Why Board Composition Must Reflect a Future of Technology & Innovation

board composition and recruitment

Board composition is on everyone’s agenda this year. Activists, proxy advisors, and institutional investors are pushing for diversity and refreshment, as boards do their best to align strategies and skill sets based on an unknown tomorrow. Before boards can strike that delicate balance, however, they have to identify their needs.

There’s been an increasing focus on technology skill sets lately as certain industry trends become more salient. The retail industry, for one, has largely struggled with the transition to ecommerce, as steady downturns in stock values have mirrored declines in store traffic. Across other industries, companies that fail to adapt to millennial preferences or master a seamless mobile payment system are finding themselves on a quick path to irrelevance.

Feeling the pressure from shareholders and predicting the rapid changes ahead, today’s boards are challenged to assemble a diverse team of experts capable of guiding the company through key innovations.

New Skills in High Demand

Technology has always been a “nice to have” skill set, but rarely a primary focus in the search for new directors. Fast-forward to today, and technology underpins virtually every aspect of corporate strategy—from ecommerce to product development to consumer data—not to mention emerging areas of risk oversight like cyber security.

In PwC’s recent study on board composition, experts across nine industries all put technology high on the “must-have” list for new directors. This board-level focus on technology makes even more sense as we look at the threats identified by today’s corporate management. In another PwC study, 50% of U.S. CEOs are “extremely concerned” about cyber threats; 32% are equally concerned about the speed of technological change.

PwC's ceo survey
PwC’s CEO Survey: U.S. Key Findings

What Does Digital & Technology Experience Look Like?

The nature of digital and technology skill sets is almost too broad to lump into a single category, which ranges from data security to omnichannel marketing expertise. While directors who possess these skills come from a variety of industries and professional backgrounds, boards must be prepared to expand their search to younger (and inevitably less-seasoned) candidates. Often in direct reporting roles or heading business units, this emerging group of directors combines their experience “in the trenches” with a high level of subject matter expertise—the advantage of which is already being realized by forward-thinking corporate boards.

Last year, we invited Caroline Tsay, 35-year-old board member of Travelzoo and Rosetta Stone, to Inside America’s Boardrooms where we learned about her contributions as head of a strategy committee—a role that touches everything from big data to customer segmentation to hiring new talent. Over the last two years, companies like Ally Financial, Nielsen Holdings, and Pepsi Co. have all onboarded directors under the age of 45 for their unique expertise in global ecommerce, digital media, and entrepreneurship.

Caroline Tsay (35), Board Member of Rosetta Stone, Travelzoo and Codefresh:

Back in 2011, Starbucks was among the first to recognize the board-level value of a digital native in its recruitment of then-29-year-old technology maven Clara Shih; since then, the company has been credited with launching one of the most successful mobile payment and customer loyalty app programs to date.

Emerging group. Familiar challenge.

We’ve already taken the liberty of coining 2017 the “Year of the Nominating & Governance Committee”. Indeed, if there was only one take-away from our Board Performance Review Series, it’s that institutional investors and proxy advisors are concerned that today’s business environment is evolving faster than the skill sets in today’s boardrooms. Getting these technology-forward (and often younger) directors into the boardroom will be met with the same obstacles that female directors and other minorities have faced for decades. If boards are limiting their search to CEOs or members of their existing network, they’ll rarely find these candidates.

While the challenge can be simply stated, we’re reminded that solution is not always so linear; rather, it requires improvements across several dimensions of governance and oftentimes a whole-board rejection of the status quo.

  • Boards must act on the results of their board evaluations to remove underperforming directors.
  • Boards must evolve their criteria and method for director recruitment.
  • Boards must commit to making their strategic planning and skills assessment a year-round process.
  • Boards must do a better job communicating their strategy and recruitment process to shareholders.

Directors who are willing to make these changes will reap the benefits of diverse composition. Here at Boardroom Resources, we interact with corporate directors on a weekly basis, and it’s our experience that the majority of today’s boards are already starting down this path. We look forward to seeing how these new faces and digital skill sets will further contribute to the breadth of knowledge in today’s boardrooms.

BlackRock, Trian Partners, Vanguard, and PwC

Curious about what else major institutional investors had to say about board composition?

Don’t miss the special highlights episode, which pulls key takeaways from all three Board Performance Review sessions (featuring BlackRock, Vanguard, CalSTRS, Glass Lewis, Trian Partners, and more).

Why Board Composition Will Be the Number One Issue for 2017

board composition

We take a look at board composition in 2017. What keeps investors up at night? What can boards do to answer the call? (5 minute read)

Read Here