Are boards on board with digital?

di Turid Elisabeth Solvang (*)

We are in a perfect storm of perpetual change. Around us, technology, business models, markets, are transforming at unprecedented speed, altering the very structures upon which business and industry is built. Boards must learn on the watch to navigate these unfamiliar and sometimes treacherous waters. What is at stake is their company’s future.

If 2016 had a name, that name would be “digital”. Digital disruption and transformation, digital competence and incompetence – from early January on, “digital” has been the buzzword at directors’ conferences around the world. And no wonder, for it is estimated that in every industry sector, one third of all companies will be disrupted in the next two – yes, TWO – years! We may not know what our future brings, but we can be quite certain that it will be different, and that the changes will affect both the composition of boards of directors, and the way boards work.
Last year, the World Economic Forum asked 800 technology executives which technology tipping points they expected to have occurred within the next ten years. You may not be surprised to hear that 6 out of 7 experts expect to have seen by then the first 3D printed car. But did you know that they also expect the first transplant of a 3D printed liver to a human? And are you aware that nearly half of those 800 technology executives and experts think that by 2025, only nine years from now, we will have seen the first artificial intelligence machine on a corporate board of directors?
Klaus Schwab from the World Economic Forum has dubbed the era we are in “The Fourth Industrial Revolution”. He is convinced that we are currently in the early phase of a revolution which fundamentally alters the way we live, work, and relate to others.
This should be of high interest to board directors. For at the end of the day, the company’s success or failure is on the board’s plate. But board work is not an exact science. It is a string of subjective assessments and decisions about risk, threaths and opportunities. The privilege – and responsibility – of having the final say, belongs to the board. Making the best subjective call requires good foresight, and good foresight relies on both cutting-edge expertise and the wisdom won from long experience.
Boards of directors navigate changing waters, where safe harbors can be few and far between. This is nothing new. To fulfil their mission – not only keeping the company boat afloat, but actually sailing it, selecting the best routes and destinations to add value to its cargo through the voyage – requires a broad skill set and strong judgement on the part of the board. What is radically different from before – the true game-changer – is the speed with which that change is now happening. To quote Klaus Schwab again: “In the new world, it is not the big fish which eats the small fish, it’s the fast fish which eats the slow fish”.
So, are European institutes of directors up to speed, and is ecoDa taking this seriously? Yes, we are: Digital strategy is high on the agendas of both ecoDa and national directors’ institutes, and has been the topic of countless strategic workshops, roundtable discussions, and conferences around Europe this year. At one such event in January, ecoDa’s board of directors met with Brad Smith, President at Microsoft and a board director at Netflix. He offered us a succinct warning: “Dragging your feet on this issue is like waiting to build the roads until you know where the cars are driving.”
The board of directors’ responsibilities are twofold: charting the company’s strategic direction and keeping tabs on company management. To fulfil either role, the board needs to be up to date on industry trends and opportunities, have sufficient insight to understand the reasoning behind management’s decisions, and have the experience to know when to support management, and when to question their decisions.
But – in this perfect storm of change, how can boards of directors ensure that their companies are poised to take advantage of the opportunities offered by new technology and business models, whilst also containing risk and retaining relevance? And how can board directors add value to the company’s decision making in such a setting?
The answer is digital competence. To be able to draw up the company’s strategic roadmap, every board director needs to know the landscape the company operates in, and understand which opportunities it offers.
This does not mean that every board director should be a technology expert. What boards need, is directors who are up to speed with general digital trends, as well as with developments and opportunities in their specific lines of business. For unless they are on top of digital developments, how can boards fulfil their strategic role? How can they enter into constructive dialog with management about new business models and product innovation, if they don’t speak the language of digitilization? Adding a digital afterthought to an already developed strategy, is not enough. Every decision, every fork in the road must be assessed from a digital outlook.
The problem is that although we need this competence right now, we don’t necessarily know what it is. Today’s board directors were neither born nor raised digital. In fact, most of us grew up in a time when phones were attached to the wall, when PAs were called secretaries and typed on typewriters, when photos were developed in laboratories, and when watching a movie involved a physical journey to a building with plush seats and popcorn vendors. Moreover, we are accustomed to incremental industrial development, whereas today, innovations just as soon happens in leaps and bounds, and the competitive environment can change at the blink of an eye.
In 2014, Russel Reynolds’ Digital Board Director Study proved a staggering 80 % of the surveyed boards to be non-digital; i.e. NONE of the directors in each of those boards could be considered digitally competent. The Swedish consultancy Digoshen confirmed these findings in a study published just this April. More than half of the board directors Digoshen surveyed said they saw their company as being less digital than its customers. According to Digoshen, 70 % of boards still lack a digital business vision, and 60 % are not clear about digital risks, nor do they monitor this type of risk. As estimated by their peers, only one in five board directors have sufficient digital competence. The study also showed that boards are taking a piecemeal approach to digitalization and fail to capitalize on the benefits they could have harvested, had they taken a more holistic approach.
In a just published study, the Boston Consulting Group are marginally more optimistic: Asking board members and CEOs how Nordic boards create value, the consulting firm found that although 80 % think digitalization will have considerable impact on the company, only half of the respondents think that their board has sufficient digital competence to be of help to management with regards to digital topics. The consulting firm warns that while the role of boards of directors is to see the big picture, think ahead, and seek opportunities, boards are actually more likely to function as the last bastion against digitalization and innovation.
Many companies are aware of their shortcomings. Board-ready candidates with digital competence are a hot commodity, and nomination committees vacuum the field for tech specialists to fill the knowledge gaps. But just as one swallow does not a summer make, rarely does a token techhead a company transform.
In fact, to fulfill their roles, all board directors need to develop a good understanding of the opportunities and risks that arise from The Fourth Industrial Revolution. And even as they lack that competence today, many board directors are painfully aware that sleeping on your digital watch places the company at risk.
It was to address this risk that, more than a year ago, the Norwegian Institute of Directors, where I serve as general manager, teamed up with Microsoft with the goal of strengthening boards’ digital competence. This fall, we are launching a digital educational program specifically aimed at helping board directors build their digital competence.
Digitally alert board directors have also provided practical recommendations about how to approach digital competence. These are their recommendations:

• The digitally responsible board understands how digitalization affects information, communication and transactions in the relevant industry.
• Rather than instructing management, the digitally responsible board asks pertinent questions and inspires good directions and decisions, i.e. by integrating digitalization in line management to make it a focus across the company, and by encouraging a review of the company’s business model and value chain to identify digital opportunities.
• The digitally responsible board accommodates experimentation. Noone knows exactly where the new, digital economy is going, where the next disruptive change will be coming from, or where watershed change will happen. Experimentation can lead to groundbreaking solutions, and even when it doesn’t, it keeps the organization’s muscles agile and alert to taking on the change that will inevitably come.
• The digitally responsible board also permits higher risk taking by investing in areas of unknown potential. For in the end, the greatest peril of all, is that our business idea is rendered obsolete.

Building the full set of experience and qualifications proficient board directors need, takes time, and many years will pass before we have whole generations of fully proficient board directors who were also born digital. That notwithstanding, we are all in a position to learn – to be, as it were, “born-again” digital. In fact, as responsible board directors, we need to be.

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