Future-Proofing Company Boards

Images of Wall Street institutions and global financial industry heavyweights come to mind when you think of ‘board of directors’; It couldn’t be further from the truth, this notion that only publicly listed companies have a governing board of directors -- especially when the number of companies going public in the US alone declined by 52% since 1990 to 2016 and overall less than 1% of all US businesses being publicly owned. Just look at some of the largest private companies in the US, most of which have a board of directors for corporate governance.?

As much as the pandemic has forced companies to embrace online working models, corporate boards are struggling to keep pace and set the tone with this unprecedented rate of digital adoption, according to the 2021 Asia Pacific Board Director Barometer Report put together by Financial Times. As the digital divide widens, corporate boards playing catch-up are missing operational and security risks, compromising corporate operations and integrity.

Recognizing those challenges, earlier this year, Google published an excellent guide for risk governance during digital transformation in companies; specifically describing what this transformation means for risk, compliance, and audit functions, and how to best position them for success in the cloud world.

With digital transformation accelerating the post-pandemic business recovery, it’s essential for senior management and directors to embrace and harness the power of innovation,? beginning from the company’s board itself.?

Innovation: Risk or Opportunity?

Gone are the days where board members were just a set of senior executives who got the role based on their general management, finance background and legal experience from the same industry they have operated as senior executives. Board composition and its director’s jobs today demands juggling a very diverse set of challenges and the ability to think outside the box, Recently, I had an opportunity to attend the INSEAD ADP program and identified that an increasing number of Directors must have a general overview of a company’s operational activities and corporate governance while balancing its exposure to risk and strategic direction.

Because of its fiduciary responsibilities, a traditional company’s board tends to be the most risk-averse entity of the entire organization, and that philosophy could often go in the opposite direction to drive innovation. According to a Harvard study, new-age boards are realizing that standing still isn’t an option and avoiding risk is the riskiest proposition of all. A board’s capacity to guide and pivot the organization into the unknown with innovative products and services or business models is increasingly critical for a company’s growth during turbulent economic times.

If company boards aren’t agile to act or pre-empt, they risk getting left behind in the innovation curve. Sometimes CEOs understand the value of innovation but don’t get support from their board to effectively weigh the pros and cons in the company’s favour, leading to a knowing-doing gap. There’s no R&D or digital department that drives this innovation DNA alone, it has to come from the top and the company’s board of directors should set the tone and support executives on it.

Adding to that, Risk: A User’s Guide written by retired four-star general Stan McChrystal, shares some much-needed nuance into risk control factors and building an analytical approach towards risk-related thinking in corporate boardrooms. McChrystal argues in a Forbes article that we don’t look hard enough in analyzing our leaders. If a company wants its performance to continue to grow, it must take demonstrable actions that signal to potential investors that the company’s leadership is in good shape. Board directors have a big role to play here in terms of assessing the lack of innovation risk to the business or market forces will do it for them.

Diversity: What is Next?

The Wall Street Journal’s first-ever corporate report on diversity and inclusion among S&P 500 companies undeniably proves that diversity boosts innovation and the bottom line. A BCG report surveying 1700 companies across varying sizes and geographies found diverse management teams were more innovative than less diverse teams. No longer a buzzword, diversity is fast becoming the foundational block of not only a great executive team but also key for an innovative board.

When recruiting for a board position, look for diversity in skill sets and how they complement and maximize each other's experiences. For sharpening your company’s innovation curve, get board members who aren’t afraid to take calculated risks and come with a “fail and learn fast” track record. Hiring directors who have cut their teeth in a technology role is one-way companies are trying to innovate at the board level.

According to a Harvard Business Review study, increasingly, boards are looking for “digital directors” to bring the innovation gene into their decision making. They believed that directors from organizations reputed to be tech pioneers are more battle-tested in defining and executing digital transformation while weathering challenges related to doing innovative work across every business level.

Digital: Is it a Choice??

According to a Mckinsey study, even before the pandemic, 92% of executives felt their company’s need to be more digital. Even If the right board candidate isn’t ready, don't dismiss the value of upskilling an existing non-tech-savvy board member in the form of focused training with the goal of demystifying technology and its demonstrable impact on driving growth and innovation. Of the 75 board members who completed such digital training, more than 50% of them went on to digitally transform their business.

Historically, most company boards are made of CEOs, CFOs, investors and independent consultants; faced with the reality of evolving in a rapidly tech-enabled world, companies are looking at CIOs and CTOs within their organizations to take on a bigger role on the board of directors.?

Boards have a broader role to play in helping their businesses respond and accelerate their digital transformation programs. This could mean seriously considering having your CTO or a CTO from another industry elevated to your board of directors.

Adding a CTO into the board of directors mix not only brings a deep understanding of technology roadmaps but also the right mix of innovation and pragmatism that traditional company boards often seek. CTOs are naturally agile purely by their job function and more technically minded than their C-suite counterparts, and getting them on the company board is a win-win innovation accelerator for everyone involved.

Finally, it is important to realize that governing and supporting digital innovation isn’t easy and it takes a lot of collective determination and patience. If there’s one thing I learned from my experience is that organizations will be left with no choice besides always innovating, going digital and managing risks at scale.?

What are you doing to ensure digital innovation is an integral part of your organization board?

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Disclaimer: Although the article does not relate to my job, I want to emphasize that the opinions stated here are my own, not necessarily those of my employer (I work for Google).?