A new study reveals widespread uncertainty among board members about their ability to cope with emerging technologies – highlighting the need to ensure directors are kept up to date on industry developments.
Almost half (48 percent) of directors polled lack confidence that their board has the necessary resources to move the company forward in an era of ‘digital disruption,’ according to a survey by the EY Center for Board Matters (EY CBM) and Corporate Board Member. The list of such potential resources is lengthy, including both internal and external tools and board education and composition.
At the same time, the survey suggests directors have greater confidence in management to tackle technological change than they do in themselves. Less than 46 percent of respondents say they feel ‘very attuned’ to the potential disruption of their company and industry, compared to 69 percent who believe the same about management.
‘This data underscores the need for today’s boards to take a step back and verify they have the portfolio of skills and competencies necessary to serve as a strategic resource and guide for management,’ the report’s authors write. ‘The purview of directors is rapidly expanding as technological innovation drives new opportunities and risks, and boards should regularly challenge their composition to confirm that director qualifications align with the company’s evolving strategy and risk profile.’
The report also recommends that boards target continuing refreshment in order to bring in new, diverse and relevant perspectives. This might entail director training and education, improving board materials, using third-party experts and ensuring the board agenda and committee structure focus on emerging strategic issues and risks.
The survey includes responses from 365 public company directors.
Steve Klemash, EY CBM Americas leader, tells Corporate Secretary that the split between board members’ self-confidence and confidence in management can be attributed in part to proximity to the business. Directors’ belief in management stems from management being involved on a day-to-day basis with operations and the industry, he adds.
Boards need to make sure there is a process in place for keeping directors up to date on trends and issues impacting both the company and the industry as a whole, Klemash says. On one hand, this can entail bringing in outside experts – such as an economist, investment banker or analyst – to give an objective view the board can then use to ‘constructively challenge’ management, he explains.
Directors also need to ensure they don’t take their eye off technological developments in their sector and adjacent sectors – and do not allow themselves to be distracted by issues such as new regulations, Klemash says.
In addition, he urges boards to keep an eye on what management is doing, which outside advisers management is using and how those advisers are helping management stay on top of developments. These advisers should talk to the board directly once or twice a year, he adds.
One of the main messages to emerge from board assessments is that directors need more education and training, Klemash says. They need to think about the gaps in board knowledge and create bespoke programs to address these, he advises, adding that the CEO/lead director, board chair and committee chairs should determine what the board needs and the corporate secretary can them help implement the plan.
Among other things, the survey also finds that almost half (48 percent) of respondents say emerging technologies are discussed at the full board level on an ad hoc basis, 29 percent discuss them at every meeting and 23 percent do so once a year.