing director education should tap into digital experience with an objective to increase the digital savviness of all board members. Boards with deficiencies in this area should look to independent advisers to help bridge the gap.
The Securities and Exchange Commission (SEC) in the United States has proposed a rule requiring annual reporting or certain proxy disclosures about the board of directors’ cybersecurity expertise, if any. The proposal doesn’t define what constitutes this area of expertise, only offering examples. It doesn’t include an “if not, why not” provision, making it unclear how investors might interpret a company’s lack of disclosure of a board-level “cybersecurity expert.” Parties commenting on this proposal have reported various concerns regarding its implementation.
Directors serving public companies listed in U.S. capital markets should appraise how the board organizes its oversight of cybersecurity risk. Given cyber threats are a moving target, this risk merits consideration on a periodic basis regardless of what the SEC does.
Digital technologies are powerful enablers of increased productivity, innovative strategies and cost savings. They’re also an integral part of solutions to reduce product waste and conserve scarce resources. They offer more powerful ways to analyze data and measure and track progress in minimizing environmental impacts. They can streamline supply chains and facilitate problem-solving. Most important, digital technologies can enhance reputation and brand image, opening doors to customers valuing relationships built on sustainable business practices and trust.
With the increased frequency of shareholder environmental and safety proposals gaining traction in forcing votes at annual meetings, directors should focus on their company’s preparations. This may entail elevating the boardroom conversation above discussions centered on the presumed dichotomy between sustainability and profit. If sustainability initiatives impact short-term profits, a compelling narrative to shareholders and different performance incentives may be necessary to balance the executive team’s focus. The board can set the tone in this conversation.
In summary, advancing the board’s digital transformation requires smart, strategic and engaged thinking and recognizing technology as a strategic driver rather than a mere enabler for fostering disruptive innovation. It’s about the board’s composition and processes for refreshment, as well as the board’s continuous education. It’s also about allocating sufficient time to discuss the digital agenda in the boardroom. It entails remaining abreast of relevant legislative and regulatory developments and viewing digital initiatives with a broad lens that considers sustainability matters. Finally, it raises the question of how best and frequently to communicate with investors about the company’s and board’s progress on the digital front.
For more about advancing the board’s role in digital transformation, read the article here.
(Board Perspectives — Issue 155)
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