eyetoit: IT-Savvy Board Representation

November 14, 2004

IT-Savvy Board Representation

A couple of weeks back, Information Week had a cover story on CIOs in the boardroom ("Tech-Smart Boards") The article points to research indicating that those firms with an IT expert on the board achieve 6.4% higher shareholder returns than the average global company.

In many respects, this makes sense. I have often argued that the importance for business leaders in understanding IT is two-fold, both the positive impact that IT can have on an organization, and the negative impact bad IT can have on an organization. Since failures by IT, in the form of overruns, have a direct impact on bottom-line profitability, failures have a very visible cost, especially for stocks that float largely on a P/E metric. However, there is more to this issue to consider for companies considering filling open board seats.

The timing for such writing is opportune for upward-looking IT executives as well. Many companies are in need of fresh board members due to the flight of some directors out of concern for their personal wealth under a new era of scrutiny being applied to corporate governance. Those firms will certainly find many IT executives, unfamiliar with the role of governance and its history, eager to join the ranks. However, companies should be watchful of the broader insight and expertise such individuals can bring to the realm of governance. While boards do benefit from members with specific subject-matter expertise, the board's governance function is one of control, management and strategic guidance, areas in which few IT executives have demonstrated significant expertise.

Better advice would be to find individuals with broader-based experience who have a solid understanding of information technology and the role it can play in the modern corporation. For example, the business visionary and sponsor of a successful CRM initiative that was not just technically successful, but also contributed to clear business improvement would, most of the time, be a better potential board member than the IT executive whose team implemented the CRM. Of course, as more and more CIOs come from various line-of-business functions, or take on more general business responsibilities in their functions, it becomes easier to find these people.

The inclusion of an IT expert on a board also carries with it an additional risk; without a general level of IT sophistication among the board it can result in the same type of blind deference that I have cautioned against at all levels of a corporate structure. Board members who are themselves CIOs may be more prone to offer (possibly excessive) explanation or rationalization for IT problems in the company, potentially diminishing, rather than increasing, the board-level accountability of the IT function. In saying this, I am not suggesting ill motives on the part of such individuals, simply the result of a natural bias.

Speaking of my own experience as a board member, I find that despite deep subject-matter expertise in technology my contributions tend to be more related to the sales and management functions, which as a business owner, I am also quite familiar. I may offer some additional commentary about the tech market or about the development process to a CEO or fellow board member, but certainly not at a level of detail that makes full demands on my knowledge. At the same time, when I go through my mental Rolodex of CIOs who I think would make strong directors, most of them have significant experience outside the IT function. There are two strong candidates that come to mind who have spent almost their entire careers in IT, but I have always considered them rather exceptional in the IT field for their more holistic and strategic view of business.

While I certainly feel it is valuable to look to increasing the level of knowledge of technology among boards (and why I offer such consulting, even), I am not certain that increasing IT representation within a board is as much of a solution as developing a level of IT savvy within the broader constituency of board members. In the shorter term, it may be best solution, but I would encourage CEOs and boards to pay close attention to the broader skills of the IT-savvy candidates, as well as evaluate those individuals' abilities to increase the overall IT competency and fluency of the board as a whole.

If you have comments about this topic, suggestions for future topics, or questions related to the governance of the IT function or the business-centric use of technology, feel free to e-mail me at eyetoIT@gmail.com.

November 14, 2004 in IT Business Alignment, IT Governance, Web/Tech | Permalink

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November 14, 2004

IT-Savvy Board Representation

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