• April 25, 2024

It’s time for company boards to establish a dedicated technology committee

It’s time for company boards to establish a dedicated technology committee

In the wake of cyber-attacks on such reputed enterprises as Equifax, Marriott, Best Buy, Yum! and others, we had written a column offering tips on constituting a dedicated board-level cyber-security committee. While this was useful for corporate governance, the criticality of technology to business would make a technology committee of the board an even wiser approach.

A permanent tech committee is still not the norm, though global instances are on the rise. These panels often have blended duties, however, with strategy, innovation or risk to be overseen alongside. Also, their use is sector specific. Healthcare enterprises use them the most and utility companies the least.

The board talent needed for a tech committee is a work in progress. Open-ended definitions of ‘technology’ (not to mention ‘expertise’) have meant that a director who attends a weekend business-school session on AI can claim to be an expert. A study of 40,000 US directors defined ‘digital savvy’ as possessing an “understanding, developed through experience and education, of the impact that emerging technologies will have on [business].” Companies with three or more such ‘savvy’ directors showed 17% higher profit margins.

Here are some tips. Set up a dedicated tech committee to watch for what is coming to the market, and make that a regular part of board conversation. This assures the company a regular touch- point on tech issues and aids the entire board’s understanding of technology trends, opportunities and risks.

A tech committee can have 3-4 members. It should meet quarterly and its charter could spell out a broad range of issues for monitoring, such as cyber risk, digital efforts, AI and the Internet of Things. It can start with a few items and then update the charter. Chair duties can involve working closely with the management to review matters that come up, before assuring a full readout of the minutes to the entire board.

A manufacturer of electronic tools has a board-level technology panel that boasts of a strong bench of tech talent. This helps the committee ask good questions and do deep-dives into emerging trends. But even less tech-focused companies should have boards that include at least one or two members who bring experience in a number of related domains. Their mandate should be to determine how technology is impacting their business and come up with insights that can help.

Procedures drive board behaviour, which is why written charters work for board committees. Laying out a well-discussed, regularly reviewed statement of duties, powers and areas of focus is fundamental to the heavy lifting that these board committees must do.

There are a few essentials to bear in mind while drafting a charter. First, note that the titles and ambits of these committees can be diverse. Traditional board committees, such as for the audit process, have a well-established mandate and role, and also largely uniform functions. The audit panels of a finance firm, healthcare company and retail chain all handle the same tasks. But, as the technologies used, compliance calls and strategic issues facing each sector differ, tech committees could have varying concerns and skill needs.

There are several examples of enterprises getting tech committees to work for their boards. Procter & Gamble’s Innovation and Technology Committee goes beyond just technology oversight to include innovation needs for new products, markets, acquisitions and company structure. Canadian Solar’s tech panel helps the company stay at the cutting-edge of energy technology.

The information technology and data security committee of the board of Adani Power has a charter that focuses more on cyber security needs and offers a good blueprint for the energy sector in India. At Hong Leong Bank in Malaysia, there’s an information and technology committee that boasts of a very detailed charter for tech oversight, with a special emphasis on cyber resilience.

Tech committees should budget for external advisors. Given the complexity and lightning pace of change, they can’t hope to know everything from within their membership, or even management. They must be assured resources to tap external consultants for advice on technology, apart from legal, compliance, privacy and ethical issues.

Given the speed with which technology impacts business, it’s advisable to ensure your committee’s charter spells out a specific mandate to act as the eyes and ears of the board on issues like AI, cyber risk and data regulation. More than any other committee, a tech panel must watch out for what’s coming.

Written by M. Munir and Ralph Ward. This article was originally published in Live Mint.

Views are personal and do not represent the stand of this publication.

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