Do You Need a Technologist on Your Board?

An August 2016 Financial Brand article, titled Why You Should Worry About The Tech Vacuum In Your Board Room, reported on an Accenture study which found:

"Less than 6% of boardroom members at the world’s largest banks have professional technology experience. In addition, of the more than 100 of the largest banks surveyed across the globe, 43% of boards had no board member with professional technology experience, while 13% had more than two."

One Accenture consultant said:

“Many of the biggest challenges now confronting banking are intimately connected with technology, so directors need a robust understanding of technology if they are to make informed decisions.”

We're not so sure. That's kind of like saying you need a robust understanding of automotive technology in order to be a good driver.

In any case, a recent academic study suggests that you might not someone with technology industry experience. The study focused on firms’ innovative performance, measured by patent-based metrics and research and development expenditures, and employed multiple approaches—including a lead–lag model, a change model, and a two-stage least-squares model—to test the authors' research hypothesis. The authors concluded (with our emphasis):

"Board directors with educational backgrounds in science, technology, engineering, and mathematics (STEM) play a key role in corporate technological progress.  We find that STEM board directors have significant beneficial effects on corporate innovation activities."

We suspect that many bank and credit union CEOs (and boards) confuse technology industry experience with a technology education, background, and experience. The findings of the academic study suggest that board members' educational background--not their industry experience--is the driver of innovative activity in the organizations on whose boards they sit.

There's a dynamic that occurs in a number of FIs that give us cause for concern: Other board members defer on technology decisions and opinions to the tech industry board member. We can't help but wonder if that deference comes willingly or unwillingly.

With the rate of technological change taking place, does someone who comes from that dot-com startup in 2001 really know about blockchain and AI technologies?

We saw an announcement recently of an FI who put a former tech industry executive on its board. That person's position in the fintech firm where s/he worked was VP of Human Resources. Does that really count as "technology" experience?

Bottom line: Don't be bullied by these calls for putting more tech industry people on your board. Your board needs a balance of skills and personality types.

Ron Shevlin
Director of Research
Cornerstone Advisors