Digital Governance

Corporate governance in a digital world

Vital that company boards actively engage with digital transformation

If digital transformation is strategically critical, it should be at the top of the agenda. Boards should have continuously updated business intelligence, follow the actions of the CEO and the executive management closely and take every opportunity for insight and influence. This is the advice of Helena Levander, chair and board member of a number of companies. She believes that boards in recent years have gone from exaggerated respect to a position where they seek to ask the right questions and dare to challenge the CEO on digital issues. 

The ongoing digital transformation has been called a paradigm shift, Industry 4.0 and the largest revolution since electricity. So what role does a company board play in this change?

“The board’s responsibility is fundamentally the same” says Helena Levander. “It still involves the appointment of the executive management, strategy and control.” Her view is that digitalization has gradually become a more natural part of a company’s development. “There is less drama. Digital development is no longer associated with buzzwords that invoke respect. Many board members have long wished to develop their competence, which is often based on their own insecurity. However, there has been a change in the last 3-5 years. Nowadays we see more of a demand for specific knowledge, and digital issues are a natural part of the daily business.”

Since 2003, Helena Levander has been a board member of a large number of corporations, in several cases as the chair. She is currently on the boards of Concordia Maritime, Medivir (chair), Rejlers, Ativo Finans (chair), Recipharm, Lannebo Fonder, Nordic Investor Services (chair) and Stendörren Fastigheter. She also works with board evaluation.

When digital transformation becomes strategic

She notes that the impact of digital technology varies from company to company, depending on the types of product and the sector. In some cases, technology is part of the core business, while in others it is mostly relevant for internal processes. “If digital transformation is crucial to the entire business, it should obviously be a priority area for the board.”

A common challenge for a board is the choice between taking the lead or waiting to see what others in the market do. “Cost is a factor in this,” says Levander. Taking the lead is expensive. It’s a difficult question and there is no standard answer.”

“Rapidly changing conditions mean there is now an increased need for more frequent strategic follow-up by boards. In many companies, this now takes place several times a year rather than once a year as happened previously.”

The CEO manages, the board monitors

As a board member, what expectations does she have on the CEO on these matters?

“The executive management must be able to answer questions on what the digital transformation strategy looks like. The CEO should also ensure that the organisation has the relevant competence necessary to make the company competitive,” says Helena Levander.

“The board should ask the CEO to describe the organisational effects of technological development and set objectives for organisational transformation,” she adds. “There might be entire categories of employees that need to adopt new ways of working or new roles. But at the same time, fewer people are uncomfortable with digital tools. They are becoming an increasingly natural part of the business. The discussion might be more about what kind of digital competence is needed at different levels within the company: who should know what on the board, on the executive management, and out in the organisation. And how should the digitalization be implemented? These are issues that should be explored by the board, based on business intelligence.”

The same applies to improvements in efficiency through digitalization. The board needs to be active and ask questions like “how shall we deal with this?” and “shouldn´t we be able to do this another way?”.

“Asking the CEO to report on digitalization projects would be a natural thing to do in order to know what is happening and whether progress is being made, even though these are not really board issues. One reason is that it gives the board greater knowledge. Additionally, if it is the CTO that presents this information to the board, they can assess whether the organisation has the competence it needs.

Commitment from the CEO leads to calm in the board room

Clear and genuine commitment to digitalization and corporate transformation from the CEO, paired with visible preparations throughout the organisation, creates confidence within the board.

“If someone at the company has IT as a part time task, then these issues are not a priority within the organisation, and it is then vital that the board shifts them into focus,” says Levander. “The board needs to be particularly interested in whether the CEO has the leadership skills to run an organisation with digital competence, since the tech specialists often lack knowledge outside their own narrow field of expertise.”

For quite some time, it has been common for larger corporations to have a Head of IT or a CTO, (Chief Technology Officer), who is responsible for IT investments. However, as digital transformation has come to have a greater impact on core business, a growing number of companies have chosen to employ a CDO (Chief Digital Officer). Sometimes, there is one of each.

“In the long term, digital business development will ideally be entirely integrated in the company. But if digitalization is business critical, there might be a need for a CDO. The board could very well ask the CEO directly, ‘Do we need a CDO?’. If the answer is ‘No, we have the organisational structure we need at the moment; we have a good CTO,’, well, then the issue has been up for discussion. It would not be reasonable for the board to question the CEO’s answer. They could perhaps follow up later, or if competitors change their strategy – ‘This is how they do it, have you considered that?’

Do boards ask to meet internal specialists, in addition to the conventional reporting hierarchy?

“Yes, a member of the board could certainly do that. It can, however, be uncomfortable for the CEO. If the CEO says ‘no, let our CTO present that’, I think that they must be given the opportunity first. It is not possible to instantly judge there and then if the CEO is right or whether he or she may be trying to hide something. It is a delicate situation. The board could damage an entire organisation by pushing too hard. Asking external specialists or business area managers to come to the board is easier and comes more naturally. At the same time, it is very important that the board receives the information.”

The board should challenge the CEO

In summary, the CEO´s commitment, competence and communication to the board are crucial factors.

“The board should challenge the CEO, even if this is perhaps not always the case. The members of the board do not need to know the technical details, but they do have to know what questions to ask in order to get a relevant overview of the situation. The owners´ representatives on the nomination committee should receive information about whether the board has sufficient ‘questioning competence’.”

The interplay between CEO and the board is important.

“A bad board might be characterised by a sense of ‘OK, I am sure that will be alright, go ahead’ when it comes to the CEO. The board member might think ‘I am underpaid anyway and I’m stepping down in two years’. In a better team, there will be more discussion.”

Even if the board members are extremely competent, Helena Levander feels that it is important that they are replaced occasionally.

“A board that has had the same members for ten years will not ask many new questions. There is a risk that they will continue doing what they have always done. It’s important to change board members now and then so that new questions are asked and new issues raised.”

The chair controls through the agenda

“As chair of a board, there is always the concern that you might overlook something important,” says Levander. When technology is business critical, the main fear is of entirely missing something disruptive, a crucial shift in technology or business logic. You have to keep asking yourself what the competitors are doing. Nobody is standing still. The chair needs to keep the pressure up by ensuring that digitalization is on the agenda, formulating goals and following up.”

However, the chair cannot be expected to drive digital transformation all alone. “If the question is raised at board level, the chair should prioritise it. The initiative might also come from the company owner,” adds Levander.

The chair can put the item on the agenda or may first discuss it with the CEO or other board members. The best way for a board member to get something on the agenda is to contact the chair. “That is what I usually do”, she continues. “That also goes for when I wish to discuss something from the latest meeting that I have an opinion on and would like to return to. Sometimes the response from the chair will be immediate, sometimes not.”

The chair also is responsible for business intelligence being a matter for the board, in dialogue with the CEO. “This must be done efficiently. Ideally, someone internal or external will conduct a scan and then present his or her view of the current situation. That can lead to very interesting discussions.” 

“The chair and the CEO should be in touch every week, which means that the chair usually has a broader view of the organisation than the other members of the board,” says Levander.

She stresses that the chair might make more frequent visits to the company, during some phases, perhaps an entire day every week. This also provides an opportunity to get a feel of the culture, which can be hard to change if it has become problematic.

As chair, it is also essential to make sure that the views of all the members of the board are heard. “If the chair has already declared her or his position and says ‘this is my opinion, what do you think?’ there will not be a fruitful discussion. That is a losing culture.”

Induction for new board members

The chair and the rest of the board can inform the nomination committee of what improvements they feel the board needs. (Nomination committees in Sweden consist of representatives of the largest shareholders- – authors remark). New board members should receive a thorough introduction to the company, and the chair can be a part of ensuring that this happens.

“Someone recruited from an operative role might need a little more time to adjust to board work,” says Levander. She welcomes newcomers asking questions at board meetings in order to understand more about the background to matters being discussed. Board members should have a high level of integrity and engage in vital business discussions, even if they are not specialists in that particular area.

She also has a positive attitude towards new board members informally meet other members, for instance over lunch, to lower the social threshold. “I have never urged anyone to do this, but if the question comes up, I encourage it. On a board with quite a few new members, it can be good to arrange social meetings for the entire board.” She has taken the initiative to meet more experienced board members herself when a newcomer. “Meeting socially to exchange thoughts and experience does not automatically mean that cliques will be formed or there will be improper ways of making decisions.”

On one occasion, she became concerned over the situation in a company after picking up signals at a board meeting. “That time, several of us on the board members reacted to the same thing, and we contacted each other for a separate discussion. The board does, after all, have a responsibility to act. In this case, the result was very positive.”

She emphasises that there should be a structure and culture to handle crisis situations in companies. Problems should reach the board before they reach the media. “When the spotlight comes, the board should be able to say ‘yes, we are aware of the situation and have taken action.”

Lack of time for board work

It is a constant dilemma that boards do not have enough time.

“Board work has become more and more time consuming over the years, and there has been an increase in the number of meetings. All discussions have to be related to the agenda and the time frames. The most urgent issues need to be dealt with first, even though it is possible to add more meetings,” she concludes. 

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