May 5, 2015
By Michael W. Peregrine, McDermott Will & Emery LLP
A series of factors is prompting corporate boards across industry sectors to consider the establishment of a standing committee with responsibility for technology oversight.
Much of the interest in such a committee is grounded in the dramatically increased importance of technology to corporate affairs. In addition, formation of a full-fledged technology committee represents a logical next step from board oversight of cybersecurity matters. Creation of a “specialty” committee is also consistent with emerging board practices advocating for committees with more operationally relevant charters. It may also help drive the nominating process towards candidates with specialized expertise.
Many boards are struggling with the proper level of engagement on technology oversight. Part of this can be attributed to an insufficient board understanding of technology, e.g., a limited number of directors who possess technology backgrounds, or a preponderance of directors whose experience is grounded in a pre-digital environment. Part of this can be attributed to the many compelling issues that compete for inclusion in the board agenda; technology issues often do not receive fair attention. Part of this can be attributed to an inadequate flow of information to the board on technology matters.
But there is a clear appetite for greater board technology focus, these issues notwithstanding. This reflects greater awareness of the increasingly crucial relationship between technology, and strategy and competitiveness. Indeed, many attentive corporate leaders are actively encouraging greater board level discussion of technology trends and developments, and their related organizational implications. They’re seeking to close the “gap” that observers suggest exists between the technology discussions the board should be having, and those that they are actually having. Delegating technology issues to a standing board committee can help facilitate achievement of those goals.
Some boards have chosen to add “technology matters” to the responsibilities of the audit committee, but with mixed success. On the one hand, cybersecurity concerns may be a good “fit”, given the risk focus of the audit committee. On the other hand, that committee’s fundamental focus may prove too limiting as to the broader universe of technology issues. Audit committees are not traditionally oriented towards matters of innovation, competitiveness and strategy--all of which are essential to effective technology oversight. Its composition typically includes members with financial, accounting and legal--not technology--expertise. Further, there is the question of charter distraction, i.e., the audit committee as the “kitchen junk drawer” of corporate governance.
Enter, the separate Technology Committee. The establishment of a such a standing committee--acting with carefully delegated powers and populated with appropriately competent members--can help ensure that the full universe of relevant technology issues are addressed on a more frequent and focused basis. While a separate committee would not relieve the full board of its core oversight responsibilities, the structured approach of such a committee and the expertise reflected in its membership should allow the full board to more reasonably rely on this committee’s recommendations and decisions.
Inasmuch as a Technology Committee does not yet constitute “best practice”, it’s hard to point to a “one size fits all” committee charter. Clearly, that will be driven by organizational and industry-specific facts and circumstances. Yet, certain core themes are fairly consistent: evaluating the competitive and strategic implications of technology; monitoring the acquisition and implementation of technology systems; assuring attentiveness to technology trends and to the organizational technology portfolio; reviewing technology expenditures and comparing them against peer organizations; working with external technology consultants engaged by management; and supporting the “technology training” of other board members.
The Technology Committee is typically the direct (but not sole) governance interface for the chief information officer (and possibly the chief information security officer). Important horizontal collaboration and information-sharing between board committees that have technology implications can be supported by a limited degree of overlap between committee members, and by coordinated, active management staff support of these related committees.
Corporate governance must more clearly assert itself as technology becomes increasingly critical to organizational sustainability. The board’s agenda and commitment of resources with respect to technology must keep pace with changes in the relevant technology and in its relationship to strategy and competitiveness. A separate, standing “Technology Committee” is certainly not the only option for the board in this regard, but depending upon the industry--and the applicable competitive circumstances--it may prove a very effective one.
About the Author
Michael W. Peregrine, a partner in McDermott Will & Emery, advises corporations, officers and directors on matters relating to corporate governance, fiduciary duties and officer/director liability issues. His views do not necessarily reflect the views of McDermott Will & Emery or its clients. Mr. Peregrine wishes to thank his partner, Jennifer Mikulina, for her assistance in the preparation of this article.