Boards of directors have an important role to play in helping senior executives navigate the digital age, but that requires adapting to a whole new board structure and taking on new and evolving responsibilities if the business is to remain competitive in the digital world.
Increasingly, senior executives are embracing the opportunities created by generative artificial intelligence (AI), for example, including the financial services industry. In a recent survey of 350 banking executives responsible for generative AI decision-making, 92% expressed high demand for generative AI, with 95% indicating generative AI has the potential to transform the banking industry.
The survey also found that increased interest in generative AI is driving C-suite executives and directors to get more involved in technology and IT decisions, according to 96% of banking executive respondents.
Tech skills wanted
As use cases for emerging technologies like generative AI emerge, it necessarily requires putting together a digitally savvy boardroom made up of at least a few experts who not only understand these technologies, but also how they relate to business strategy and operations. Those with the necessary expertise could include former chief information security officers, chief technology officers (CTOs), or chief executives of a tech company, for example.
Having just one, or even two, “digitally savvy” directors on a board may not be enough, however. According to research from the MIT Sloan School of Management, it takes at least three digitally savvy directors to impact performance.
Speaking on a webinar about the value-add of digitally savvy boards, Peter Weill, chairman of the Center for Information Systems Research at MIT Sloan School of Management, said the following characteristics define what it means to be “digitally savvy”:
- Understanding the impact of digital: Understanding how digital will impact success of the business over the next decade and the changes required;
- Understanding technology: Having an enterprise-level understanding of technology, such as digital platforms, AI, Big Data, the Internet of Things, mobile and digital processes, etc;
- Understanding how to change the organization at scale: Knowing when to commit, when to experiment, when to partner, and knowing early indicators of both successes and challenges with new initiatives operating at enterprise scale;
- Being open to change: Digitally savvy companies and their boards consider technology early in the strategy process, focusing on the business model, and then project risk.
Technology committee responsibilities
Some companies have begun establishing a technology committee on the board. Many technology-committee charters out there provide examples of the important responsibilities these committees play, which vary by company.
By way of example, the following is a non-exhaustive list of potential responsibilities of a technology committee:
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Staying abreast of emerging technologies: Whereas a company’s IT team generally monitors a company’s IT operations, a technology committee can evaluate from a strategic perspective what long-term impact certain technologies may have on the company.
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Risk management oversight: A technology committee can review cybersecurity and other operational risk exposures faced by the company and the business units, and what steps have been taken by management to monitor and reduce such risk exposures.
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Evaluate the company’s technological competitive position: A technology committee can be an asset to the business by evaluating how the company’s products and services measure up to industry competitors from a technology standpoint, or where investments may be needed.
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Succession planning: A technology committee can evaluate the performance of the CTO and also help in succession planning by ensuring that the current CTO’s responsibilities have been documented and can be seamlessly delegated to a successor, when necessary.
Cost benefits
According to an analysis conducted by the MIT Sloan School of Management in 2019, just 24% of boards at all U.S. firms with over $1 billion in revenue were characterized as “digitally savvy.” Those that were, however, experienced 38% higher growth revenue, 34% higher return on assets, and 34% higher market cap growth compared to boards who lacked digital know-how.
The results were even more stark among companies with over $3 billion in revenue, in which only 7% of global companies were composed of boards where more than half of their top management teams were digitally savvy. Those companies experienced 49% higher growth; 16% higher net margin; and 53% higher valuation. “So, there are really large premiums, at least in this data, for having digital savvy top management team, which, of course, reflect in the rest of the organization,” Weill commented on the webinar.
Final words
Digitally savvy boards of directors will not, and cannot, happen overnight. For a company’s top management team and its board to begin its digital journey, it requires having meaningful conversations about what competition currently exists in the market, what investments in technology competitors have made, and how your company compares. A commitment to invest in technology must be considered in the same way the leadership team commits to invest in other areas of business strategy.
Beyond establishing a commitment to embrace digital advancements, the board or technology committee’s conversations and actions must align with the management team pertaining to goals of digital transformation. A digital risk management framework that identifies any and all potential digital risks faced by the business, and how to mitigate those risks, should also be discussed. How aligned the board is with the management team in the end will determine how successful the business will be in this quickly evolving, highly competitive digital age.
To learn more about how to engage with your board of directors – digitally savvy or not – watch the session, “Avoiding a Bored Room in the Boardroom,” from the NAVEX Next Virtual Conference:
