The Boardroom Collides with the Digital Age

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Corporate Governance 2.0:

The Boardroom Collides with the Digital Age by m i na g o u r a n

Christopher Sickels

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apid advancements in technology continue to alter the foundations of business, redefining customer relationships, recalibrating business models and shifting strategic imperatives. According to the 2012 Global CEO Study, conducted by I.B.M., a majority of CEOs (71 percent) regard technology as the No. 1 factor influencing their organization’s future over the next three years. Technology is considered a bigger external change agent than shifting economic and market conditions.

Digital megatrends such as big data analytics, cloud computing, mobile commerce, smartphone penetration and social media are now embedded in the core of business. More importantly, these trends are critical to competitive advantage. As with any fundamental change of this kind, boards must play a central role in ensuring that companies are accurately evaluating risks and opportunities.

However, if you walked into a board meeting in any major city in the world, the chances are that few directors around the table would be well-versed in the digital world. The vast majority would be men in their 60’s, with experience in familiar topics such as risk, finance, accounting, marketing and operations. This raises the question: Is it time to reconsider boardroom composition in light of the digital economy?

Capturing value from the digital economy can be difficult, and it remains uncertain how these platforms will evolve.

What is clear is that the rules of consumer engagement have been radically altered. To forge closer connections with customers, partners, stakeholders and employees, companies will need to remain highly agile, adapt quickly and ensure they are using technology to the best possible advantage. It stands to reason that a board’s core skills will need to mirror this change.

A cursory look at the numbers demonstrates the extent to which digital trends are now a global phenomenon. More than 200 million iPhone and Android smartphones now are in consumers’ hands, and demand shows no sign of slowing. Some 41 million software applications are downloaded every day, and social networking has expanded exponentially.

While these trends are not altogether new — but rather the culmination of over 50 years of disruptive technology — they have dramatically affected distribution channels, altered business models and placed the power firmly in the hands of the consumer.

Briefings on Talent & Leadership

While the board is not responsible for putting mechanisms into place to address these issues — that is the role of the executive team — they are responsible for taking a strategic view of how technology trends will shape their company’s future. Boards must understand that business strategies are now inextricably linked with digital strategies. They must be able to evaluate current trends while anticipating future innovations.

Are boards capable of fulfilling this task? Can the average board accurately assess the nuances of the digitization phenomenon? Is it time to inject “generation Y behaviors” into our boardrooms to understand the vast disruptions and opportunities associated with digitization? All companies must now ask: How can their boards get up to speed — quickly — about these new technologies?

Future-proofing the boardroom It’s not surprising that many chairmen and senior executives think boards should play a more active role in discussing

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One size does not fit all The challenge for most boards is that “digital talent” is an ambiguous term, encompassing a vast array of domains.

Social media, e-commerce, mobile advertising and online publishing are just some of the segments, each possessing highly heterogeneous talent with divergent skills and com­ petencies. How do boards choose the right digital talent?

The talent requirements will vary greatly across industries. There is a danger of companies reacting hastily without considering what experience and skills are needed. By assuming all “digital talent” is created equal, boards could misun-

Christopher Sickels

digital strategy. Many see an urgent need to infuse digitally knowledgeable talent into the boardroom. With the average age of directors in S&P 500 companies at an all-time high — up from 60.2 in 2001 to 62.4 in 2011 — there is a danger that older directors might be out of touch with issues surrounding new markets emerging from the digital age.

Many companies are acting fast to address this digital capabilities gap at the highest levels. In those sectors where digital technology matters most — either because it’s the core of the business or because it’s disrupting the core — digital boards are now the status quo. Technology companies such as Amazon, Dell, Hewlett-Packard, Google, I.B.M., Apple, Cisco, Intel, Microsoft and Oracle predictably have boards dominated by directors with digital expertise.

A shift is also palpable in sectors such as hospitality, consumer goods, retail, distribution and supply chain. A quick look at the boards of Pepsi, Sysco, Ingram Micro and FedEx reveals how these companies have jumped in with both feet to recalibrate the composition of their boards.

Many have recruited digital CEOs to their boards — the Holy Grail being those who possess both digital expertise and C-suite status. Coca-Cola recruited Bobby Kotick, the CEO of the world’s largest video game publisher, Activision Blizzard, while the New York Times appointed Joichi Ito, an entrepre-

neur and former CEO of Japan’s first commercial Internet provider. Even the notoriously traditional Berkshire Hathaway has board members with expertise in technology. Warren Buffet clearly understood the centrality of this knowledge, recruiting former Microsoft CEO Bill Gates to the Berkshire board in 2004.

Other firms have widened the talent search, recruiting younger, non-CEO candidates. Wal-Mart added 37-year-old Marissa Mayer, a Google vice president who has since been appointed the CEO of Yahoo. Disney nominated Facebook’s 40-year-old COO Sheryl Sandberg. eBay inducted Katie Mitic, then with Facebook, while Starbucks added the 29-yearold CEO of social media platform Hearsay Social, Clara Shih, to augment their social media expertise.

There is certainly recognition that what happens online is fast becoming central to the governance equation. Social networks have reached the point where their impact on corporate risk, reputation and operations cannot be ignored in the boardroom. Indeed, information gleaned from platforms such as Facebook, Twitter and LinkedIn can provide valuable insight into the success of corporate strategy. A new paper from the Stanford Business School — “Monitoring Risks Before They Go Viral” — suggests that this information should now supplement traditional key performance indicators that directors use to evaluate senior management.

The paper points to how Procter & Gamble developed a digital “dashboard” that uses Bayesian analysis to scan tweets, blog posts and other social media. This information is then used to summarize consumer sentiment and measure brand strength. P&G Chairman and CEO Robert McDonald reportedly uses the dashboard to review corporate brands. This combined use of social media and real-time data analytics is just one example of how digital technology is influencing a modern company’s decision making.

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derstand the complexity of the talent market and fail to zero have undergone technological innovation and disruption in on what is needed. could prove to be the most valuable at board level. Even withThe first step is for the board to articulate how technology out having reached C-suite status, entrepreneurs in the “new is affecting the business. Once the company’s specific digital economy” have tangible experience managing risk amid wide-­ opportunities and risks have been identified, chairmen can scale technological change. assess what skills and expertise would add the most value at Ageism: an outdated prejudice or a necessary board level. By knowing how technology supports company risk-management value? strategy, board members and executives can make the search for talent more precise.

Much is to be gained by broadening the candidate pool. It faCorporate leaders must differentiate between the types cilitates the creation of genuinely diverse boards; not just in of digital talent needed to sit on a board versus the digital exterms of gender, which is the low-hanging fruit of diversity, perts joining the executive team. A mobile-commerce expert but also in terms of age, background, skills and ethnicity. If may be recruited to the executive team, but it is an informed companies need to be agile and diverse to capture the opporboard that initially recognizes the need to diversify their tunities of a digital age, boards need to have sufficiently varproduct offerings to alternative distribution channels. While ied profiles to deliver the broad spectrum of experience and the executive team needs talent able to shape and develop knowledge required. strategy — both in anticipation of and in reaction to new Younger boardrooms undoubtedly help augment diversity. Their true value, however, comes from the untechnologies — the board must be able to assess it. deniable fact that this demographic grew up Given that innovation and disruption inin the digital age. They therefore intuicreasingly drive senior executives’ growth tively understand the new economic agenda, boards with the ability to moniIn the search landscape. After all, e-commerce is tor these decisions could prove to be barely 20 years old. These “digital the crucial difference between comfor digital talent, it natives” — who have lived and panies that create superior sharemay be necessary to holder value and those that don’t. breathed the new economy most To debate, test and approve new of their professional lives — may recalibrate the established digital strategies, boards need be two or three decades younger members with the aptitude to help than a typical board member. They benchmarks of what frame the discussion. are nonetheless causing ripples in an ideal director the business world.

Short supply — High demand Examples include Mark Zuckerlooks like. berg (age 28) of Facebook; Ben SilberThe challenge for boards is to find canmann (30) of Pinterest; Jack Dorsey (35) didates with technology acumen alongside of Twitter; David Karp (26) of Tumblr; Jeremy the conventional behavioral traits associated Stoppelman (34) of Yelp; Daniel Ek (29) of Spotify; Salar with a director role. Ideally, candidates require digital Kamangar (35) of YouTube and Google; Dennis Crowley (36) knowledge layered on top of broad operational experience of Foursquare; Andrew Mason (31) of Groupon; Sal Khan (35) and a successful executive career. The best directors will be of Khan Academy and Alison Pincus (37), co-founder of One familiar with technology disruption and innovation but also Kings Lane. possess wisdom, maturity and perspective.

Appointing “digital natives” to the board, however, raises This talent pool is in critically short supply. While the the tricky issue of ageism. As companies grow more riskchanging of the generational guard will mean this shortage averse in the current slow economic climate, they want exwill dissipate over time, boards still face the immediate perienced hands at the board level to deal with short-term challenge of ensuring growth and success through the risks and challenges, rather than adopting a more long-term transition. approach.

Recruiting directors from the technology, digital and eIn this context, how do companies integrate younger, commerce industries could therefore mean hiring candidates fresh digital talent into their boards? Is it an acceptable trade­ with unconventional backgrounds. Many individuals with off to have talent who will push the boundaries but who may digital expertise have not achieved the same stature as tradilack the maturity needed to function effectively at board tional candidates, and for most it will be their first board aplevel? How will younger, less-experienced directors mesh pointment. In the search for digital talent, it may be neceswith seasoned directors in the boardroom? Will there be sary to rethink what an ideal director looks like. enough mutual respect and understanding to have effective Atypical candidates with experience in industries that

Briefings on Talent & Leadership

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boardroom conversations? that technology is not a stand-alone issue, but an integral part Often the biggest challenge is bridging a substantial genof successfully running a company. Since the introduction of eration gap. Experienced directors can be skeptical of unusuregulation such as the Sarbanes-Oxley Act, directors are now ally young candidates and often question their value at board accountable for the financial health of a business. Likewise, level. Similarly, younger Silicon Valley-type executives often all directors could soon be responsible for the digital direction regard older members as overly conventional. Given that of a company. much of this talent thrives in small, nimble, entrepreneurial Recruiting digital talent will certainly accelerate this organizations, they may question the utility of joining larger broader re-education process. With the entire board regularly corporations. These latent prejudices can prevent productive exposed to their skills, high-level knowledge will often be conversations, highlighting how managing a diverse transferred by the simple process of osmosis. Chairboard requires tremendous skill and sensitivity men could also consider “technology immerfrom the chairman. sion” sessions, similar to standard risk or Boards Indeed, the chairman is instrumental accounting training. There could come in ensuring that each director fulfills a time when technology-focused must seek out digital their potential and delivers their best. board committees are the status quo.

This has always been the case, but it is talent who can help Diversity and Agility — magnified as diversity among board the silver bullet? anticipate innovation members increases. Less-experienced directors need subtle coaching, not Governance in the digital age will and seek out the only during the on-boarding process likely be a process of trial and error. but on a continual basis.

Some firms will get it right; others “signal” among the will not. There is no manual for the “noise.

The bigger picture future and no guarantee of a successful strategy. What is certain is that the contriRecruiting digital talent at board level is cerbutions, value and objectivity that directors bring tainly expedient in improving governance amid acto the board are what count. Non-executive directors need to celerating technological change. However, it is also wise to be assessed based on results, leadership and their delivery of step back and understand that change is not new. The pace of shareholder value, none of which has any direct relation to current change is unprecedented, granted, but radical change age, gender or ethnicity. itself is perennial.

We also know that a range of reinforcing strategies will Technological innovation has been disrupting businesses ultimately encourage more frequent, focused and informed for decades. While trends such as social media and smartdigital discussions at board level. Adding talent with a deep phone penetration are certainly unique, it is not the first time understanding of the digital landscape will be vital. Simultacompanies have adapted to game-changing innovations. The neously, encouraging veteran directors to get smart about tenets of corporate governance remain largely the same. technology will help augment long-term success. Together, “Digital transformation” is about a delicate changeover bethese approaches will create an environment where firms retween the old and the new, a shift that involves managing risks, main flexible enough to recognize important technological identifying opportunities and setting strategic goals. This is developments and incorporate them into business models. not a unique governance challenge: It has always been — and The advent of the digital age reinforces the importance of will remain — the raison d’être of any board. It is the duty of ensuring true diversity at board level, reflecting the markets, the board to see beyond the details of today and help frame the global locations and customer demographics in which a busiissues for the CEO in a holistic and forward-thinking fashion. ness operates. This is true regardless of what technology lies There is a tendency to overestimate change in the short around the corner or what new trends reshape customer beterm and underestimate it in the long term. “Miracles of comhavior. Boards must be prepared for constant recalibration munication” such as the Telex and fax are as redundant today in order to lead in this ever-changing world. as the telegraph before them. In the same way, current technology trends will undoubtedly evolve in ways unimaginable.

Boards must therefore seek out digital talent with diverse Mina Gouran is a senior client partner in Korn/Ferry Whitehead Mann’s experience and agile minds, who can help anticipate innovaLondon office and a member of the firm’s CEO and Board Services team. tion and seek out the “signal” among the “noise.”

Since 2001, she has focused on CEO and board member searches and At the same time, it is the duty of the old guard on the board assessments on a national and international basis. Gouran has boards to raise their game, re-educate themselves and become extensive management and board experience, including senior-level familiar with digital megatrends. All directors must realize experience managing business information services.

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