No group has more influence on how an organization ultimately will operate and prosper than its board of directors. Be it a non-profit or corporate entity, the make-up of the group – who chairs the meetings and who casts a vote – is pivotal to success, and nobody knows that better than Dottie Schindlinger, executive director of the Diligent Institute.
The think tank and research arm of Diligent Corp., a Software-as-a-Service (SaaS) developer of governance, risk and compliance (GRC) offerings, also covers topics related to board governance and organizes education programs that range from risk and succession planning to cyber risk and Environmental, Social and Governance (ESG) issues.
In a recent interview with IT World Canada, Schindlinger discussed the importance of diversity on boards, be they for a private sector or a non-profit organization, as well as why having “digitally savvy” board members is paramount.
The need for the latter was evident in a Diligent Institute study released earlier this year that revealed the expanding involvement of boards into areas such as cyber risk, ESG and digital transformation underscores the need for the right data and insights to better oversee risk.
Its authors note that corporate directors also expect the makeup of boards to change in order to better respond to these risks: 23 per cent of directors said traditional board structures no longer align with today’s increasing areas of risks and opportunities, and 25 per cent said their next board member hire would need to fill a skills gap at the table.
“The list of issues shareholders associate with being material to a company’s success and longevity has grown, and as a result, so have the expectations and responsibilities of the board of directors,” said Lisa Edwards, the institute’s executive chair said at the time.
“While directors generally feel confident in their ability to rise to the challenge, we’re hearing that they need help effectively overseeing new and evolving areas of risk — particularly around issues like cyber risk and digital transformation.”
Schindlinger, who in June spoke at Reconnect 2023, a conference organized by the Community Foundations of Canada, said that “traditional board structures are no longer conducive to today’s expanding areas of risk and opportunity. Pertinent issues that still affect boards, such as talent strategy and diversity gaps also still widely exist.
“The solution is that board members need to embrace a modern form of governance that equips diverse leaders with the tools, knowledge, and procedures necessary to produce positive results for stakeholders.”
There are sound business reasons for creating a board that is in tune with the many technological challenges that exist, she noted, citing a 2019 study from the Massachusetts Institute of Technology (MIT) that examined organizations that had board members who had served in roles such as head of IT, chief information officer (CIO) or chief information security officer (CISO).
“When a board had one of those directors, it really made no difference and if they had two, there was a little bit of difference,” she said of the study findings. “Once they had three, it was night and day. As a group, those companies with three digitally savvy directors outperformed everyone else by 30 per cent, on every measure they could find.”
According to the MIT researchers, “boards of directors have many issues competing for their attention, but being digitally conversant in an era of digital transformation is quickly rising to the top of the list. Nearly all companies are looking for ways that technology can be used to improve their business models, customer experience, operational efficiency, and more – and boards must help them move forward at a sufficient pace, advocating for change by supporting and sometimes nudging their CEOs. Those that do are likely to see better financial results than those that do not.”
Schindlinger contended that she does not see “why you need to be at a certain age to get on a board, adding that “granted, you want directors to come on the board with a certain makeup of skills and perspectives and connections and so on.
“It’s interesting, Diligent Institute has a program called Next-Generation Board Leaders, a program for current seated public company directors who are in their 30s and 40s. And there’s more of them than you would think. It’s certainly not the vast majority, but there are more of them. And there are becoming more of them as we go along.
“It’s not a surprise. Some of these are individuals who are constantly technology professionals, or they come from a newer form of business model. And they were specifically hired by boards, because they bring that other perspective – that perspective that the company feels they lack.”
Within the non-profit space, that trend is happening far less, she said, due to the fact many nonprofit organizations “still have this ethos of you have to be a big donor to be a board member. And quite frankly, unless someone has been a Bitcoin billionaire, it’s not all that likely that a mid career professional in their 30s, and 40s is going to be able to cut a big five or six figure cheque. It’s not that normal.
“It tends to be people who are kind of nearing retirement age who have feel they have the means to be a giving member of the board. That is a tradition that really needs to be examined closely. Because that is a really big barrier to board diversity if you are going to reflect your stakeholders. What does it say that you’re only allowing wealthy people to join your board? That is a concern.”