CIOs Who Serve on Boards Sharpen Their Business Skills
- 29 April, 2014 22:55
Relatively few CIOs sit on external corporate boards.
But those who do come back to their day jobs with personal and professional insights that boost their careers--and give their home companies a competitive edge.
Elite CIOs who serve on boards witness situations they might not otherwise see, never mind shape, which makes those execs more valuable. They assess acquisition targets, evaluate successors to the CEO or help take a company private. Discussions at board meetings can spark ideas for new products and services or provide market intelligence about competitors. Because directors sit above the management team, CIOs who serve on boards may participate in private conversations with external auditors that even the CEO is barred from. Every meeting, they're privy to candid accounts of successes and failures from fellow directors, learning what works and what doesn't in business situations as diverse as massive cost-cutting projects and crisis management.
"Being on a board is like experiencing best practices every day," says Linda Goodspeed, who sits on multiple boards and did so when she was CIO at ServiceMaster, Nissan and Lennox International.
Time on a board naturally makes a CIO more well-rounded. But it also builds skills in influencing and guiding, because directors should be wise advisers. They have to tamp down a habit of hands-on management and instead ask sharp questions and relay experiences. Tyco, Avnet and other companies use board involvement as a professional development tool. "I want to develop and give back," says Tyco CIO John Repko. "And gain."
Some companies, however, ban top execs from joining boards, concerned they will be distracted from their main job. After all, a board may meet 12 or 15 times per year, and each meeting requires preparation. It's a serious commitment.
But this type of prohibition is shortsighted, Goodspeed says. Companies with such rules limit your growth, as well as their own, she says. "I would ask myself, Do I really want to be there?" Goodspeed typically made it a condition in her CIO employment terms that she could do board work.
Still, a CIO interested in serving must make a straight-up business case to her CEO and her own board, which must approve the move, says Mahvash Yazdi, president of Feasible Management Consulting. They want to know what the company will get out of your extracurricular activity, Yazdi says. She went through the exercise when, during her long tenure as CIO of Edison International (which ended in 2012), she served as a director at Apria Healthcare Group from 2006 to 2008. "CEOs usually don't want their CIOs to serve on outside boards," she says. "You have to build a lot of credibility for a CEO to agree."
Push Your Company Ahead
Nothing impresses a CEO more than seeing one of his leaders improve the company's competitive position. With board experience, a CIO can find many savvy ways to do that, says Chris Hjelm, CIO of the $98.4 billion Kroger grocery chain. Hjelm was a director at RehabCare, a rehabilitation services company, from 2007 until 2011, when Kindred Healthcare bought it. He then joined Kindred's board.
Hjelm learned "an enormous amount" about how the healthcare industry works through his two board stints, he says, which helps Kroger in various ways. For example, he shares information about healthcare and regulatory trends when Kroger's senior executives discuss what insurance and wellness programs to offer the supermarket's 375,000 employees. Also, Kroger, which runs more than 2,000 pharmacies inside its 2,640 supermarkets, as well as some walk-in clinics, may come up with ways to piggyback on the trend toward treating chronic-but-controllable conditions at the patient's home, Hjelm says.
The conversations get him thinking about new lines of revenue, he says. He won't say exactly what, and nothing is imminent. But as a board member, "I sit in a different world and experience that world and it turns a lightbulb on," he says. "There may be a connection to a strategy in a business that could grow, a service we don't provide today."
Sitting on boards in industries serving your customer base provides insight into your customers' needs, says Virginia Gambale, managing partner at Azimuth Partners, which advises companies on tech-enabled innovation and growth strategies. She's also a board leadership fellow at the National Association for Corporate Directors (NACD), teaching master classes to directors.
Getting close to customers through a board can also reveal how they handle market pressures, which might, in turn, give you ideas for products or services that your competitors don't provide, Gambale says. "You can learn how to disintermediate."
During Repko's 2011-2013 stint on the board of BioClinica, a clinical trials services company, he gained market intelligence about the drug business that helped him as then-CIO of Covance, which is also in the clinical trials business.
Although they didn't compete head-on all the time, both Covance and BioClinica kept tabs on the activities of pharmaceutical companies. He was able to bring some information discussed at BioClinica board meetings back to Covance, such as general talk about what a drugmaker like AstraZeneca was looking for in upcoming clinical trials, he says. "To the extent it was not material and it was public information, I could use that as CIO of Covance. It was very helpful."
Directors can carefully take ideas from a board to their employers or to another board, Gambale says, so long as the concepts are public information. The key is to uphold confidentiality agreements signed as a director.
Once a project, product, service or plan is public, of course, anyone can discuss it. "You can't give away the secret sauce about how it gets done, but you can talk about it," she says. But even when information is private, she says, you can make use of it by asking astute questions of your own team "in a way that opens up their thought processes."
For example, she might ask, "If we were to leapfrog so-and-so, what would leapfrogging look like?" That style of brainstorming is especially effective for IT groups, says Gambale, former CIO at Bankers Trust and Merrill Lynch.
Gambale recalls that a few years ago JetBlue, where she is a director, was considering how to provide connectivity to employees and customers. Because she had previously served on a board in the telecom industry, she had heard of a new technology: broadband connectivity via satellite. Without naming names, she brought that idea (which was public information) back to JetBlue. "You can handle it professionally, in keeping with corporate governance guidelines, and it's bilaterally beneficial," she says.
JetBlue last year launched its own satellite for in-flight Wi-Fi, claiming its system is eight times faster than those of other commercial airlines. "Had I not had that experience in the telecom space, I would not have been able to help guide my [JetBlue] team," she says. "This changed everything."
Steal Good Ideas
Directors -- as purveyors of wisdom who have promised to act in the best interests of shareholders--are expected to talk honestly about what they've seen and done in their business lives.
Say management is contemplating investing heavily in services from one IT vendor or another. Or maybe the company is figuring out how to respond to a crisis, such as a major data breach. The 10 or 12 executives in the boardroom may have their own war stories and will discuss strategy and tactics, says Peter Gleason, CFO and managing director of NACD. And that's warts and all, he says. "You won't see sharing like that at a conference or in social circles. But in a boardroom, you will."
Part of what Steve Phillips, CIO of $25.5 billion technology distributor Avnet, finds useful about board discussions is the 50,000-foot view of topics such as mobility and risk management.
Phillips is chairman of the board of Wick Communications, a $50 million community news company that is managing the shift from print to online products. Seeing how vital mobile systems are to Wick spurred Phillips to step up Avnet's efforts to provide mobile systems and mobile-enabled content to its business customers. "It'd been on my mind for some time, but what I learned at Wick helped sharpen it," he says.
Likewise, the board's holistic view of risk management drove home important points. "When you have an explicit discussion as a board about things that could go wrong and [their] potential impact on the business, you think strategically indeed," he says. Managing risk has always been important to Avnet, he says, "but my board experience reinforces that sense of priority." Avnet has recently invested more in disaster recovery and cybersecurity partly as a result of his board experience, he says.
You're more likely to reap business benefits if the company whose board you're on mirrors your own company in certain ways, Yazdi says. For example, key issues for a utility company like Edison are supply chain and logistics. The same is true at Apria Healthcare, which provides home respiratory services. Also, both are in highly regulated industries. Yazdi had notable experience in operations and regulatory matters as Edison's CIO, but she gained insights into how a company in a very different industry handled such issues.
Hjelm says Kindred Healthcare is similar to Kroger in key ways: Both have a very large workforce and a keen interest in improving connections with consumers. He has observed how Kindred has managed an internal cost-savings project while Kroger, too, is running a similar initiative. He took away some tips on how to structure the team and communicate progress to the rest of the company.
Linda Goodspeed has honed a system for sharing ideas among the companies she's involved with. She is a director at AutoZone, Columbus McKinnon and American Electric Power, boards she also served during her long career as a CIO. For example, American Electric is a prime target for hacking and terrorism and, as a result, has some sophisticated enterprise risk management practices that it's willing to share.
When Goodspeed thought AutoZone or Columbus McKinnon might find the practices useful, she broached the topic with the utility. Then she sat in on a conference call while managers at the companies talked. She brokered the exchange but didn't lead it. Other times, she made sure to get written permission to share information. "Confidentiality is extremely important. I'm very careful," she says.
CIO as MVP
Board experience teaches new skills and offers opportunities to enhance talents a CIO might already have but doesn't often get to use as technology leader. Goodspeed, for example, kept her finance knowledge fresh because, on a board, you are immersed in the topic every meeting, she says.
"You talk about sales and growth and what worked and what happened." That's frontline experience translatable to your own company. You can contribute more intelligently and share more unique information than you might have otherwise. "You can participate in those discussions from a perspective other than IT," she says. "This assisted with my confidence."
It's the same for Hjelm. Board experience makes him more comfortable as a business executive, he says.
For Phillips, being on the board of a much smaller company exposes him to the inner workings of business that he doesn't see in-depth at Avnet. That includes cash management and sales-incentive programs. As a result, he's a stronger part of Avnet's eight-member executive board, he says. He got a big vote of confidence last year from Avnet CEO Rick Hamada, who put Phillips in charge of the company's global operational excellence team. The group runs special projects to improve efficiency at the company. For example, the team recently increased shipping capacity by 15 percent at one warehouse and reduced worker footsteps at another site by 3 million steps per year. "He can see I can take on broader management," Phillips says.
Directors get a broad view of a company, more expansive than that of even the smartest leader of a functional area, Gleason says, even if that functional area that touches every facet of a company, as IT does. As a CIO, you may have helped a business unit use technology to be more efficient, but you probably don't fully understand the competitive problems the unit faces, he says.
As much as Kroger recognizes the benefits of its senior executives holding board seats, the company limits each person to one directorship at a public company, although Kroger execs can serve on private and nonprofit boards, too.
The three boards Goodspeed belongs to are "an insane amount of work," she acknowledges. When she was CIO at ServiceMaster, the company asked her to step down from one, "which was fair," she says. As it happens, other changes were happening at ServiceMaster at the time, so she decided to retire and remain on all three boards.
One of the most difficult aspects of being a first-time director is pulling out of management mode and learning how to ask questions and use influence. Yazdi, the management consultant, remembers the transition as a gradual one for her, recognizing the boundary between management, as a CIO, and governance, as a director. Ultimately, it helped her avoid micromanaging her IT staff, she says.
It isn't easy to make that change, which is why NACD offers a class in it. As a director you must provide perspective, Gleason says, "but you're not making the decisions."
You're also in for some new experiences. Repko learned the nitty-gritty of taking a company private when BioClinica was sold to a private equity firm last year in a $123 million deal. He had gotten his board seat because Covance owned 15 percent of BioClinica and had the right to appoint up to three directors.
Repko was recused from early discussions of the sale because of Covance's ownership stake--it would have been a conflict of interest. After the deal was approved by a smaller group of BioClinica directors, however, he joined weekly discussions to map out how the transaction would unfold. "There was a shareholder lawsuit and everything," he says. (The suit was dismissed.) "Now I can say I have that experience behind me."
Phillips, meanwhile, oversaw the hiring of a CEO when Wick Communications' top executive left. While on the Apria board, Yazdi went through the due diligence process of an acquisition. Apria's board also explored different ways to finance a major transaction. "You bring back ideas for the CFO or CEO on some of the best practices out there," she says.
Your First Board Seat
There's no one right way to find your first board seat. Linda Goodspeed, former CIO of ServiceMaster, Nissan and Lennox International, got her first directorship through a recruiter. So did Kroger CIO Chris Hjelm. Steve Phillips, CIO of Avnet, and Mahvash Yazdi, former CIO of Edison International, got theirs through networking. Some CIO board appointments are strategic placements by the CIO's own company. Wal-Mart CIO Karenann Terrell, for example, was appointed to the board of Yihaodian, an online grocery store in China of which Wal-Mart is majority owner.
Although boards know they need more technology expertise, seats for CIOs are scarce, says Peter Gleason, CFO and managing director of the National Association for Corporate Directors. Dual forces of digital disruption and embarrassing security problems are forcing boards to look at candidates who know how to profit from data and keep IT safe.
But boards sometimes hesitate to fill a seat with a CIO. There's a view that many CIOs aren't board material, says John Repko, CIO of Tyco. He's looking for a board seat now, interested in a $2 billion to $3 billion services company. That would be bigger than his first board, but not too big.
One technique he uses to avoid being branded as "an IT guy" is to get his name out through public speaking--but carefully. "I never speak at conferences on IT," he says. Security, quality and talent management carry more cachet, he says.
While plenty of retired CEOs and CFOs fill board seats, retired CIOs don't have as long a shelf-life, Gleason says. They lose relevance because technology moves too quickly. Plus, some boards reason that if they need technology questions answered, they can hire a consultant to come in and advise them during a meeting or two, he says, rather than devote a precious full-time seat to a CIO.
Nonetheless, some CIOs do get director offers. If you find yourself debating whether to take a board position, CIOs who have been there have some advice.
First, review all of the company's major financial documents, such as annual and quarterly reports filed with the Securities and Exchange Commission. Should you join the board, these documents will bear your signature vouching for them. Then read the company's proxy statement, which details board activities, how directors participate and what they are paid. You may also want to talk to the company's external auditor to get a feel for how the board conducts itself and manages finances, Goodspeed says. Also read through any pending lawsuits. "You want to know you're joining a credible board," she says.
Yazdi suggests interviewing existing directors to assess fit--culture, style and ethics. Ask directors to respond to different scenarios, she advises. "Find out: Is it a cutthroat board? A very disciplined board? One that values diversity? Are they good listeners?"
Finally, be prepared for continuous learning, Goodspeed says. "Learn all you can all the time regarding the company and the environment they live in," she says. "You owe it to the company and shareholders."
Kim Nash is managing editor of CIO Magazine. Follow her on Twitter @knash99.
Read more about leadership/management in CIO's Leadership/Management Drilldown.