Board Game

Board Game

While senior management is making progress in understanding the strategic importance of technology, one pocket of resistance remains in many organisations: the board of directors. Does your board suffer from a severe case of high-tech inertia? When The Company Director ran an editorial in April calling on directors to achieve greater computer literacy, it struck a chord like nothing the magazine has published before or since. "Since writing that editorial I've had more letters on that particular subject than on anything else in the magazine," editor John Arbouw told CIO. Boards of directors are changing. These days the pressures on boards are intense and the need to adopt a strategic perspective on the information revolution keenly felt. But even as organisations like the Australian Institute of Company Directors (AICD) assume a role in identifying IT trends and keeping members up to date, many board members are crying out for further help to understand the technology that will underpin their companies' futures. IT seminars and lunches are slowly filling up with directors, and others are reading extensively to further their education. All in all, this intense drive for boards to master technology presents both new demands on CIOs and new opportunities for those CIOs who can understand the changing dynamics of the boardroom.

And with such significant changes under way, if you're not already on the board, and you belong to any kind of forward-thinking organisation, you may well be able to expect an invitation soon. According to Price Waterhouse Financial Services technology practice head Nick Perch, IT executives who aren't making it to board level are rapidly becoming redundant in the organisation because their vision cannot be fully focused on the business' needs. Perch says up to 40 per cent of IT directors now sit on the board and the trend is upwards. "You need the IT director on the board to help them understand not only what the technology means -- to get over the jargon -- but to look at the potential for its application in the business, for exploiting it for business advantage," he says. Many smaller companies would never accept the need to have the CIO on hand to help them predict the future effect of IT on the business. However, wherever technology is seen as an enabler that delivers products and services to customers, the tendency is increasingly for the IT executive to sit on the board.

Eric Berg, a director in the strategic technology services group of Price Waterhouse technology centre based in Menlow Park, California, spoke to CEOs and directors during a recent visit to Australia. He advises directors that in those industry segments where technology is having a tremendous impact, there is no way the board can avoid being involved, because IT is really right at the centre of the business strategy. But he's also aware the imperative is proving a serious challenge for many boards around the world. "Management is struggling to formulate a strategy, given the fairly rapid pace of technology change and the high level of resources that IT can absorb these days. It's become a major cost factor for many organisations," he says. There's no doubt many directors are acutely aware of the consequence of not keeping abreast of the issues, especially when their own level of discomfort with IT is high.

Arbouw says its an issue that has been simmering for some time, but is just now becoming an important part of the public debate.

In the aforementioned editorial, Arbouw quoted a remark by former Fairfax chief Bob Mansfield to the effect that very few directors, if placed in front of a computer, would even know how to find their own company's Web site. The editorial warned that directors were becoming increasingly dependent on others to sift mountains of information. It said directors were in danger of becoming "prisoners of the telecommunications age who are force-fed information . . . and become increasingly isolated as the pace of change accelerates". And Arbouw told directors it was time they all learnt to drive down the information superhighway. With 13,200 members around the country, AICD is Australia's leading organisation representing the interests of company directors. The Company Director is its official organ, and the editorial in question was written after a survey showed members were looking to the body to take a strategic, forward-thinking role on IT and to keep members up to date in an area where many of them were deeply uncomfortable.

"The reality is that a lot of the older directors have got hot and cold running secretaries, and the best they can do is scribble a few notes or dictate something over a tape and get somebody else actually to create the paper and the words," Arbouw told CIO. "On the other hand, the new directors coming through, who completed their university studies with a computer and a calculator in one hand rather than a slide rule, are computer-literate." AICD CEO Ian Dunlop is keenly aware the ability to adopt a strategic perspective on IT is a key issue for today's boards of directors. "One of the key changes that has taken place in many, many boards is a reorientation from a compliance emphasis -- making sure that backsides are protected -- to one where the board is seen as a key strategic element in developing the performance of a company," he says. Not that directors are trying to take over the role of management -- far from it. What they are doing, Dunlop says, is increasingly contributing a strategic perspective and a broader perspective than management can typically bring to the overall direction of the companies and the industries and the technologies of which they are involved. "If you're going to fulfil that role, which is one of the key elements of the performance role of your board, then you've got to have an awareness of these types of global trends and be on top of technology issues," Dunlop says.

That makes any lack of computer literacy a key problem, particularly in an era where pressure on boards is intensifying and will continue to do so. Dunlop says AICD increasingly sees its role as providing a platform where members can access the debate.

New Thinking

Price Waterhouse, in association with the computer science faculty at a leading UK university, has been mapping IT in the boardroom since Price Waterhouse bought out Urwick more than 15 years ago. Perch says attitudes have shifted considerably since then. "With some notable exceptions, generally IT has been viewed as a sort of a sunk cost: an area which was costing a lot of money but which you had to have. It was seen more as the provider of back office operational efficiency and technology solutions," he says. "It hasn't moved to the business environment in the marketing and competitive sense until fairly recently," Perch says. "Most directors are now being given some sort of training in computing, and nearly every one of them is now linked into an e-mail network or equipped with PC facilities; so the concern they have about technology has disappeared, but there is still an understanding gap."Berg made a presentation at a lunch recently, and some directors were uncomfortable with one of the issues discussed: whether a Unix or Windows NT platform would better position the company regarding electronic commerce. Berg says that's a reaction that just won't cut it in the future, especially where such a technical decision will determine a commercial outcome over a three-to-five year period. And according to Perch, directors are increasingly making some very savvy IT decisions. As well as reading widely, many boards, in conjunction with the CIO, are ordering pilots programs to help them test a new technology and its application. "Often, if a board has an idea, then rather than plunging tens of millions of dollars into it, they spend a million on a pilot to see how it would work in a simulated environment," Perch says. "This is both a learning experience and also a way to confirm the payback and the opportunities that will provide." So a pilot of smart card technology, for instance, might become a means of testing the viability of a full-out implementation and of educating the board and senior management.

Prudential director Terry Jay, who has been serving on boards for the last seven years, agrees that boards these days are far more IT-savvy than they were back then. When Jay began serving on boards, most directors were not only suspicious of the cost of IT but also uncertain how to question the merits and value of IT expenditure. These days, he says, most are far more critical of the money being spent and the value the business gets out of it, and much more aware of the vast changes in technology. And they are more aware of the need for flexibility. Outsourcing and drawing information and services from outside the organisation is having far greater acceptance than it did when he first sat on a board. Jay says that in his own deliberations as a board member he relies on Prudential IT head Phil Maloney to provide much-needed guidance. "I would have more discussions with him on business outcomes than I would on IT; but IT is delivering business outcomes, and that is what I think is a very favourable way of looking at the problem," he says.

Artsim managing director Stuart Simson says directors today know the bigger role for boards to take is a leadership role -- particularly in IT, and particularly in terms of opportunities that may arise from the information economy. Their overriding aim is often to create a culture in the company that encourages creative thinking. "My premise is that unless you have a flexible culture in your company, then you probably haven't got a hope in Hades of taking advantage of the benefits that might be available to your particular enterprise from the information economy," Simson says. "It's not a question of a board suddenly decreeing that it is serious about IT or the Internet or the information economy -- there are plenty of middle managers who can do that. But for middle managers to be able to identify ways in which these tools from the information economy can be applied in a business, the business has got to be culturally free. If your business is still a bunch of silos, then it's going to be extremely difficult making breakthroughs and using these information economy tools," he says.

Simson thinks it's paramount for the board and the managing director to create a culture that encourages sharing of information and ideas.

Advice from the Top

If understanding the preoccupations of today's boards and the way they typically operate can help the CIO who is looking to the board to approve major funding decisions, then Sun Microsystems MD Russell Bate is a useful man to talk to. Bate sits not only on Sun's board, but also on those of the AIIA, ABC, and several other companies. The fact that Sun Microsystems is a supplier to the ABC can occasionally put Bate in a delicate position when the free-to-air broadcaster sits down to consider IT issues -- particularly probity issues in the current political climate. For instance, during the early stages of an internal systems equipment decision for which Sun was likely to tender, Bate declared an interest and absented himself.

"One of the other board members, who shall remain nameless, said: 'This is great: you were appointed to the board because of your knowledge, now every time we have to talk about it, you have to leave.' "Ultimately I was sometimes allowed to make general comments on direction; not product direction but whether it was advisable we undertook certain projects. And then I would have to leave the room and go out and stand like a lonely figure on the rooftop gardens in their Melbourne building and wait until I was asked to rejoin." In Bate's experience, most boards these days have a good balance of skills. At the ABC, for instance, there are people with publishing, arts, legal and technology backgrounds. And few are as interventionist as they might have been in the 1950s and 1960s. It might once have been possible to persuade a director to persuade the board to overturn a purchasing decision by playing golf with him, but it certainly doesn't work like that today. These days, Bate says, it would take "extraordinary circumstances" for a board to turn over, or even refer back, a recommendation from competent management which have followed the due process of tender or investigation. "When you think about it, a board at an all-day meeting will deal with a number of issues," he says.

"They will inevitably wade through submissions and reports that form part of their board papers, but by and large those presentations, by the time they reach board level, are well researched, well prepared and well backed by facts and figures. "Quite often the board gets to ask some pointed questions about whether the expenditure is relevant or can get deferred, or where it sits in the overall corporate position. "But it is highly unlikely that they would tackle the CIO or the head of broadcast or equivalent positions in other industries about whether they chose the right thing. "I would have as much access to technological expertise within the Sun organisation as anyone, but if I know that something has been researched over a period of six or nine months, and I've been watching it, I'm hardly likely to challenge the recommendation that finally arrives at board level. I know it has been researched in depth by competent management." And smart CIOs, whether they sit on the board or not, will heed Bate's advice about presentations to the board. Direct the presentation more at how the technology can be used than at IT itself, Bate says.

If the board understands what IT can do for the organisation, it is hardly necessary for directors to understand the subtle differences between Windows NT, Unix or MVS-XA. Let them instead appreciate how the organisation can realise the potential of the technology. And that is advice that both AIDC and Dunlop endorse wholeheartedly. "I think the critical thing the CIO needs to get across to the board is the broad strategic implications of what all this means," Dunlop says. "You can get bogged down in the detail, particularly in this area. I guess the thing you have to keep in front of you all the time, with so much information flying around, is how you use the technology -- how you actually get added value out of what you now have available to you in the wider strategic sense." Dunlop says he has seen numerous presentations that have missed that point and instead gone right down to the nitty-gritty; but that is not what is wanted at board level. Instead CIOs should strive to present a coherent overview of where the technology will take the organisation.

"The danger is if you get into the nitty-gritty, people will get frightened off. People just feel they can't come to grips with that and then they lose sight of what it is really all about. "There's a sort of psychological thing.

You've got to really demonstrate what the strategic importance of this is and just make sure you keep on hammering that point. Then the rest will flow," he says.

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