Dive Brief:
- Corporate boards need to tighten their oversight of C-suite leaders when it comes to the adoption and use of emerging technologies like artificial intelligence amid rising stakes, according to a report published by the National Association of Corporate Directors.
- The report, unveiled Monday, urges boards to take steps such as frequently evaluating whether C-suite executives are “fit” for the technology-related goals the organization is pursuing.
- “Where appropriate, the board should set and review technology-related performance targets for the CEO and other key technology-focused members of the C-suite that relate to the long-term compensation plan,” the report said. A key challenge is that innovations are outpacing board member experience, leaving some directors scrambling to fully grasp the technology-driven operating models that are creating value today, it said.
Dive Insight:
The report comes as boards and C-suite leaders, including CFOs, face mounting pressures related to the rapid ascent of generative AI.
The technology could lift global Gross Domestic Product by $1.7 trillion to $3.4 trillion over the next decade, according to an estimate by Ernst & Young.
“The risk is that the benefits from GenAI — including higher productivity levels and stronger profitability — could accrue to a handful of ‘superstar’ businesses that have the resources to successfully deploy GenAI solutions and applications, and develop these capabilities via access to the vital building blocks of GenAI,” EY said in an April report.
Sixty-five percent of finance chiefs say their organization is under pressure to accelerate return-on-investment across their technology portfolio, according to IBM survey findings released last month.
The current tech landscape “now demands that businesses reinvent themselves to remain competitive,” according to the NACD report. At the same time, companies now have a much greater obligation to ensure they are using technology in a responsible way, it said.
“The stakes are high for boards and leadership teams already fatigued by the burden of economic, political, and societal shocks received in recent years,” the report said. “Although many of our boardrooms have become more risk averse because of almost chronic macro-level uncertainty, the biggest technology risk now is not taking one.”
The NACD report reflects the insights of a 24-member commission consisting of governance leaders, investors, and subject-matter experts representing more than 70 boards, according to a press release.
“The rapid pace of change and rising trust concerns are complicating board governance around transformative technologies,” Nora Denzel, co-chair of the NACD Blue Ribbon Commission on Board Oversight of Technology, said in the release. “Boards must strengthen oversight, deepen insight and develop foresight along with adopting a strategy-centered approach that balances risk and opportunity.”
The commission advised boards to expect transparency from management in areas such as opportunities and risks associated with adoption, use, and retirement of technologies; investments made on technology adoption and returns measured in an appropriate format for the stage of the project; how technology and data are being used within the company to drive value and links to the organization’s key performance indicator; and understanding which individuals are ultimately responsible for technologies and data.
Depending on the organization’s technology oversight structure, such information might be reported into one or more appropriate board committees and reviewed by the full board against the firm’s progress in executing its strategy, according to the NACD report.
“If the board is hearing reporting on technology matters only from the CIO, CTO, or other technology executives, this may be an indicator that the CEO and other members of the C-suite are not fully embracing technology as a strategic, enterprise-wide matter,” the report said.
