Digital Transformation

Fast-Track Board Diversity to Deliver Successful Digital Transformation

Experience over the last eighteen months has shown just how fast businesses can achieve digital transformation when the chips are down. Faced with a choice between digital-first business or no business at all, companies that were previously behind the curve managed to implement everything from remote working to entire digital storefronts in a matter of days. Dell’s Digital Transformation Index 2020 surveyed 4000 business leaders globally and found 80% had fast-tracked digital transformation. Research by McKinsey found this acceleration would have taken seven years under normal circumstances, with the time taken to establish employee remote working facilities coming in at just 11 days, compared to a year on average in the pre-pandemic era.

Of course, these were not normal circumstances. We are likely to see a significant adjustment period as some of the quick fixes implemented in the immediate response phase prove less effective over the long term. However, as boards review the current landscape, there can be no doubt that digital transformation — alongside a focus on the tandem issue of cybersecurity — must continue for the business to thrive in the digital-first environment.

Whether boards have the expertise on hand to deliver robust oversight of digital transformation strategy is another question and one that also raises the bigger issue of board diversity.

 

Board Diversity Delivers — but Progress Remains Slow

Despite a growing body of evidence proving the hypothesis that boards with diverse directors make better decisions and, consequently, deliver stronger long-term performance, the majority of boards remain concerningly homogeneous. And not just in terms of physical attributes like gender and ethnic background, but in the educational backgrounds, expertise, and relevant skillsets directors bring to the boardroom table.

Recent research on skillset diversity conducted by the Diligent Institute in the UK, US and Australia found that, while the number of traditional board candidates with CEO, CFO or COO backgrounds in these regions is falling, the decline is very slow. Of newly appointed board directors in the UK in 2020, 58.2% had CEO, CFO, or COO experience, while only 11.9% came from non-traditional backgrounds in areas such as HR, legal, marketing, sales, technology or ESG. When everyone on the board has the same background and a tendency to think the same way. As a result, opportunities and risks may be missed.

The study also found that, overall, newly appointed directors with C-Suite backgrounds are more than twice as likely to be male, while the gender split among new directors from non-traditional backgrounds is weighted towards females. This is particularly the case where it comes to ESG expertise, where 84% of new appointees are female, and HR, where 72% are women.

Looking specifically at director appointees with technology expertise, the first half of 2021 saw 15.5% of new directors coming from a tech background. While the trend is rising compared to previous years, it is still not commensurate with the level of cyber risk and market opportunity that digital transformation is already exerting on every business.

 

Why Does Board Diversity Boost Digital Transformation Performance?

Clearly, having direct digital technology experience on the board is an advantage when businesses are building out their digital transformation strategy, but it is a mistake to view digitisation as purely a technical exercise. In fact, its transformative nature touches every aspect of the business, from developing cybersecurity awareness among employees to better protect the expanded digital enterprise to the operational and human resources changes that are digitising core processes will entail.

And across digital transformation initiatives, there are ESG factors, from the effect of personnel redeployment and training on the workforce to the environmental impacts and efficiencies of adopting digital processes.

This means that directors qualified in change management, HR, and ESG can add valuable perspectives to support companies undertaking digital transformation exercises. Boards should aim to add these skillsets to their competencies. As the Diligent Institute study showed, there is intersectionality between skills in these areas; meaning boards often have an opportunity to improve gender diversity when recruiting.

 

‘Cognitive Diversity’ as a Strategy for Crisis and Change

There are positive signs that the leadership community recognises the necessity of including diverse perspectives at the board room table, particularly as a climate of crisis and rapid change forces the reassessment of corporate priorities.

The 2021 edition of Corporate Board Member’s respected What Directors Think survey found that skillset and background diversity were the most important attributes for selecting their next director, followed by racial diversity. Incidentally, new technology and digital innovation were listed as the most challenging issue for boards to oversee. The related issue of cybersecurity appeared third on the list, again underlining the high profile of digital transformation and the demand for experienced digital leaders.

Suppose boards make intelligent appointments and introduce a cross-section of skills and perspectives. In that case, the resulting cognitive diversity will make them better placed to identify emerging opportunities and risks, guiding their company to greater resilience.

 

Identifying Diverse Board Candidates

Clearly, the urgency of digital transformation and the role directors can play in driving success means boards should aim to fast-track the development of a diverse director pipeline. However, this won’t be possible if they continue to use the same recruitment methods and fish in the same CEO, CFO and COO-focused pools of the past.

Together with more than 20 diversity organisation partners, Diligent launched the Modern Leadership initiative. It is a network of director candidates from diverse backgrounds ready to step into board leadership roles. This initiative helps boards identify diverse director talent with the skillsets they need to foster successful digital transformation. Potential directors are invited to share their expertise. Organisations can publicise board opportunities, reaching a wider group of potential appointees to fast-track improving board diversity.

To execute successful digital transformation, businesses need the right expertise on their board, and they need it fast. By accelerating board diversification, organisations can bring on the skills and perspectives they need to ride the wave of transformation and position strongly for the digital-first future.

To read more on the link between board diversity and successful digital transformation, visit Boards Transformed.

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