Technology is Eating Corporate Governance
Today, any company that wishes to be great must also be a great technology company. In the words of Bill Gates, "Information technology and business are becoming inextricably interwoven. I don’t think anybody can talk meaningfully about one without talking about the other."
This is why technology governance and oversight must also become a higher priority–because technology is not only critical for business execution but also the primary lever for growth and innovation.
Yet the vast majority of CEOs and Boards of Directors underinvest in technology governance and oversight. This has become crystal clear to me over my decades as a senior operating executive at “Big Tech” companies, including Microsoft, Apple, and Amazon, my stints as a CEO and board member of startups and early-stage companies, and having served on a number of public and private boards.
I've personally witnessed the consequences of this inattention:
material disruptions to operations that impact customers,
delayed and poorly executed technology initiatives
lack of proper technical due diligence on acquisitions and joint ventures,
inadequate cybersecurity provisions,
overspending on tech and tech teams,
These are just some of the many permutations of problems stemming from an insufficient understanding of how to oversee and manage technology in business.
High-profile financial frauds like Enron shook investor confidence in the trustworthiness of corporate financial statements and led to a strengthening of financial governance. In many ways, companies face similar issues with regard to technology. CEOs and Boards must improve their technology oversight capabilities or risk falling behind — or, worse, failing to fulfill their fiduciary responsibilities
The Real Costs of Poor Technology Governance
Technological disruption is one of the top issues facing companies today, and it is an increasing threat. AI is upending multiple publicly traded companies, such as textbook firm Chegg and medical publishing company WebMD. Both are being replaced by AI-powered substitutes and technology disruption from the AI Revolution.
Although the responsibility of management, this also constitutes a failure of technology governance. The board’s job is to ensure that management is looking around corners, identifying significant threats, and developing strategies to be survivors and winners. If a board doesn’t understand the technology landscape they are operating in, then they cannot effectively gauge and monitor managements’ plans and ability to guide the company through disruptions and turbulence.
Equally concerning are operational disruption and customer damage from technology failures:
Southwest Airlines faced nine-figure earnings impacts when crew scheduling systems collapsed (so bad it even got its own Wikipedia page)
Applied Materials lost hundreds of millions in sales after a supplier's ransomware attack
These technology failures directly impact revenue, market value, brand perception, customer experience, and employee satisfaction. And on, and on and on.. Failure to put in place a more systematic approach to identify and manage technology challenges via experienced technology governance simply invites a recurring cycle of these problems. This is, unfortunately, a common failure mode, particularly for companies that do not sell technology goods or services as their primary revenue stream.
The Historical Undervaluation of Technology Governance
There are four Classes of Operating Assets for most companies: Financial, Physical, Human, and Technology. Most CEOs and Boards of Directors focus their energy and attention on three of these operating asset classes because they are familiar and comfortable with them. Great attention and detail are invested in the proper management, governance, and oversight of financial, physical, and people assets. Audit committees include “subject matter experts” in finance who work with CFOs and rely on outside auditors; Comp Committees work with Heads of HR and rely on outside compensation experts to assist them.
Unlike financial, physical, and human assets, technology — and the executives responsible for technology — receive inadequate focus from CEOs and boards. Few public companies have tech “subject matter experts” on the board, and even fewer have dedicated Technology Committees at the board level to oversee the firm’s technology investments, initiatives, and leadership. CTO, CIOs, and CISOs may be asked to present at board meetings, but their efforts receive far less time, depth, and intensity as the attention paid to sales, marketing, production, and finance leadership presentations.
Only a small percentage of board members have technology subject matter expertise — the equivalent of a CIO, CPO, CTO, or a founder who has built a technology company. While every board member must understand financial statements, how many can claim technological literacy? How many boards know the true situation at their company regarding mission-critical technology and tech teams? This gap exists because most board members and CEOs lack the expertise to understand their technology landscape or evaluate their technology leaders effectively. This makes them less comfortable with the topic, despite its importance. Technology literacy does require time and effort. It is both more dynamic and more opaque than financial literacy or marketing literacy, with its own language, history, and constantly changing landscape.
As a CEO or board member, you invariably have your company's financial statements and compensation independently reviewed and audited. But when was the last time you had your tech audited? Unlike in other areas, only a small number of forward-leaning boards retain third-party technology expertise to provide expert oversight and help them achieve greater technology literacy.
This is a grave error.
Moving Forward: Prioritizing Technology Governance
It is insufficient to rely on management as the sole source of information on technology, any more than a board would rely solely on management for the reliability of financial information. Without help from a trusted third party, it's unreasonable to expect most board members to look at a system architecture, technology strategy, development processes, leadership & teams, or engineering and product metrics and judge the health of a team, project, or product.
By obtaining second opinions and guidance on technology and innovation from external, independent subject matter experts, Boards can better execute fiduciary duties and engage collaboratively and effectively with CTOs, CIOs, and CISOs — in the same manner they engage with CFOs. With guidance, Boards and CEOs can gain a greater understanding of how technology initiatives succeed and fail, of what topics to prioritize, their tech leadership and organizations, and the driving forces of technological change.
This is the core thesis for Techquity. I founded the firm with a mission of providing trusted, high-quality technology advice and serving as a tech co-pilot for investors, boards, and CEOs to help them achieve technology success.
Anthony Bay is CEO and co-founder at Techquity. www.techquity.ai He has previously held senior roles at Amazon, Apple, and Microsoft as well as early-stage companies, served on multiple private and public boards, and launched the world’s first social network before the Internet even existed. He has led product groups, M&A, CEO, and board governance for everything from early-stage startups to large corporations.