Boards lack the diversity needed to integrate current digital thinking and emerging business models into their strategy. They are also struggling with the pace of change, and the contradictory requirements to act more quickly while also thinking more long-term.
That’s our take out from the panel discussion that accompanied the release of the Australian results of the latest annual Harvey Nash/KPMG CIO survey — the largest of its kind in the world.
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There is an even more damning criticism of many Australian boards from some panel members: they have grown lazy and sluggish off the back of two decades of growth, a favourable geography and the one-in-a-hundred-year opportunity offered by the emergence of the Chinese economy.
According to Michael Priddis, the CEO of Faethm, these are among a number of systemic issues preventing boards from responding well to the challenge of digital-fueled business transformation.
“The first problem is that very often boards represent the institutional investors, who are themselves measured by the total shareholder return at the end of a 12-month period. It’s pretty difficult to get an investment through a board that isn’t completely au fait with the nature of technological change when results of return on investment are more than 12 months away.”
For this reason, he says, it is important to get the kinds of people onto boards who understand the time frames involved, and who are willing to free up the company management team to take action.
As well as bringing new blood onto the board, the panelists at the event also pushed the importance of educating current board members. (Hint: there’s more to digital transformation than a three-day bus tour of the Sonoma Valley.)
While Priddis was more critical of boards, another panellist, KPMG’s Guy Holland, National Lead Partner — Digital Consulting and Technology Strategy and Performance, said that his sense is that from a technology perspective, boards are starting to understand how they can make the major investment decisions required of them.
“I’ve spent some time with non-execs across a lot of the ASX 200, talking about just that. And it’s a challenge. It’s a challenge for them to think about how they bring that diversity of thinking on the board, how they understand what investments they’re actually being asked to make.”
All change. Now!
The pace of change is proving to be a problem, suggests Holland. “These days, if you’re agreeing to spend $5 million on digital transformation, you get into that journey almost as soon as you start. Things are changing [immediately] and the customer demands change.”
That requires companies to bring ability not merely to the execution of a business plan, but also to issues such as how they fund projects.
This raises questions like ‘How you draw down the funding? How you assess the value on an incremental basis?’ he said.
“And then, how you have the wherewithal to be able to course-correct from ‘This is what it looked like yesterday’, to where we’re going to take this investment and pivot away in a slightly different direction.”
This, said Holland, is anathema to a lot of people who currently sit on boards. “Changing their thinking and mindset of how they assess value is also very important.”
So is there any evidence that the kinds of people being asked onto Australia’s biggest boards are changing?
We asked event organiser Bridget Gray, the local Managing Director of Harvey Nash, what skills are most in demand for new board hires.
According to Gray, “Based on some board research that we are currently conducting globally, including in APAC, the top two topics for board members are cyber security and digital innovation.”
She said these ranked significantly above traditional issues like governance and risk.
“Boards are proactively seeking to bridge the technology gap by upskilling their technology capabilities and platform knowledge around the boardroom table.
“Overlaying this, boards are looking for directors who stay current on technical and digital developments, to give competitive guidance and recommendations,” said Gray.
We have been tracking the digital capabilities of board membership in Australia since we started publishing four years ago. Not much of the mindset has matured, except perhaps around cyber security — which fits neatly into the traditional role of risk management.
Instead, we would caution our readers to heed the words of Jim McKerlie, who has experience as both a chairman and director of several ASX 200 companies along with strong digital capabilities due to his involvement with Bambu Digital and Elmo Software.
As a recent round table we hosted for the Australian Financial Review, we asked McKerlie about the digital literacy of boards and their capacity to imagine the world beyond the horizon.
He told us, “Do you know the most common question board members ask each other? ‘Who’s shorting the stock today?’”
We will let you draw your own conclusions.