Transform your board with digital capabilities

“Boards that are digitally savvy help to build companies that outperform the competition.”

Chris Smith

Grant Thornton’s National Leader

Strategy & Transformation Services

Many boards want to believe they are digitally savvy, but the idea of digital disruption is so broad that it needs to be broken into categories that are most meaningful to boards:

• Digital technology. These are the emerging technologies like machine learning, predictive analytics, artificial intelligence (AI), the Internet of Things (IoT), blockchain, virtual reality and quantum computing. These technologies have gained steam this past decade and are defining the future of every business.
• Digital business models. E-commerce, free, freemium, subscription-based, on-demand and ad-supported are all new types of digital business models that have arisen in the past two decades. One would be hard pressed to find an industry or company not being disrupted by one or more of these models.
• Digital security. This includes the world of cybersecurity, fraud and data privacy. The past five years alone have seen great advancement in this area, and it’s not slowing down.

With these categories in mind, it is easier to make the connection between the importance of a digitally savvy board and its ability to not only be strategy-focused, but also change the board agenda. All three of these types of digital knowledge are critical if a board is to effectively oversee today’s emerging risks.

But directors must avoid the false sense of security that often creeps in when knowledge shifts occur. Matt Loeb, a research fellow at MIT’s Center for Information Research, was involved in the published study referred to above. He is also a director of the Center for Cyber Safety and Education, Excelsior College and the American Society of Association Executives. “Many boards are experiencing a sense of euphoria, believing that they are doing better than they really are when it comes to digital,” he said in a podcast. “However, according to MIT’s research, only 24% of boards meet the criteria for being digitally savvy. This means that, faced with unprecedented new technology capabilities and the speed of change, directors must up the board’s ability to obtain a better understanding of the potential opportunities and risks to company business models from emerging technologies such as AI, IoT devices, blockchain, quantum computing and the like to ensure appropriate oversight for digital transformation efforts.”

So, if being digitally savvy is a key to becoming more future focused, what can the other 76% of boards do? A large part of the answer comes down to diversifying the composition of the board. Once again, digital technology can be a huge help.

Improving board composition

Digital technology can help evolve the composition of the board, resulting in a more diversified and digitally savvy board.

For decades, board composition has stayed relatively unchanged — a mostly homogenous community of individuals. But with the massive advancements in digital technology, we now live in a connected world that has the potential to open up the director-candidate pool one thousandfold. This is a good thing for introducing diversity of experience, because qualified board candidates who understand the differences in digital disruption can be difficult to find.

Thanks to new digital platforms, however, both for-profit and nonprofit organizations are breaking down legacy barriers to new sources of candidates. Companies such as theBoardlist and Athena Alliance specialize in the development and promotion of highly qualified female board candidates. Others like Talent4Boards and BoardProspects focus on all types of qualified candidates. And platforms such as LinkedIn, AdvisoryCloud or even Gerson Lehrman Group develop networks of specialized advisors who may be suitable for board positions.

Looking ahead, technology will most likely focus on assessing the fitness of candidates within these new, broader pipelines and matching them to specific boards. While predictive and machine-learning-powered digital assessment is being adopted on the management side, it’s just a matter of time before this same approach is used to, for example, minimize unconscious bias and help match candidates to board seats. Will it be a company like Plum, The Predictive Index, Pymetrics or another that will tackle digital assessments of directors? We don’t yet know, but this could represent an important new approach to board composition.

Improving board operations

Board operations are notorious for being entrenched in legacy processes. Engagement between the board and CEO is still primarily driven by communication channels popular in the early 2000s — quarterly in-person and telephonic meetings with subcommittees in between. It’s ineffective when you consider the document management challenges that spread across various email systems and shared drives. Directors’ “Trust but verify” ability to interact with the broader management team is inconsistent at best.

But digitization is changing the board operations game in two key areas:

• Core operations. Board management software (BMS) is increasing the efficiency of some board activities. In scheduling meetings, managing documents, building and executing surveys, or real-time collaboration (all in an encrypted environment that can be remotely accessed), BMS is enabling directors to prepare, interact and engage faster and more efficiently than ever before. Leaders such as Diligent, BoardBookit, OnBoard and Nasdaq Boardvantage are providing technology platforms or portals to bring greater efficiency to how boards operate.
• Engagement with management. While BMS is aimed at improving core operations, more progress needs to be made in how boards engage with management. Data visualization, for example, used in risk-management dashboards has become a standard for most management teams. As directors become more accustomed to such visualizations, new insights will be expected from management in a near real-time fashion. This will result in improved engagement and higher-quality discussion. Think about a scenario where any director can access insights showing the correlation between revenue, margin, customer engagement and employee engagement. These insights are being enabled today, allowing directors to better prepare for board meetings and to question management. The shift to BMS and the engagement that comes from it lead to the biggest upside of all — accountability of management to the board itself.

High-performing boards are already making use of these new platforms and technologies and increasing their existing directors’ digital knowledge. These boards are also the early adopters in the digitally savvy platforms conversation; they’re leading the charge to recruit high-performing, diverse candidates. And they are using BMS to drive improvements in their core activities in order to dedicate more time to strategic objectives. As a reminder, per the MIT study, this represents only around 24% of boards. So while the legacy of how boards operate will never fully go away, the digital world has arrived. Boards that embrace digitization will move faster into the modern age, and company performance will be right at your side.