Advancing the Board’s Role in Digital Transformation

Mere understanding of the importance of digital and the notion of altering the board’s culture to embrace it has become very “yesterday.” The nominating/governance committee’s mindset, criteria and expectations should reflect the board’s most immediate needs. Boards needing to elevate their game in recognising the impact of disruptive technologies on business models and growth strategies, as well as the security implications of implementing those technologies, should make it a strategic imperative to evaluate board composition. To that end, the nominating/governance committee should seek the CEO’s input on the specific capabilities and skill sets that the board needs to add value to strategic conversations in the boardroom. Also, it should not permit “fit” to function as a cover for unconscious bias or other barriers to the participation of otherwise qualified candidates, particularly on the digital front.

Continuing director education should tap into digital experience with an objective to increase the digital savviness of all board members. Boards with deficiencies in this area should look to independent advisers to help bridge the gap.

The Securities and Exchange Commission (SEC) in the United States has proposed a rule requiring annual reporting or certain proxy disclosures about the board of directors’ cybersecurity expertise, if any. The proposal doesn’t define what constitutes this area of expertise, only offering examples. It doesn’t include an “if not, why not” provision, making it unclear how investors might interpret a company’s lack of disclosure of a board-level “cybersecurity expert.” Parties commenting on this proposal have reported various concerns regarding its implementation.

Directors serving public companies listed in U.S. capital markets should appraise how the board organizes its oversight of cybersecurity risk. Given cyber threats are a moving target, this risk merits consideration on a periodic basis regardless of what the SEC does.

Digital technologies are powerful enablers of increased productivity, innovative strategies and cost savings. They’re also an integral part of solutions to reduce product waste and conserve scarce resources. They offer more powerful ways to analyse data and measure and track progress in minimising environmental impacts. They can streamline supply chains and facilitate problem-solving. Most important, digital technologies can enhance reputation and brand image, opening doors to customers valuing relationships built on sustainable business practices and trust.

With the increased frequency of shareholder environmental and safety proposals gaining traction in forcing votes at annual meetings, directors should focus on their company’s preparations. This may entail elevating the boardroom conversation above discussions centered on the presumed dichotomy between sustainability and profit. If sustainability initiatives impact short-term profits, a compelling narrative to shareholders and different performance incentives may be necessary to balance the executive team’s focus. The board can set the tone in this conversation.