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Tech governance: Circuit boards

IT’s A FACT that we are living in the digital age. Much of what was once tangible exists in a realm of ones and zeros – our photographs, music collections, films, television series and banking activity all sitting in an electrical ether somewhere in the sky, readily accessible whenever we please.

Of course, a relatively small number of rather large multinationals produce almost all of this technology on which we, as a society, have become so reliant. Between Apple, Microsoft, Samsung and Sony, the digital world is more or less covered.

And yet, despite its ubiquity and the fact that both our personal and professional lives are becoming increasingly digitised, the boardroom, it seems, remains remarkably analogue.

In part, it’s a generational thing. The average age of board members is 63, according to Susie Cummings, founder and CEO of digital recruiter Nurole, and as such they have had relatively little interaction with the digital world. That, in itself, can lead boards to underestimate the value of the digital arena.

Therefore, it is difficult to source digitally experienced candidates of the calibre and experience boards demand.

Research conducted by exec recruiters Russell Reynolds Associates shows that just five boards in the FTSE 100 are ‘highly digital’ – with two or more digital directors – 12 have one digital director, and 83 boards have no digital representation at all. In the FTSE 350, 88% of companies have no digital directors.

By way of comparison, 24% of the US Fortune 300 companies have at least two non-executive directors with digital backgrounds on their boards, compared to 4% in Europe.

Unsurprisingly, the most digitally proficient businesses were technology companies but even that sector languishes, with just a third falling within the highly digital criteria. The consumer sector followed, with 28% proving highly digital, while just 4% of financial services firms can claim they are highly digitally proficient. None of the healthcare businesses in the study were found to be highly digital.

Pale, stale, male

In general, part of the explanation for those rather low figures can be found in the demographics you tend to find in boardrooms, which, in a rather unscientific manner, can be summed up as ‘late middle-aged, white and male’. The more digitally progressive boards also appear to be more diverse, the figures suggest.

That’s recognised by experienced non-executive director Eric Tracey, who notes that the desire for digital knowledge tends to lead to greater variety among candidates.

The traditional route to the board sees candidates rise through the ranks of a major company or Big Four firm before joining its board and taking various non-executive posts prior to retirement.

Tracey and his luminaries note that this generally means there is a degree of homogeny in the careers that lead to this path, and by dint of its status as a relatively new skill, the pool of talent available in the digital sector offers something of an antidote to that.

“How do you get proper digital knowledge? Frankly, the only experience I’ve got is when we’ve decided to get somebody into the boardroom who was a step-level higher in knowledge than the rest of us,” Tracey tells Financial Director.

“What that entailed was, in fact, getting a director who was the best part of 20 years younger than everyone else on the board. That in itself added to the diversity and that was extremely helpful because it meant we had someone ready to challenge from a different starting point.”

But while that will be the experience of many, the idea that it is the answer to the boardroom’s prayers for greater inclusion is a fallacy. While it may be true that marginally more women occupy more digital-related board posts than most – 31% compared to the overall 18% – it is by no means a burgeoning beacon of progressiveness.

“Technology has not traditionally been bristling with female representation,” experienced non-executive director and chairwoman of ICAEW’s special interest group for NED boards Deborah Harris notes. “However, for some other areas of diversity – mainly age and probably an ethnicity point of view, too – it helps. We’ve done a lot of offshoring of technology from the west to the east, so if you think about diversity in ethnicity or from a geographical standpoint, there is an ability to do that.”

Greater emphasis

Yet while the move may help in the diversity stakes, there is not always a need, experts say, to specifically create a digital role; another option is putting greater emphasis on ensuring digital knowledge is represented in the boardroom.

There are two particularly good reasons for that. Firstly, placing all – or most – digital responsibility with one person on a board risks an imbalance, both in terms of power and in knowledge, which the company would stand to lose upon that person’s departure.

“There aren’t enough people at board level with a digital skillset, and for those that are there, it isn’t a challenge because the chief executive, CFO and COO perhaps don’t feel they have enough knowledge of the space,” explains founder and chief executive of e-commerce consultancy Practicology, Martin Newman, who also holds non-executive directorships at Conviviality and clothing retailer White Stuff and is a speaker at the Chief Digital Officer Forum in London in April.

That, says Deborah Harris, is a problematic situation as board members are jointly and severally liable, and so should make it their business to understand that technology and digital functions are the business.

“Boards that fail to understand that it is to be embedded – rather than held out almost in quarantine, only to be brought back to be inspected and put back – are missing a trick,” she says. “We’re at a transition stage with boards, and those that grasp it quickly are the ones that will prove most effective in the future.”

In particular, Harris says, companies joining the digital revolution now, without having existing, dated technology, could steal a march on those that joined earlier as they won’t have to build on ageing systems. Those companies, she says, could “leapfrog” their rivals – therefore, the mentality of embracing digital technology among boards will accelerate progress.

And yet there is the fact that it seems nigh-on inevitable that such knowledge will become standard among candidates, rather than a niche skill, which means that digital skills will become more integrated into company functions. “If you dial the clock forward five years, you would have to question how secure your position is going to be if you’re on the board of a sizeable business and you don’t have any digital capability,” says Newman. Part of the transformation in the short term, he adds, will require people “who can transfer knowledge and drive that change”.

“But I would question whether you need someone whose role is chief digital officer,” he says.

For the finance function, that means taking on some digital responsibility in order to fully understand the business and harness the information gleaned through the digital function.

“They have to know what’s going on from a digital point of view and how it’s affecting their business. They need to have a view on it,” says Russell Reynolds’ Jeremy Rickman, but adds that chief financial officers “shouldn’t be involved in the centre of a company’s digital agenda”.

Instead, the collection and use of data should form the bulk of the finance function’s interest in digital activity, alongside the costs and return on investment, Eric Tracey says. In particular, detailed analytics and data are key for better understanding of customers, he explains. “In terms of assessing quality of receivables and the like, and in terms of monitoring stock and better targeting it, digital is a step change. It allows you to play games and experiment and see what happens, whereas you were guessing before,” he says.

Security aspects

Another consideration for the finance function is the security aspect of increasing digitisation, an area that could prove catastrophic if a security breach were to take place. As such, CFOs and FDs must determine what information is protected and the level to which it is ringfenced. Indeed, failure to differentiate the value of different pieces of information to a business can mean that security spending is wasted, experts warn.

Pragmatism in that respect is a necessity, as is a degree of acceptance that some attacks and breaches will be inevitable. To that end, the most sensitive and pivotal information should receive the best protection, with less important information receiving a lower guard, the idea being that such a strategy is less demanding on resources and will also mean hackers are less likely to sustain attacks.

Among the well-versed who regularly deal with digital systems it seems that there is the feeling the novelty is wearing off and boards will, increasingly, see the medium as an opportunity to get their message across or garner goodwill.

Examples of that technique can be seen among the ‘digital’ businesses identified by Russell Reynolds, including Betfair and Just Eat, both of which use media such as Twitter effectively to interact with customers.

And it’s the word ‘effectively’ that is key here. Many businesses use Twitter, either half-heartedly spouting corporate-isms into the echo chamber, or beleaguered in dealing with dissatisfied customer after dissatisfied customer.

Instead, it’s about creating goodwill through the use of tools like social media, to drive loyalty and engagement. A cursory look at the rather surreal and, to some degree, colloquial Betfair Poker and Just Eat Twitter accounts illustrate just that.

Indeed, by Betfair’s own admission, its Twitter use “started off as a social media experiment but now has an incredibly loyal, engaged and influential audience”, with nearly 30,000 followers at the time of writing.

“You don’t necessarily need to be on Pinterest, Instagram and tweeting like crazy, but understanding how your customers utilise social media is crucial to understanding how communication and discussion with your consumers is going to continue,” Harris explains, before warning that “if you aren’t in charge of the digital conversation on your board, you aren’t able to tell your story, and somebody else will”.

And yet boards can be forgiven for their reticence on that front, given that the litany of online faux pas committed by household-name businesses is too great to fit in here. Suffice to say, it’s an area in which businesses are understandably keen to tread carefully, almost to a fault.

“It’s imperative for boards to become abreast of what people mean when they talk about social media or digital, what it means to the company or organisation and for different areas as well,” Harris says. “For some areas, it might just be for transactions, conversation and in other areas where social media and linking up is closely monitored, it’s a different environment yet again.”

And that, it seems, is the salient point. Regardless of suspicion or desire, digital methods and mechanisms are entirely mainstream, and there are scant few – and their numbers are decreasing – who are prepared to deal with businesses that aren’t operating digitally.

Whether business at large manages to accommodate digital methodology throughout their business, rather than keep it in a specific, dedicated silo, is to some degree academic; it will happen, but some sizeable outfits are in danger of becoming irrelevant unless they can effectively strip out and replace creaking systems.

Incorporating and embedding digital knowledge across the boardroom, rather than – as a token effort – finding a place for a dedicated, digitally orientated person, will go a significant way to making the process pain-free.

Digital directors on ‘highly digital’ boards
London Stock Exchange: Joanna Shields – Facebook, Google, Tech City, Bebo; Sherry Leigh Coutu – LinkedIn, LOVEFiLM, AboutMe.com
Vodafone: Renee J James – Intel, McAfee, VMWare, WindRiver Systems, Havok; Omid R Kordestani – Google, Netscape Communications, 3DO
TalkTalk: James T Powell – Thomson Reuters, Solace Systems; Brent Hoberman – Lastminute.com, Mydeco, Shazam, Made.com, Guardian Media Group, easyCar.com
Debenhams: Martina Ann King – Yahoo! Europe, Tradedoubler, Johnston Press; Peter Fitzgerald – Google, Amazon
Moneysupermarket.com: Robin Klein – Zoopla, Moo Print, Farfetch.com, Lastminute.com, LOVEFiLM, Twitter, Wonga; Simon Nixon – Moneysupermarket.com, Unique E–Ventures; Andrew Fisher – Shazam; Genevieve Shore – Pearson
Rank Group: Owen O’Donnell – Betfair, Joost, Midasplayer.com,
FT.com, Plumbee; Shaa Wasmund – Smarta Enterprises, Bright Station, Deckchair.com

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