By Sean Epstein
March 22, 2012
For corporations and their boards of directors, these are turbulent times. Board members of global corporations, particularly those in countries of major economic powers, find themselves under enormous scrutiny and, sometimes, outright attack. Pulled by responsibilities to shareholders, chief executive officers and management, and inundated with information compiled in briefing books that literally weigh pounds, corporate board members face a real risk: Too little oversight invites shareholder lawsuits and government regulation; too much hurts innovation, risk and reward. As companies move faster and faster to compete, the antiquated activities of a typical board put their members at risk for losing relevancy in a modern world.
This doesn’t have to happen. Fundamentally, boards must rethink two things: how they conduct business and how they consume - and act upon - information.
Too Little Time for Strategy
The prime role of the board is to help create long-term value for its shareholders. Yet most boards meet only a few times a year. And more meeting time is generally spent pouring over information than setting the strategy a company needs to win in the global market.
In fact, two surveys by McKinsey, one in 2008, the other in 2011, indicate that boards spend roughly the same time on strategy after the financial crisis as before. The studies also found a correlation between board performance and the view from members of under-performing boards that they should be spending more time on strategy. Most striking, lack of knowledge was singled out as a key impediment to boards if they wanted to challenge management on vital strategic issues.
Over the past two years, we at SAP and several of our partner companies conducted extensive interviews with directors of prominent boards. We found that the most effective boards have members with a depth of business experience; with the authority to challenge or counterbalance the CEO; and having access to timely and accurate information. This last is perhaps the most crucial.
Effective boards - those with the right mix of skills and backgrounds among their members - can only improve their performance using information that is timelier, of higher quality and consumable in a fashion to help members make decisions that are correct, responsible and effective. In effect, this enterprise level of relevant information perfectly fits the board mandate: “Oversight, not Overstep.”
The Roles of Information Technology and Experience
Three trends in information technology will reshape the board of the future:
Different types of digital content are available from more disparate sources and in greater volume than ever before.
Information is increasingly interconnected.
Information and action impact each other in much shorter intervals than in the past.
Many of the directors SAP interviewed believe - rightly - that their vast experience in business and other areas is their greatest asset. They also felt this experience was underutilized. They knew their experience could identify patterns and distill insights to benefit the company’s performance, yet realized these needed somehow to be validated by analytic evidence.
Thankfully, several technologies that are converging at warp speed will help recast the character of the future board. They are, in a word, transformative.
Advances in mobile technology that put information on the hip;
The use of cloud computing that delivers information in real-time from the web;
In-memory computing that allows users to drill through billions of database records in seconds rather than weeks.
The trend is already taking place, as directors and boards rush to adopt the iPad as a tool for their board information packages. Since the introduction of the iPad, we’ve witnessed an explosion of portals dedicated to boards and directors. The experience of the iPad, which supports easy access to multiple sources of information - anywhere, anytime - along with the growth of services deemed “iPad ready,” provides a single point for the director to aggregate information.
Using cloud computing, directors will be able to connect critical information items, add to them over time, and share them with other directors and management. Cloud-based information services will emerge that offer private, secure information vaults for “big data” that can supplement information provided to the board members by management. Directors will be able to use this information to build new insights and provide solid evidence for the decisions they make.
Finally, directors must embrace the rise of in-memory computing, which helps users analyze data as much as 10,000 times faster than what was possible only a few years ago. These in-memory databases ultimately will power the cloud; already they outpace the processing time and complexities of human thought. Analytic software solutions will give directors with little or no technical expertise the ability to create visualizations and simulations in real time. Using their tablets and other mobile devices, directors will consume and share information easily, instantly and without distraction. Additionally, directors will have access to outside experts who can fill in gaps or provide alternative views to help shape an effective decision.
At SAP we have been prototyping this board information experience of the future using our own innovations as well as integrating the innovation of others. The vast importance of boards today, as well as the stake they hold for our global future, demand such collaboration. At some point in the very near future, the mix of the right persons with the right skills, using cutting-edge technologies to make the right decisions, will ensure that directors of the future are universally revered, not sometimes reviled.
Sean Epstein is global managing director, SAP Global Private Equity. He can be reached at [email protected].