Strong appetite emerging for adding tech-savvy directors to established company boards

Board members in every industry sector are thinking about their company's’ digital transformation and associated cyber risks.

“There is strong appetite emerging in New Zealand, as it is globally, for adding tech-savvy directors to established company boards,” says Una Diver, partner, people advisory services, EY (Ernst & Young).

These are individuals with the expertise to guide cyber strategy, major technology investments and risk mitigation, says Diver, as she talks about the key findings of the 2016 Directors’ Fees Report, released in conjunction with the Institute of Directors.

In many cases, these ‘digital directors’ not only bolster the board’s skillset, they work directly with management on discrete efforts to reinvent the company and enable long-term survival, says Diver.

“It is top of mind for directors,” says Diver. “They realise there is a gap that is difficult to fill because it requires a multifaceted skill.”

She says the role demands the right combination of competence in three areas. “They need to understand technology, they need to understand governance, and they need to understand risk. The combination of those three makes a good cyber and technology director.

“The pool is very small,” she says. “Some of the organisations have cast the net wide and gone to overseas directors.”

Simon Arcus, CEO of the Institute of Directors, says candidates for this role in the board include CEOs who have led digital transformation programmes, or CIOs who have demonstrated strategic business skills.

For business technology leaders who see this as the next step in their career, they need to broaden their base outside of technology, says Arcus.

“Get some education and tap into the world of governance out there,” he says, referring to governance training courses for directors and aspiring directors.

“The boards want someone who can ask the hard questions about technology but can contribute more widely to the discussion,” he says.

“You are a high ranking executive, on top of your game. But you are now moving into a new different arena, new networks, and new data sources,” says Arcus. “You need to retool your thinking.”

“You go from being a doer to a person who asks the really good questions, and finds the best advantages out of whatever the executive team is bringing to you to make calls on,” says Arcus. “That is a big change when you become a director.”

Recognise that it is like applying for any other job, advises Diver. “Treat it seriously, understand what it is that you might bring to a board that sets you apart from any director candidate and think about the organisations where you might add best value.”

These are industry groups or specific organisations where technology delivers strategic value as opposed to being an enabler, says Diver. “Their boards will be looking for specific technology skills to add colour and vibrancy to the governance framework.”

Tough questions ahead

The 2016 IoD report, meanwhile, shows directors’ fees have risen moderately this year, with pay disparities between male and female directors closing.

Arcus says the median increase in non-executive directors’ fees increased by 3 per cent (4 per cent in 2015), with the gap between male and female non-executive directors being 10 per cent, a drop from 21 per cent in 2015.

According to the IoD-NZIER Director Sentiment survey, of current serving directors, 64 per cent agree diversity is a key consideration in making new appointments. Female non-executive directors comprise 29.7 per cent of the total sample, up from 26.9 per cent in 2015.

“There are good economic arguments for getting the right skill mix, and gender, onto boards. Research shows even one woman on a board can enhance its performance. It’s time to see the diversity statistics improve,” Arcus says.

Arcus says increasing remuneration for female directors is one of the most exciting takeouts from the report.

Yet, he says, this is not enough.

“How do we increase diversity on the NZ boards?”

“How do we change from a relatively homogenous group both culturally and by professional l background, to a much broader group that can tackle things like disruption, changing business models, cybersecurity? These are things the boards need to focus on.”

Diver, meanwhile, points to another facet of diversity in boards. She says only 2 per cent of non-executive directors are Maori, .5 per cent are Asian, and 2.8 per cent are from other ethnicities.

“When you think about those figures, with 90 per cent of people on the board are of European descent, there has to be conscious effort to understand the skills gap, and see to it they need the skills to make the board a better performing unit,” says Diver.

“There is strong research around the world that companies with diversity increase the chances to outperform competitors, they have better return on equity, better return on invested capital. All the markers are there,” she says.

Survey data showed 58 per cent were satisfied with their current level of remuneration, Arcus says, compared with 50.6 per cent in 2015.

By sector, information, media and telecommunications had the largest movement in directors’ fees, at 9 per cent, while executive salaries increased by 4.3 per cent. In contrast, the director fees in the retail sector were almost static, with 0.1 per cent increase, whereas executive salaries increased by 3.4 per cent.

“The right balance between risk and reward is critical to attracting skilled, competent and diverse talent to your board table,” says Arcus.

“What New Zealand needs is highly skilled, fairly remunerated directors. It’s not enough to say there are plenty of directors lining up out there: New Zealand needs a focus on quality not quantity.”

'We need to rethink how we are developing digital directors'

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