Do Bank Directors Know Enough About Technology?

When it comes to IT, you could say that corporate board members have their heads on the clouds. But that might imply that they know what clouds are; many don't.

"Board members have a degree of discomfort around overseeing IT, there's a confidence gap," says Don Keller, a partner in PricewaterhouseCoopers's Center for Board Governance.

PwC's new Corporate Directors Survey is out, and it reveals that corporate board members are more concerned about IT than in the past — nearly two-thirds of board members want to spend more time on IT in the coming year. In the 2011 survey, 36% said they wanted to spend more time on IT. The survey from the unit of PricewaterhouseCoopers included input from 860 company directors in banking, energy, consumer products, industrial companies, pharmaceuticals and other industries. About 70 percent of the directors serve on boards of companies with more than $1 billion in annual revenue.

While there are a lot of reasons why corporate board members would want to pay more attention to IT, one is to get a sense of what the new tech actually is and how it works. Social media and mobile are taking hold at companies, as well as new ways to deliver and engage technology that all come with their own vocabulary, such as cloud computing, bring-your-own-device, and open source development.

The traditional makeup of most corporate boards is not easily versed in either the new tech or the terminology that comes with it — a worrisome combination given the billions of dollars spent on IT each year. "Most directors are between the age of 60 and 65 and have spent a majority of their professional lives in the pre-digital era," Keller says, noting that one trend is to try to get corporate CIOs to explain technology in more "plain English" terms.

There's also the lack of professional background — Keller says less than one percent of Fortune 500 directors are chief information officers. "With all of the jargon used to describe IT, the boards are spending more hours on IT," he says.

One piece of good news is the lack of knowledge is not accompanied by an ignorance of the role tech plays in a company's success. The survey found that 56% of directors believe that IT is "very important" or "critical" to their companies, while only 7% think of IT as "primarily infrastructure." Also, 47% spend between 6% and 20% of their annual board hours on IT, while 45% spend less than 5% of their time on technology. The recruitment picture is less clear; less than 33% of directors believe it is "very important" to seek new directors with IT experience, and about one-third aren't seeking this skill set at all.

Keller says learning about cyber security risk and prevention is a large part of the increased focus of directors on IT, but there's also a broader interest in how IT fits into risk management and overall business strategy. He also says financial services boards are also more engaged than other industries. "[Financial institutions] in particular stood out…they have lots of customer data, and store a lot of intellectual property, so there's an attention on IT here," Keller says.

Nearly three-quarters of financial institution board members find IT to be important to their company's success, which was the highest rate of any industry. Financial institution board members also use consultants more as part of IT strategy — 31% of boards use consultants on a project basis, as opposed to 22% across all industries. And 4% of financial company boards use consultants on an ongoing basis, as opposed to 3% used by all other companies. Also, 18% of financial boards are "very engaged" in the IT budget, while 11% of non-financial companies are engaged in spending at that high level. For data security, 48% of bank boards are "very engaged," compared to 22% for other categories. And 42% of financial institution board members are at least moderately monitoring social media for signs of adverse publicity, as opposed to 28% for other industries.

Wayne Busch, a managing director for Accenture's North American Banking practice, says there is an increased desire for senior bank executives and operating committee members to get more educated on technology trends. "This is not surprising given the importance of technology for bank innovation, global expansion and access to the next generation of customers," Busch says.

Busch also says that there is some IT education at the board level, and "we have seen boards more involved when significant investment decisions have to be made or approved. This is particularly true with large programs such as core banking transformation. As technology continues to reshape the definition of banking for many customers, we think it's important for increased education across both the executive team and board at banks."

Anecdotally, Keller says he's noticed the overall focus on IT among corporate boards is  increasing. "I was in Chicago last week when we were rolling out the report. It was the first time in my three years in corporate governance that a group of directors were gathered for more than an hour on IT issues. There were about 80 people there who were discussing social media, big data, mobile security as well as approaches to monitoring IT. Directors are getting more interested in it," he says.