Companies with Tech Expertise on the Board See Higher Revenue Growth, MIT Study Finds

Date: March 15, 2019
Source: Wall Street Journal
Companies with experienced technologists on their board outperform others in areas such as revenue growth, return on assets and market capitalization growth, according to a study released this week by Massachusetts Institute of Technology’s Center for Information Systems Research.
 
“Directors on digitally savvy boards have an understanding, tested by experience, of how digital technologies impact the way that companies will succeed in the next decade,” said Stephanie Woerner, research scientist at MIT Sloan’s CISR. “That’s reflected…in financial outcomes.”
 
The analysis showed that out of 1,233 publicly traded companies with revenues over $1 billion, about 24 percent had board members that were classified as technology experts. These board members included those with experience as a chief information officer or chief technology officer and expertise in software, digital platforms, big data and innovation, among other skills.
 
Revenue growth over three years for boards with three or more such directors was 17.6 percent compared with 12.8 percent for boards without technology experts. Market capital growth over three years was 31.3 percent compared with 23.3 percent. Boards with three or more tech experts also had a 34 percent higher return on assets, according to the study.
 
The study suggests that CIOs and CTOs have a lot to offer to a board, according to Woerner. If a company needs to increase its tech savviness, it could benefit from bringing enterprise technology executives in to advise the board and include them on strategy retreats, she said.
 
“CTOs and CIOs are going to be people that become really important or attractive to boards,” she said, adding that they should have even more interactions with the board than they’re having now.
 
Companies are electing enterprise technology executives to serve on boards at a growing clip, WSJ CIO Journal has previously reported.
 
Businesses outside the tech sector in recent years have begun naming CIOs and other IT executives to corporate boards, in a bid to raise tech awareness at the highest level of strategic decision making.
 
David Finke, a founder of Russell Reynolds Associate’s digital transformation practice, said the global executive-search firm is actively involved in board director searches across “virtually every industry sector” and that fluency in emerging and disruptive technology is deemed an essential capability.
 
“To the extent the board is responsible to review, advise on and ultimately approve a company’s strategy, technology is an ever-more critical dimension to be considered,” he said. He added that tech-savvy directors can provide the same mentorship and thought partnership to the CIO as the audit committee chair does for the chief financial officer.
 
“A strong CIO can gain tremendous benefit by having technology-savvy directors on the board, because those directors appreciate and can lend insight on the challenges and opportunities presented by technology disruption and innovation,” Finke said.
 
David Chou, a principal analyst at Constellation Research and a former CIO at a number of firms in the health-care sector, said it is far easier for enterprise IT executives to secure funding for digital initiatives from directors who understand the importance of digital technology.
 
“It is crucial,” Chou said. “Every company these days has to operate as a tech company, so you have to have someone who understands that on the board,” he added.
 
While many of these new directors tend to be CIOs, they can also include chief executive officers of established tech firms and startups, according to Martha Heller, CEO of tech recruiting firm Heller Search Associates.
 
“Boards see that CIOs, who have both technical depth and the transformational leadership experience, are critical new members of their board committees,” Heller said.
 
She describes the trend as good news for CIOs: “First they now have a key board member who can help them to educate the rest of the board on technology, and second, they have more opportunities to become board members themselves,” she said.
 
Paul Proctor, vice president and distinguished analyst at research firm Gartner Inc., said the trend reflects two separate developments in enterprise IT.
 
Corporate boardrooms are definitely becoming smarter about digital technology, Proctor said. “But we’re also seeing a rise in business savviness among CIOs,” he added, “and those two trends are meeting and leading to better results and outcomes.”
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