Digital experienced directors are rare at the top 100 TSX corporations – that’s a problem
You may not recall, but 30 years ago, back in 1990-91, Canada was in a recession and corporate Canada was stressed with massive public and private debt, high inflation, an oil crisis, devalued currency and pressure for wage reform. Former Bank of Canada Governor Gordon Thiessen painted this picture in his final speech before retiring in 2001 while addressing the snail’s pace at which corporate Canada adopted new technologies. “Canada’s focus on its economic challenges during the 1990-91 recession distracted firms from seeing the effects of technological changes such as declining communications costs, product design and innovation, cost control and productivity improvements, along with the increased susceptibility to international competition. They postponed the adjustments needed to respond to a changing world economy,” he said. Social unrest and climate crisis may take the place of the 90’s economic challenges, but those challenges can distract us from paying heed to the profound changes being brought about by today’s accelerating innovation and that’s just as worrisome. Pre-COVID, the most often cited problem keeping directors and executives up at night was the constant pace of change being driven by technology acceleration. During the pandemic, executives have had to redirect their focus to business continuity and recovery, employee and customer safety, lost revenue, increased debt, and the general societal strain caused by over 100 million COVID-19 infections and more than 2 million deaths worldwide. Nevertheless, leaders shouldn’t lose sight of the pre-pandemic concerns and must prepare for the newly evolving world – one which will include far more technology advances, innovation and competition, not less. “Those who do not remember history are bound to repeat it.” – George Santayana Going beyond IT With the breadth of responsibilities tied to the Board of Directors, it’s not surprising that having sufficient diversity proves difficult, especially given the magnitude of the issues and velocity of change that organizations are facing today. Technology has become so foundational to organizational existence. Beyond IT, we have to consider communications and operations infrastructure, enriched customer engagement, enhanced business analytics, automated product design and development, improved safety and even workforce selection and development. Technology advances can’t be relegated to an occasional update to the board. Despite the undisputed heroics that technology has delivered through the pandemic, and the increasing innovation being developed and deployed in every industry, we’re not seeing the permanent addition of this critical skill set to the boards of directors in Canada’s top companies. Only seven per cent of directors bring technology expertise to the board table, and 50 per cent of the companies have no digital experienced directors at all (based on November 2020 data). By comparison in 2019 research by MIT CISR, 24 per cent of U.S. boards were considered digitally savvy. The scarcity of digital directors in the boardroom creates a gap in providing the necessary oversight that is a fundamental responsibility of the board. A director of a major organization recently affirmed this – while the CISO was presenting an update on a cybersecurity event the majority of the board became “distracted.” This digitally-experienced director had to ask for attention to be paid to the important information being conveyed. In this case, it was a good news story, but what if it wasn’t? Boards not conversant on their digital strategy and technology-driven impacts to their organization are at great risk, and with no digital directors to encourage and guide these discussions, it’s unlikely they will be given the due attention. Today, the board has turned toward new pressing matters – environmental, social and corporate governance (ESG), diversity and inclusion (D&I) and stakeholder activism. Of course these are important issues that warrant the addition of these skills to the board, but not to the exclusion of technology experience. Board composition needs to better reflect the changing environment organizations are operating in. “One of the most critical factors in board effectiveness is ensuring that, collectively, the individuals around the table bring a broad portfolio of skills and experience relevant to the keyboard responsibilities.” – CPA Canada, Elizabeth Watson, QC As the following chart illustrates Canada’s top corporate boards are disproportionately weighted to finance and legal, reflecting traditional governance roles and responsibilities. The world has fundamentally and profoundly changed and board composition must reflect that. Top-100-board-composition-2Download Source: State of Canada’s Top Board’s Digital Savviness, Mary Whittle, Strategic Innovation Matters, December 2020. Governance reform is needed such that skills are more diversified, experience from the incessantly changing technological and innovation sectors are added, ideally including younger, “born digital” members. Important new regulatory recommendations on governance do not include technology Although there has been considerable advocacy for increasing digital literacy on boards we’re not seeing it materialize in the appointment of technology-experienced directors. Key influencers in governance spheres recognize change needs to happen. However, two important bodies of work being introduced by the most experienced and influential governance experts in Canada, have very little or no mention of technology, nor do the contributing advisors bring digital experience to the discussion. In February 2021, Peter Dey and Sarah Kaplan released “360° Governance, Where are the Directors in a World in Crisis,” https://www.rotman.utoronto.ca/FacultyAndResearch/ResearchCentres/LeeChinInstitute/Sustainability-Research-Resources/360-Governance-Report an update to Dey’s seminal work in 1994 Where were the Directors?, often referred to as “The Dey Report” that forever changed the rules of corporate governance in Canada and was influential the world over. While the august contributors to this important, timely update – and there are over 40 – bring a wealth of legal, financial, business management and academic expertise to this report and its recommendations, none of the contributors hail from the technology sector. In October 2020, Chartthefuture.ca was formed, a joint initiative of the TMX and the Institute of Corporate Directors aiming to chart a new Future of Corporate Governance in Canada. The 13 governance experts architecting this bring the necessary finance, legal and business expertise to the undertaking, but again, no technology expertise. The Canadian technology sector has brilliant, thought-leading executives who can serve as valuable contributors to a Board’s work. Let’s improve the representation of technology experienced leaders on Canada’s corporate
IDC Perspectives- Canadian Corporate Boards Need Technology Leader’s Insight
There has never been a more important time for the CIO and team to serve as trusted advisors to their organization including the Board of Directors. Analysis of Canada’s top 100 TSX-listed companies reveals that 50% have no technology expertise on their board. As the post Covid-19 world returns to a more globally competitive environment, Canadian boards would benefit from having insight and opinions on a digital transformation agenda
ITWC – Should we be concerned about the digital literacy of Canadian board of directors?
New capabilities made possible by advances in technology are driving organizations in every function, industry and region of the world to take a serious look at their business and to understand the implications these profound changes will have on their organization. Even for industry veterans who’ve participated in previous technological revolutions – the advent of the PC, the dawn of the internet age, the move to mobility and the cloud – changes being brought about by IoT, AI, machine learning, robotics, social media, quantum computing, et al, can be quite daunting. The world is witnessing the creation of new business models, heightened competition, the restructuring of hierarchies, new rules of conduct, the redefinition of “stakeholders”, and sometimes the realization that an entirely new purpose for the organization is required for survival. This is a lot. And the magnitude and velocity of technological change have only just begun. What we haven’t seen enough of yet are the adaptations to the organizational structure necessary to navigate these tumultuous waters. This is especially true of governance at the board of director’s level – at least in Canada. Research undertaken in November 2020 shows that only 7 per cent of directors of Canada’s Top 100 TSX listed companies hail from a technology background. Fifty per cent of these companies have NO tech experienced directors at all. Over the last 15 years, legislations have been enacted in technology’s sphere including privacy and data-use protections such as PII/PCI, PIPEDA, GDPR, and many rules around the need for care and vigilance through cybersecurity charters. Surprisingly, there has been no suggestion from regulators or exchanges of the need for technical or digital competence at the board level, when technology-driven risk is arguably one of the most challenging issues confronting organizations today. Historically, the role of the board of directors is to provide oversight of, foresight and insight to, the leadership team in executing the strategic and business plans and commitments made to shareholders. Their responsibility is to ensure the sustainability of the organization to the benefit of current and future stakeholders. They are to contribute to, approve, resource and monitor the strategic initiatives of the company. In Canada’s case, these accountabilities face two concerning scenarios based on the dearth of technology experienced directors – either the board is approving the digital strategy and future direction of the company from a position of weakness, or they are not considering the issues at all. Neither situation is good for Canada’s corporations. If any discussions about technology are being held at the board table, they usually centre around cybersecurity or a significant enterprise-wide project underway. They tend not to be strategic or forward-looking and are often held only within sub-committee sessions. While these discussions are critical, they may miss the most compelling aspects of today’s technological advances – the ability to leverage powerful computing capabilities to restructure for the future, overtake competitors, become dominant in your field, grow like a start-up, and attract highly-talented people to join the team. This is the exciting, innovative and engaging side to digital disruption that will likely be the difference between sustainable market leadership in your industry or longer-term destruction of company value. Most management gurus tie innovation to competitiveness and competitiveness to the organization’s long term sustainability. Building an innovative organization would prove nearly impossible without the support and buy-in of the leadership and board. Given the scarcity of digital literacy among corporate Canada’s directors, who could champion such catalytic change among their board peers and leadership team? Canada’s top companies risk falling behind Statistics from global think-tanks World Economic Forum (WEF) and World Intellectual Property Organization (WIPO) place Canada’s Competitive and Innovation ranking between 14 and 17 with a small decline in rank in recent years. A 2019 MIT Sloan CISR research report indicated that 24 per cent of the top 1233 NYSE/NASD listed companies had a digitally-savvy board – defined as having at least three directors with a technology background. In Canada’s Top 100 TSX companies, only eight per cent have three or more technology experienced directors on their boards. Already powerful, American companies appear better prepared to face the digital future, with experienced hands to guide, than Canada’s top companies. The same MIT research showed that digitally savvy boards drove markedly better performance in four key financial metrics: Revenue Growth, improved return on assets, market cap growth and improved profit margins. This is reason enough for companies to change the composition of the board towards digital literacy. As the world recovers from the COVID-19 pandemic, and countries and industries look to “build back better,” those who have used this time to improve their digital capabilities, increase automation, provide skills development for employees, and set a digital-first path to the future, will be in the best position to excel. And they’ll consider their markets to be global, increasing the competitive landscape significantly. Money and talent will move to the most hospitable environments. Companies that can not articulate an inspiring vision for their future will not attract and retain people with the necessary skills and capabilities to undertake a transformative journey. In order to spur innovation and creativity within organizations, I suggest the “digital transformation” start with the board of directors. Governance restructures and reform should occur such that technology discussions are as important as financial results review. At this time in history, I’d argue technology review is even more important. It won’t be easy, but it should start now. I recommend three steps to become a more contemporary, digitally savvy board: Add technology experienced directors. Engage in technology education for the full board of directors, and beyond cybersecurity. Make digital discussions a standing agenda item with a set of high-value reports to provide regular visibility to digital performance and compliance. Some responsibility for the board’s lack of engagement lies with the IT leadership themselves who must be more proactive in supporting their boards. CIO/CDO’s should take the initiative to open the dialogue by providing insight and recommendations about the digital strategy or emerging
There is a concerning gap in Technology Governance in Canada’s Top Companies
Over the last decade the impact of technology on business and society at large has been profound. The call to “Digital Transformation” to ensure the continuity of business has been amplifying in recent years and during 2020 reached feverish pitch. Much has been written about the accelerated pace of change and positive contributions technology has made in dealing with the Covid-19 global pandemic. As new routines are taking root leaders are looking toward the future and what it will look like for their organizations. Technology will take a predominant role going forward, yet this new reality will drive unfamiliar dialogue for many Board of Directors. Today, most boards do not consider digital technologies in their strategic conversations and others focus their technology attention on cybersecurity, delegated to the Risk or Audit Committee. This will be insufficient going forward. For boards to fulfill their primary roles of stewardship and guiding strategy, directors need to be interested in how evolving technologies will likely impact their organization and their competitive landscape. Boards should be embarking on their own digital transformation which we recommend would involve board-level education, having the nomination committee prioritize digital directors, and establishing a customized series of digital impact reports with read-outs being a standing agenda item.