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Digital Governance: The Role of the Board in Creating Value

by Kathleen McGuire | Dec 11, 2015

Photo of Michael Hartmann Dr. Michael Hartmann 
Principal, The Directors College

In the recent Digital Leadership Summit delivered by the DeGroote School of Business, the opening speakers addressed the topic of digital innovation from both an enterprise risk and opportunity perspective. Barry Libert, who leads the digital consulting firm OpenMatters, spoke about the value premium that investors attach to firms who are actively leveraging digitally driven networks, technologies and insights. Eugene Roman, Chief Technology Officer at Canadian Tire, discussed the risks associated with moving down a digital path open to cyber security breaches and disruption from new business start-ups. The two presenters highlighted the dilemma facing today’s C-suite executives in balancing a need for new structures, processes and mindsets with a responsibility to guard against undue and often-unforeseen risks. I would argue that board directors must also be actively engaged with management in this balancing act mindful of course of each party’s respective roles. IMD Professor of Technology and Innovation, Jean-Philippe Deschamps, states in a recent governance article that a company’s commitment to innovation must be tied to the core strategy, risk, auditing, and CEO selection and assessment responsibilities of its board. After all, the value at stake is very high:

  • Opportunities and threats driven by digital disruption including new market entrants
  • Reputational and financial risk of cyber attacks
  • Significant costs tied to investments in building and/or acquiring new digital capabilities
  • Pressures to drive short-term results at the expense of longer-term innovation pay-offs

The importance of placing the topic of innovation high on the board agenda with a particular focus on “digital” is not lost on many directors even if current board practices lag behind best intentions. A McKinsey survey of corporate directors indicated that more than 50% of respondents said their boards should have a forward-looking view of technology’s impact on their business yet less than 30% reported having such a discussion. A recent Korn Ferry corporate survey found that 74% of board directors believe that social media will have a significant impact on their business in the next 3-5 years yet 80% of surveyed companies lack any digital expertise on their boards.

So how can a board add value to a company’s innovation agenda, whether this agenda is very broad or more narrowly defined around digital. For companies where innovation is most critical, the board should ensure that innovation is viewed more as a creator of strategic opportunity than as an operational expenditure to be dealt with largely in Audit Committee proceedings—this was appropriate where the majority of innovation issues were IT-related and concentrated in back-office operations that could put the company at risk if they failed.

Today’s innovation-savvy boards certainly review and discuss the company’s innovation risks but they also set specific innovation goals with management and expect management to report on innovation performance. These boards also recognize the value of having the topic of innovation as a regular full board agenda item, review and discuss the company’s innovation strategy with the CEO, and take innovation into account when appointing new leaders. They are also proactive in addressing potential gaps in knowledge by:

  • Educating the board about pertinent innovation trends, technologies and capabilities
  • Seeking advice from outside advisors and experts
  • Having at least one, if not two, directors with the requisite innovation expertise
  • Creating new committee structures to provide oversight and counsel to the full board on matters of innovation and technology

The topic of digital innovation, driven by cloud computing, mobile, social media, and big data analytics, is being singled out because of its potential to overturn traditional ways of doing things in favor of whole new business models and market valuations. Companies seeking to place digital at the core of their strategy will need board directors capable of challenging the critical assumptions and actions of top management—“we need to be able to call out management b.s. from time to time” to quote a digital-savvy director. The board will also need to know when to work in tandem with management to put in place the resources, talent and tone at the top needed to operationalize an enterprise-wide, innovation agenda.

About Michael Hartmann

Dr. Michael Hartmann is Principal of The Directors College, where he leads program development and accreditation, and is a member of the College’s faculty team. Dr. Hartmann is also a Professor of Human Resource Management at the DeGroote School of Business and the Executive Director of DeGroote’s new EMBA in Digital Transformation. Prior to joining DeGroote, Dr. Hartmann was Deputy Dean, Manchester Business School (2008-2013) and Assistant Dean, Rotman School of Management (1998–2007). While at Rotman, he led the School’s globally ranked Executive Education centre and contributed to the development of its portfolio of corporate governance programs. Dr. Hartmann has over 20 years of professional experience designing and delivering educational consulting services to organizations in Asia, Europe, the UAE, and the Americas. He has taught graduate degree courses and executive workshops in the areas of corporate governance, leadership, strategy, innovation, design thinking, group decision-making, cross-cultural studies and change management.

Recent teaching and coaching assignments include work for Novartis, Ziraat Bank, Thales Group, JCB, Omantel, Al-Futtaim Group, Manchester Airports Group, British Sky Broadcasting, Sky Betting & Gaming, Dentsu Aegis Network, NBCUniversal, and CUES (Credit Union Executives Society).

Dr. Hartmann has an undergraduate honors degree from the University of Western Ontario, graduate degrees from the University of Toronto and York University and a doctoral degree from the University of St. Gallen, Switzerland with a focus on corporate governance.


For More Information Contact

The Directors College
Direct: (905) 525-9140
Toll free: 1-855-905-4943
info@thedirectorscollege.com

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