The Questions Directors Should Ask to Adeptly Oversee Innovation

Thriving in this business environment demands that businesses take evolutionary and revolutionary approaches to the products and services they offer consumers. But given the constant churn of new technologies, figuring out how to stay on the cutting edge is daunting, to say the least.

According to data from the 2018–2019 NACD Public Company Governance Survey, nearly 70 percent of directors report that their boards need to strengthen the monitoring of strategy execution and their understanding of innovation and the associated risks and opportunities. To explore the board’s role in overseeing innovation, NACD recently hosted a roundtable discussion led by Nichole Jordan, national managing partner, markets, clients, and industry at Grant Thornton, and Ron Markham, executive innovation and risk leader of cloud computing company ServiceNow.

Jordan framed the conversation by recommending the following key questions that boards should ask:

• Are you leveraging technology to sense risk?
• Do you seek outside perspectives?
• Is my board digitally savvy?
• Do I understand the organization’s transformation strategy?
• Is the board receiving updates on relevant regulatory risks?

Are you leveraging technology to sense risk? A best practice that Jordan is seeing as she interacts with boards is the use of risk-sensing technologies—state-of-the-art solutions that scan millions of data points in real time to surface the risks that are most relevant to the organization. “That information may be changes related to your key customers, or your competitors, like new patents being issued to your competitors,” Jordan said. “Risk sensing  will separate the signal from the noise and provide that to you in a dashboard every morning so that you’re focused on the most important developments. ”

Do you seek outside perspectives? Although technology can be used to conveniently filter and funnel information into the boardroom, participants agreed that directors need to go outside of their peers to further augment their knowledge of what is happening in the marketplace. Jordan emphasized how important that can be. She suggested attending events such as CES or other conferences that afford directors direct exposure to new technologies and the opportunity to ask questions of the people responsible for bringing those new technologies to market.

One roundtable attendee who went to a presentation given by Google on cloud technology remarked on how helpful that experience was because it inspired questions she would not have otherwise thought to ask. She mentioned that the presentation provided her with information that allowed her to constructively challenge the ways in which management was proposing to integrate cloud technology into the business. Other solutions include consulting with research firms or industry groups—Gartner or the Information Technology Industry Council, for example—to bring in additional insights.

Is my board digitally savvy? Jordan stressed that it’s imperative for boards to have digitally savvy members—especially if the company is in an industry where business models are notorious for changing rapidly, such as telecommunications. Citing research from the Massachusetts Institute of Technology, Jordan said that companies with technologically adept directors—people who served in roles such as chief information officers (CIOs), chief technology officers, or chief operations officer—were more profitable and enjoyed higher rates of growth. MIT also found that these directors approach strategy differently. “They draw on their experience to focus the company’s strategy on trends and transformation and the risks of not doing something,” Jordan said. “They raise questions to help drive strategy in new directions.”

However, adding expertise comes at a cost—and not all boards are financially able to either add a board seat or attract top talent. “Rather than having a CIO on the board, you can have an advisory board that is compensated nominally or not at all—they’re just happy to be affiliated and providing advice to a board,” one attendee remarked. “I thought that was an elegant solution, increasing the level of savvy on the board without getting an extra body or spending a lot of money.”

“I don’t know that it’s necessarily true that you need a tech person,” another director opined, “but what you do need is somebody that can be what I would call a technology translator, that can take whatever the technology is and apply it to the business to say, ‘Okay, as a result of this technology, what would be the right business applications that would provide the biggest opportunity for the company, and what risks does having that technology if you will create?’”

Boards can also leverage the CIOs functioning within their own organizations. “My corollary to having more digitally savvy boards is there needs to be more digitally savvy CIOs,” Markham remarked, recalling an experience of his own where he stepped into a CIO role and had to quickly fix material IT-related problems that were discovered via an external audit. “Not only did I have to be board-savvy, my entire management team had to be board-savvy. They became board-savvy. They understood risk, they understood internal controls, they understood their responsibility with those controls, that they’re very tangible, they’re critical, and they became part of our transformation story.”

For additional highlights from this roundtable conversation, check back on NACD BoardTalk on May 28.