News

Who wears the digital hat in your board room?

26 January 2016 By Clare McCartin, Davidson Executive General Manager Victoria

AS digital technology continues to reshape the way we do business, corporate boards need to take notice of the dramatic shift in how consumers interact with both businesses and one another.

High profile failures in corporate governance led to increased demand for financial literacy at the board level, so why aren’t we demanding the same of arguably the biggest game changer of all, digital? 

While a lack of knowledge of digital opportunities may not lead to corruption and fraud, it could expose the organisation to brand damage and a lack of competitiveness, with equally dire results. 

Boards of directors have an important role to play in ensuring that the executive team is closely examining threats and opportunities that digital presents – and investing appropriate resources to digital initiatives. 

Consequently, the demand for directors with a deep understanding of the trends and technologies shaping the digital landscape is rising. And, at times, becoming a necessity for new hires.

For example, our executive and boards team currently has 70 Non-Executive Director (NED) positions we are recruiting on behalf of various public and private sector clients. 

As with all new placements, we are carrying out a skills audit against the current skills matrix of the remaining board members and strategically examining the future challenges these organisations will face. Their level of digital knowledge is high up on the skills audit.

This is not a new trend. In fact, a recent study by Russell Reynolds (2014) in the United States shows that Digital Non-Executive Directors (NEDs now represent a meaningful proportion of board members at the world’s largest companies, with more than 100 director seats now being occupied by Digital NEDs. 

While this is an exclusive club, its membership is growing. 

The study showed that companies added almost twice as many Digital NEDs in the past two years as they added in the two previous years.  

That said, the study highlighted substantial variability in the uptake of Digital NEDs across sectors. 

Perhaps not surprisingly, technology and consumer sector boards led the way with 48 per cent and 42 per cent digital representation respectively.

Interestingly, health care firms have shown major momentum in the past two years and 39 per cent of these firms now have digital expertise on the board.

Still, other sectors have been slow to address the opportunity cost of a non-digital board with the financial services sector showing an incredibly low 13 per cent representation.

The charitable sector also appears to be missing many of the opportunities that digital presence at the governance level can afford. 

A recent study by the Technology Trust in the UK (2015) highlighted that the charity sector is the least digitally mature of any UK industry, with 55 per cent of respondents blaming a knowledge gap at a board level for slow charity digital uptake.  

In Australia, the move to client directed care models significantly changes the way Governments fund social services, which presents a new era for not-for-profits who work in these sectors.

Not-for-profits will have to adapt to the changing environments heralded by, on the one hand the National Disability Insurance Scheme, and on the other, by the advent of consumer-directed care in aged care.

For Australian not-for-profits to not only adapt to these changes, but succeed, thrive and flourish in this new world they will need to embrace a new way of engaging with their current and prospective client base. 

Setting such strategic direction surely falls in the laps of the board and just with other consumer based business models, ignoring the opportunity digital transformations present will be at their peril.

Aside from the many benefits of realising competitive advantage, greater customer engagement and maximising profit, a further advantage for boards exploring appointing digital NEDs is the opportunity to enhance gender diversity on the board.

The Russel Reynolds study showed that close to one-third of Digital Directors are female compared with only 18 per cent of non-digital directors.

The gap here is significant with companies often achieving the dual goals of increasing digital literacy and increasing gender diversity.

Boards of directors have an important role to play in examining the threats and opportunities digital presents. 

Companies that embrace digital transformation outperform their peers across an array of financial measures so it’s not surprising that the demand for digital leaders continues to accelerate.

Nobody, be they individuals, businesses, NFPs or governments can afford to ignore the seismic impact that the digital revolution is having. 

Digital development will be increasingly difficult to separate from productivity so if a board is not bothered about digital, I would sell my shares in that company!

 

Clare McCartin is one of Australia’s leading executive recruiters and is the Victorian General Manager of Davidson Executive. For 13 years, Clare has worked closely with some of the state’s top CEO and senior managers in the government, health and not-for-profit sectors.