Published On: Wed, Jul 1st, 2015

The Barouch Feature: The Digital Boardroom

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Jonathan-Barouch---Portrait-#2A year ago I wrote an opinion piece lamenting the lack of digital expertise in ASX boardrooms. In the 12 months since then, progress has been minimal.

There is a growing acknowledgment in other advanced economies that directors with an understanding of technology play a valuable role in boardroom debate but, in Australia, this message is not being heard.

A very well-regarded ASX board director told me quite confidently recently that neither he nor his fellow directors view digital capabilities as a necessary skill for directors. Ironically, some of the companies on whose boards he has most recently served have been among those most heavily affected by digital disruption.

How can a board discharge its corporate governance obligations without having at least one member who has first-hand knowledge of the disruptive forces of technological change?

Global recruiting company Russell Reynolds Associates recently released a study of some of the world’s top 300 companies to assess how many had digitally skilled directors and to better understand the global trends related to digital talent in boardrooms.

One of the most telling findings was that while 24 per cent of the US companies had what Russell Reynolds referred to as a “highly digital board”, only 2 per cent of Australian companies were viewed this way.

This should ring alarm bells. We have a federal government talking about new policy initiatives to spur innovation, while the very enterprises that need to support this next wave of innovation lack the digital leadership necessary to enact the change.

Adding digital directors in corporate Australia plays more broadly into the need to add diversity to our organisations. The Russell Reynolds report reinforces the broader challenges Australian companies face in breaking the perception of a boys’ club in corporate boardrooms.

Interestingly, digital directors were more likely to be female than their non-digital peers, and the average age of a digital director was 51 versus 62 for non-digital directors.

This exposes some uncomfortable truths about digital talent. A company does not need to find a mature 21-year-old to place on their board in order to be digitally savvy (although I would commend any ASX-listed company that had the foresight to do so). With an average age of 51, these digital directors are seasoned executives who have spent at least part of their careers on the boards or management ranks of technology companies or in the digital teams of enterprises.

In the US, these are people such as former eBay CEO Meg Whitman, who is on the board of P&G, or Yahoo! CEO Marissa Mayer who is on the board of Walmart. In Australia, we are talking about people such as Paul Bassat, the founder of SEEK who is on the board of Wesfarmers and former Microsoft exec Steve Vamos on the board of Telstra.

So what is the solution to convince boards that their next appointment should be a digitally capable individual?  Positive discrimination programs … even a quota?

When shareholders start rewarding companies that take digital transformation seriously, so too will the directors and senior executives of our largest companies.

Capgemini Consulting and the MIT Sloan School of Management demon­strated in a recent study that large companies making major investments in technology-enabled initiatives see an increase in revenues, while organisations prioritising digital transformation achieve higher profitability and market capitalisations, in addition to increased revenues.

In the meantime, how do we quickly provide Australia’s largest companies with digital skills at senior executive or board levels? While it is in vogue to send directors on “study tours” of Silicon Valley, this approach is neither necessary nor sufficient to create the types of changes needed to reposition either individual Australian companies or the wider Australian economy as innovative and nimble.

US technology companies in particular are very good at creating advisory boards that add capabilities to the organisation to support management and the board. These advisory boards might be a good stop-gap for Australian companies which desperately need to inject digital capabilities, but which are not yet prepared to alter the make-up of the homogenous group sitting around their mahogany boardrooms.

It is commonly accepted we have a problem with the composition of boards in Australia. What is less understood is the fact that this problem extends beyond gender and diversity boundaries to the issue of skills diversity.

We trail the US and Europe in the digital capabilities of our directors and we need shareholders to challenge directors to correct this. The good news is that if we act now, we have the ability to course correct by leveraging the amazing pool of talent in Australia’s technology community

Jonathan Barouch is founder and CEO of location-based social analytics company Local Measure. Local Measure is headquartered in Sydney and with international offices in Singapore and the US.

 

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