Digitization on Boards: Amrop's 2016 Report

As the tide of disruption and digitization sweeps into every sector, the flow of digital know-how into Executive Management Teams - CDOs, CIOs and CTOs - has stepped up. This report maps the digital competencies of the Boards of the 110 largest stock-listed companies in 11 countries in Europe and the US, and the backgrounds of 1280 Non-Executive Directors.

Digitization on Boards is Still in its Infancy.

  • 36% of Board Members in Technology Companies Have Digital Competencies. Unsurprisingly, technology posts the biggest proportion of digital NEDs. Finland scores highest, France, lowest. The US ranks third-lowest (US tech companies tend to seek financial and consumer competencies). 23% of tech/digital competencies are in the form of Employee Representatives.
  • 5% of Board Members in Non-Technology Companies Have Digital Competencies. Denmark and Spain rank lowest (2%), Sweden ranks highest (8%).
  • Digital-Critical Sectors are Under-Equipped. Consumer Goods & Retail (5%), Financial Services (4%) and Life Sciences (7%), have strikingly low proportions of digital profiles in the Boardrooms.
  • Financial Competencies Are 3 Times More Prevalent Than Digital. In non-Financial Services companies, the representation of financial competencies is at 16% (vs. 5% for digital and Consumer).
  • Only 4 Listed Companies Have An Official Technology/Digital Committee. Committees can help Boards gain critical insights into digital - and be at the forefront. Their absence means another route into the digital ecosystem is missing. Nominations Committees have a critical role to play.

Digital Disruption and Innovation Means Building the Corporate Garage.

Digital Board Members are catalysts. They help slow-paced majors to innovate faster and more securely in the digital space, to disrupt, even cannibalize their business model. They are forging partnerships with new players and integrating fresh leadership talent, launching game-changing products or services. Some are building a ‘corporate garage’ - a more open and innovative management style, a less hierarchical structure, integrating agile entrepreneurial behaviors. Digital Board Members are learning catalysts and are seen as role models for digital innovation by the top management team and upcoming management talent.

Digitization and Disruption Demand a Risk-Tolerant Culture.

If risk management is a foremost concern, too much focus on risk can be a risk in itself. Straitjacket governance and the fear of failure breed a culture that can stifle the innovation and the digital disruption needed to stay relevant. Balancing risk management and digital innovation (and changing ingrained attitudes) will be a key future task of all Board Members, Chairmen and Chairwomen above all.

Digital Transformation and Online Security Risk Are Uneasy Bedfellows.

Board Members raise online security as a top issue. Online breaches, the theft of personal data or commercially sensitive information are damaging IT infrastructure, finances and reputation. The risk is intensified by rapid innovations in cloud computing, data aggregation, mobile technology, and the commercial uptake of social media. Digital innovation and security risk must be balanced, and several interviewees admit they lack insight. This, they expect a digital Board Member to bring to the table.

Step by Step Along the Digital Path We Go.

For the majority of Board Members we interviewed, digitization has to be on the strategic agenda. Many are looking first to simplify internal processes, to change (or upgrade) legacy IT systems. The starting point is often the ERP and other core installations. Even this is no simple transformation and financial surprises can lurk beneath the surface. Two inter-related goals emerge: firstly, more efficient product and service deployment. Secondly, engaging with customers - enhancing value and customer journeys in faster, simpler digital ways, both in the B2B and B2C domains.

Boards Are Underperforming, Say Chairs.

Digital change is often driven bottom-up: by IT and/or Finance. Yet its leadership should be a Board task – integrating operating departments, strategic needs, and Executive Management. A Board Member can act as sponsor and coach to a representative of the latter team - weekly contact is recommended. As Boards lack space for digital dialogue in the boardroom, yearly Strategy Days with the Executive Management Team prove an effective solution.

Digital Investments Are a Balancing Act.

Resources are focussed along a spectrum that spans digital security at one end and service innovation at the other, underpinnned by performance optimization (facilitated by streamlined data gathering and processing). Some companies are seeking a synthesis.

Opinions are Divided About Digital Profiles.

Regarding Board composition, around half of our interviewees are seriously examining their technological expertise. Yet several must still define what they need to look for, whilst others have set clear parameters.

Digital Board Members Need Breadth and Gravitas.

The pure-play digital profile in his or her early 30s is exceptional, even if digital Board profiles do tend to be 10-15 years younger than average, and used to a more agile, fast-moving pace, with finely-tuned customer-centricity. The best also have hands-on experience of large scale IT and culture change, and a broad, international leadership track record – a ‘T-shaped’ profile. To alter Board dynamics and challenge the status quo, Board experience is recommended.

We Bust 5 Board Digitization Myths.

Are Board Chairs with digital/technical competencies younger than average? Do more gender-diverse Boards also have a higher proportion of digital competencies? Amrop tested 5 hypotheses regarding Board digitization across Europe/the US. All were revealed to be invalid:

  1. The average age of Chairmen for Boards with technology/digital competences will be lower than the average age of all Chairmen. This is not the case.
  2. Boards with technology/digital competencies will be on average younger than Boards in general. They are not.
  3. Internationally-composed Boards have a higher proportion of technology/digital competencies. They do not.
  4. The more gender-diverse a Board, the higher proportion of technology/digital competences. Not so either.
  5. On average, Chairmen with technology/digital competencies will have had a shorter tenure than Chairmen in general. They have not.

Management Messages

A. Digitization on Boards is in its infancy – most Boards lack vital expertise. Getting Board composition right today can sharpen competitive edge for tomorrow. Consider integrating a digital/technological profile to catalyze and guide your Board in a range of critical areas. From surfing digital disruption and accelerating innovation, to fine-tuning customer-centricity, and managing online security risks. Prepare to be challenged!

B. Emulate digital-savvy players to recruit the right profiles. When designing a digital profile (and planning onboarding):

  • Expect your candidate to be 10-15 years younger than the average age of your Board
  • Do not automatically expect your candidate to be in his or her early 30’s
  • Expect your candidate to be used to an agile, fast-moving environment
  • Seek a T-shaped profile: hands-on experience of large scale IT culture change, plus a broad, international leadership track record
  • Look for previous Board experience

 C. Starting this year, create the space for digital/technical dialogue! Assign a dedicated Strategy Day to connect the Board and the Executive Management team on the digital/technical theme - outside the boardroom.

D. Take charge at Board level to drive an integrated strategy: if digital/technological change is being driven bottom-up, take charge of the agenda. Also install a formal coaching system: weekly sessions between a Board- and Executive Management team member.

Read the full Report here.