Interview Insights: The Importance of Modernizing Board Governance and Risk Management for the Digital Era

In today's rapidly evolving digital landscape, corporate boards must adapt to stay ahead. Frank Wander, a former turnaround CIO, explains why modernizing board governance is not just beneficial but essential.

I see you started a blog called Boardroom Edge, focused on modernizing board governance for the digital era.  Can you share a little bit about yourself to set the stage?

Sure.  I spent my executive career as a turnaround CIO, mostly at Fortune 250 companies.  That provided me with a deep understanding of information technology, cybersecurity and operational risk management.  The turnaround experience led me to understand that talent and culture were the keys to both success and failure.  It also led me to a Board position, as an independent director overseeing cybersecurity risk at a midsize insurance company for seven years.

Why does corporate board governance need to be modernized for the digital era?

Because companies with digitally savvy Boards perform better. Researchers at MIT Sloan examined the backgrounds of 40,000 directors and identified the digitally savvy ones. They used this information and aligned it with company performance. What the researchers found was striking.  Companies with over $1B in revenue, and with digitally savvy boards, outperformed on key metrics like revenue growth, return on assets, and market cap growth.  Since Boards focus on creating long term shareholder value, this is the reason to modernize Board membership.  

Moreover, digital technology expertise is desirable at the Board level, and in particular, the board committee that carries out the oversight and risk management tasks related to digital issues.  They should be competent, in terms of expertise and time, to understand and critically assess the information received from the technical experts.

●      What is a digitally savvy Board?

In the MIT study, Weill et al. defined a digital-savvy board member as someone who ‘understand[s], tested by experience, […] how digital technologies such as social, mobile, analytics, cloud and the Internet of things, will impact how companies will succeed in the next decade’.

●      What heightened risks do companies face in this digital era?

●      The digital era has elevated the following risks:

○         The risk of digital transformation initiative failure.

○         Cybersecurity vulnerabilities created as a byproduct of technology.

○         The ineffective use of talent and culture, the most important tools in every digital company.

○         The inability to innovate because of underperforming leadership and culture.

○         Operational risks related to the implementation and performance of technology.

What are the biggest blind spots most boards have when it comes to technology and governance?

Because companies are operationally dependent on technology, it plays a huge role in shaping enterprise strategies. Yet, most boards have relatively little knowledge about technology strategy and spending, even when committing large portions of their capital spending to these assets.

●       

In my experience, boards do not generally spend enough time talking about IT or technology although technology has become the source of sustainable competitive advantage.  Boards need to incorporate directors with hands-on technology leadership experience, so the Board are fully informed about technology’s role in the company’s present and future success.

Why is a lack of technology expertise in boardrooms lessen a Board’s ability to create shareholder value?

Technology is fundamental to success and its role has evolved rapidly over the last 60 years.  We have moved from IBM mainframes that automated key corporate functions like finance to the deep integration of technology into every business process.  And now we have AI driving a new round of transformation.

As we discussed, digitally savvy Boards improve management’s success through proper oversight. Generally, what gets measured or prioritized, gets more attention and gets done better.  When a board focuses on technology strategy and tracks its progress, that oversight sharpens execution. 

The fact most digital transformations fail to deliver value based on multiple studies is reason enough for boards to dig in.   As a part of good stewardship, boards that are digitally savvy can provide guidance and direction on technology matters.

What are some immediate steps boards can take to close governance gaps in technology and talent strategy? 

The inclusion of tech savvy board members elevates the importance of technology, culture, talent, and risk management by overseeing it using a combination of data and experience.   Board members are not there to provide answers, but to ask great questions.  Great questions cause management to think, learn, and adjust what they are doing if they see it is warranted.  That is how they add value.  Boards are there to help—to add value—and as the MIT data shows, that creates a performance dividend.

Given that the data shows companies with tech-savvy board members outperform their peers, what qualities should the Board look for in a tech savvy board member?

Tech varies greatly based on the industry and company.  In industries like financial services, the focus is on improving business performance with information technology.  In others, like Pharma, executives must leverage digital technology to enhance the research, clinical development and commercialization of pharmaceuticals and medical devices.  These represent different competencies and experiences. Like I said earlier, experience matters.  Someone with both the relevant technology experience and board experience is the ideal candidate.

How should the Board structure deeper oversight into technology, operational risk and culture?

This is not a one size fits all question.  The answer depends on the size of the company and what their committee structure looks like.  The final design is dependent on the complexity and importance of digital technology to enterprise success.

The technology, be it information technology, pharma tech, or some other, should be handled via a technology committee - sometimes these are called technology and science committee.  That committee takes a deeper dive into familiarizing themselves with the tech leadership, the strategy, architecture, performance, etc.  This is where the heavy lifting is done. To ask the right questions you need a deeper understanding of how the technology is architected, what the technology debt is, and where they are going.  How well are they performing?  What are the key milestones regarding digital transformation and how are they performing against them? 

Additionally, technology introduces many operational risks.  Each generation of technology brings with it its own.  AI is no different.  These technology risks - cybersecurity, DR, ORM, are best addressed in the technology committee instead of the audit committee where the members have deep financial experience, not technology experience.   If they have a risk committee, then these risks are reported back to them, or covered there with the full committee.

Talent, culture and innovation (innovative culture) need to be included in the HR committee.  Since the CEO owns the culture and innovation, he needs to be in attendance at this meeting sharing their progress and strategy.   

In all cases, the committees obviously report back to the full Board with their findings. 

An edited video of the interview will be available on the site in a few weeks.