January 2022 | Point of View

Bringing a digital mindset to the board of directors

How can the board evolve to meet the speed of digital?

Bringing a digital mindset to the board of directors

Agile. Fast. Efficient. Data-driven.

These once differentiating features are now critical organizational imperatives. But even as investments pour into changing processes, systems, mindsets and technology to create a true digital operating model, not much is changing with the way things work at the very top of the house.  
Isn’t it time for the board to also change? 

It’s a pressing question following a period of intense change. As organizations adjust operations to adapt more quickly to disruption, they’re realizing that culture and leadership have an equally influential impact.

Everyone has to operate with a digital-first mindset—and that includes the board. 

Standard board processes, protocols, and leaders that served the organization well in the past may not be the right ones for the future. The boardroom needs a new blueprint. Instead of serving as a parking lot for expertise, it needs to become a more dynamic drive-thru, with a diverse range of experts who can help the organization address emerging issues on an ongoing basis. Its agility, speed, and efficiency should mirror that of the organization. 

The past is no longer prologue 

Consider what happened when the COVID-19 pandemic hit. Many organizations took an “act now, apologize later” approach to making major changes that affected their business and met urgent customer needs. No one had experience to draw from—including the board. The pandemic; a national shutdown; pivoting the workforce to remote work: this was entirely new territory for everyone. The board’s lack of knowledge, combined with the urgency of the situation, meant that management teams sometimes moved forward without waiting to get a stamp of approval.  

While, hopefully, the pandemic was a once-in-a-lifetime event, it only accelerated the pace at which organizations are moving toward a digital-first model. Resiliency was the buzzword of 2020, but you can’t get there without agility.  

As the workforce is empowered with the technology and data to make better decisions and move faster, it’s breaking down hierarchies. Innovative leaders are building meritocracies—big ideas and big solutions aren’t limited to those in the executive ranks; great ideas and insights can come from every corner of the organization. Critically, this also means that what happened in the past can no longer inform the future.  

The new mindset of successful, agile organizations is “move fast, break things, and learn.” 

How can the board evolve to meet both the challenges and the opportunities ahead? 

Issues on the itinerary 

The board’s historic role is clear: serve as a steady, guiding hand to ensure an organization didn’t veer too far off-course from its plans.  

However, the typical board structure of quarterly meetings and reports, lifelong board appointments, and rigid plans isn’t in alignment with today’s business and customer needs. It was designed for slower-moving, hierarchical organizations that viewed risk in a different light. 

To better understand how boards need to change, it’s important to consider key challenges they are helping organizations navigate and the associated implications. 

Change is the new norm, data is the new currency 

Change is no longer periodic; it’s constant. The competitive landscape is continuously evolving, with new entrants chipping away at the market share of industry leaders. Customers have more options than ever before, and organizations must constantly raise the bar to retain their loyalty. Decision-making is becoming more decentralized, and data trumps expert advice every time.  

Finding new ways to better leverage technology and data can help organizations make better, faster decisions and not only stay a step ahead of emerging risk but also turn them into opportunities. It is essential, though, that organizations implement these changes in a way that balances speed and efficiency with planning and consideration. While moving too slowly will leave an organization lagging behind, moving too quickly can lead to a sense of institutional whiplash. 

Digital supply lags demand 

With digital continuing to be cited as the top business priority by executives, there is a pressing need to develop digital governance competencies and expertise around the implication of digital-first business models. A recent Harvard Business Review piece stated that “demand for digital or technology-oriented board directors more than doubled in the last five years.”  

Is demand translating to action? Are companies bolstering the digital expertise on their boards? In a word, yes. In numbers, there are 82,500 Google News results for companies appointing new board members with digital transformation expertise.  

This trend isn’t new. A recent Wall Street Journal article describes Wal-Mart’s moves nearly a decade ago to bolster their board’s digital experience, beginning with appointing Marissa Mayer in 2012. It’s also not a silver bullet, and in some cases, may even be performative.  

Why? There isn’t enough supply to fill those roles. Companies that are further along the digital maturity curve will likely be the most successful at attracting the small pool of experienced talent that exists, which will further widen the gap between the leaders and the rest. In addition, digital expertise is valuable, but a digital mindset is the way of the future. 

Priority pressures 

While reconsidering an organization’s strategy and guidance needs requires an internal focus, there is an additional set of external considerations that need to be prioritized in tandem. Shareholders are increasingly vocal—as are customers—about the issues they expect organizations to address, with environmental, social, and governance (ESG) issues becoming just as important as financial performance. Stakeholders expect companies to have a purpose, take a stand, and back it up with action. 

Morrow Sodali’s 2021 Institutional Investor Survey found that “statements of company purpose are considered to be one of the driving forces behind creating sustainable long-term value,” with a strong majority (86%) of investor respondents agreeing that every company should disclose its corporate purpose, and a substantial proportion (20%) saying the issue could lead them to vote against the board chair or other directors.” From environmental impact, to diversity and inclusion, to data privacy, boards and executives everywhere are struggling to balance the unique goals of stakeholder groups and strategic priorities. The risk is clear: When everything is a priority, nothing is. 

These are a merely a few of the major forces driving change in the boardroom. Boards must find a better way to govern in a world where disruption and constant change are the norm. They need to become as agile as the rest of the organization. 

The new board blueprint: A digital mindset 

Agility and governance must learn to co-exist. 

As operational processes become more flexible, connected, customer-oriented and digitized, so too must the boardroom. A serious examination should assess three fundamental elements: Purpose, People and Process.

Purpose: Customer-first 

Let’s start with the biggest question: What does the organization stand for? Organizations need to clarify their purpose—the “why” behind the products or services they offer. Customer decisions and loyalty are increasingly connected to purpose. They may opt to purchase a garden hose from Company A vs. Company B due to Company A’s commitment to funding clean water initiatives.  

As a result, boards can’t afford to have an organization-first view anymore; it’s all about customers and impact. Guesswork also won’t do. If boards don’t have clear inputs and customer data on what matters most, they can’t effectively guide organizations to further their mission. 

With a clear sense of purpose and prioritization, organizations can then ensure they bring the right perspective into the boardroom and rethink how the board can add the most value.  

People: Mindset vs. experience 

How can organizations ensure their board brings the right perspective from the right people at the right time? It starts by focusing on attitude vs. experience. An organization’s true advantage in this economy comes from agility, not from continuing to follow “the way we’ve always done it.”  
This is especially true when it comes to digital. However, there are two components to achieving a digital-oriented right mindset for an organization. While the Harvard Business Review recently reported that 80% of global board directors believe “digital transformation should be led at the board level,” an MIT study prior to the pandemic found that among companies with over $1 billion in revenue, only 24% had at least three directors that were “digitally savvy.” 

While that percentage is no doubt increasing after COVID-19 disruption, it is no longer enough to just hire a Chief Digital Officer and have a few board members with a digital background. Long-term success requires having an entire board with a digital mindset.  

In practice, this may mean companies should shift board recruitment priorities. Companies should seek board members who are more likely to drop in to advise on product development than send a proxy to a quarterly meeting. They should also recruit more board members with a nuanced view of risk – not as a roadblock to progress, but as an opportunity for advantage. 

Process: The fine details 

With the purpose and people clarified, it’s time to evaluate the processes. How can the board’s responsibilities and contributions evolve to meet the organization’s purpose? 

The historical board structure worked well to serve its mandate: advise, recommend, consent. But in the next normal, agile governance will likely translate into more hands-on work, more frequent and ad hoc meetings and a fresh look at committees to ensure their organization’s purpose is represented across board initiatives.  

Among the questions to consider:  

  • How does the board and C-suite work together? Does the speed of business necessitate that the board get more in the weeds?  
  • How frequently is the board’s input needed? Would shorter, more frequent meetings be of greater value? What is the board’s role is assessing investment and innovation?   
  • How should data influence faster and better decisioning at the board-level? 
  • Would shorter-term limits help ensure fresh thinking? 

This is a pivotal time for organizations and boards. Good governance will always be in high demand, but what worked in the past will not necessarily serve organizations’ best interests for the future. That’s why a shift from seeking digital expertise to supporting development of a digital mindset is the best strategy for success. Company boards must prioritize agility over past performance. 

As companies across every industry wrestle with this evolution, early movers will get the advantage. Those that can seize the moment by breaking ground on the new board blueprint will surpass peers and be in a better position for today’s opportunity and tomorrow’s inevitable change. 

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