Technology Committees
Everyone has heard that “software is eating the world” and “data is the new oil.” Furthermore, according to the 2017–2018 NACD Public Company Governance Survey, 96% of directors report that technological disruption presents a risk-oversight challenge for their boards.
So if software, analytics, and technology are important, then how should a board of directors manage its responsibility? All public companies have audit, nominating and governance, and compensation committees. However, technology committees are uncommon. In 2017, on average, only 5.2% of companies had a technology committee, including 10.2% of large-cap companies, 5.4% of mid-cap companies, 4.7% of small-cap companies, and 2.5% of micro-cap companies.
So what can we learn from the few companies that have created technology committees? This article is based on an analysis of 10 companies from a variety of industries. First, we characterized the companies and, based on their publicly available charters, found some common and uncommon themes that could serve either to improve existing technology committees or form the basis on which to create one.
The 10 Companies
· The ten companies ranged from $1.7 billion to $66 billion in revenue.
· The companies’ market caps ranged from $1 billion to $240 billion. Three trade on the Nasdaq and seven on the NYSE.
· The companies spanned six sectors: technology (four), consumer (two), energy (one), financial Services (one), industrial (one), and healthcare (one).
· Half of the committees are named Technology Committee, three out of 10 call themselves the Innovation & Technology Committee, one is the Technology & Value Creation Committee, and one the Science & Technology Committee.
· The number of committee members ranged from a low of three to a high of six, with 4.3 being the average number of members.
· Out of the 43 technology committee members, 37% had operational experience at high tech (HW, SW, communications) companies. If you focus on just software companies (e.g., eBay, Facebook, SAP, VMWare), then only 19% of the committee members had operational experience.
Broad Observations
The committee serves to give the board broader exposure to the company’s key technologist. While there are six official members of the committee, the entire board is invited to attend. Furthermore, the meeting is scheduled so it does not conflict with other committee meetings. As a result in practice, all of the board generally attends the meeting. The CEO and the CTO generally set the agenda for the meetings and largely focus it on coming technology trends. The technology committee does not vote on anything. Also, because the technology committee is not a required SEC committee, it can have insiders as members.
The committee’s role is similar to audit with financials or comp with HR. Technology is such an important part of the bank that having a board committee is important for reviewing strategy, people, challenges, and regulatory issues. The budget is approved as part of the overall corporate budget. There are some regulatory votes the committee must make, such as new data centers or other major technology changes reviewed by the Fed. The technology committee comprises only independent directors.
Charter
The charters for all of the companies’ technology committees are available online. The committees’ duties can be categorized into 12 areas:
1. Trends
2. Budget and Investment
3. M&A
4. Security
5. Review, Assess, and Evaluate
6. Recommend
7. R&D Performance
8. Human Capital/Workforce
9. Quality and Safety
10. Technology Competitiveness
11. IP Portfolio
12. Interface With Risk/Audit Committees
The remainder of this article takes each of these 12 areas and lists the specific charter language for each of the 10 companies. The hashtags show you the company.
Trends
Monitor and evaluate existing and future trends in technology that may affect the Corporation’s strategic plans, including monitoring of overall industry trends. #BNYMellon
The Committee shall review and discuss, including with appropriate members of the Company’s management team, existing trends in information technology and new technologies, applications, and systems that relate to or affect the Company, including its technology strategy or programs. #Autonation, #Sabre
Monitor and evaluate existing and future trends in technology that may affect the Company’s strategic plans, including monitoring of overall industry trends. #AMD
Periodically oversee assessments and make recommendations to the full Board regarding emerging science and technology trends, including potentially disruptive technology, that could significantly affect the Company and its products; the Company’s approach to new market identification and development. #Medtronic
Review and discuss significant emerging technology issues and trends that may affect the Company, its business and strategy direction. #Litelfuse
Budget and Investment
Review and discuss the scope, direction, quality, investment levels and execution of the technology strategies formulated by the Company’s management. #Litelfuse
Review significant technology investments and expenditures. #BNYMellon
Review the technology budget for alignment with Company strategy and goals. #Hertz
M&A
As requested by the Board, evaluate the technology aspects of potential acquisitions for alignment with corporate strategy. #Medtronic
Security
Review and assess the Company’s competitive standing regarding the technology used for medical device cybersecurity and make recommendations to the Quality Committee for upgrades in new product development as required to lead in the area of cybersecurity and meet or exceed regulatory requirements. #Medtronic
Periodically monitor and evaluate the quality and effectiveness of the Company’s technology security, capabilities for disaster recovery, data protection, cyber threat detection and cyber incident response, and management of technology-related compliance risks. #Hertz
The Committee shall monitor the quality and effectiveness of the Company’s technology security, and periodically review, appraise and discuss with management the quality and effectiveness of the Company’s information technology security, data privacy and disaster recovery capabilities. #Sabre, #Autonation
Review and discuss with management the Company’s key information technology controls. #Litelfuse
Review, Assess, and Evaluate
The Committee shall appraise and review the financial, strategic and operational benefits of proposed major technology-related projects, including impact on the Company’s performance, growth and competitive position. #Sabre
Monitor the overall direction, effectiveness, competitiveness and timing of the Company’s research and development programs and pipeline. #Medtronic
Track the pipeline for new product introductions and improvements and notify the Board of emerging gaps that could affect the Company’s growth profile. #Medtronic
Assess and evaluate the economic value proposition of new and existing products and services. #Medtronic
Review, evaluate the Company’s major technology plans, strategies and intellectual property, including its research and development activities, the technical and market risks associated with product development and investment. #AMD
Review and approve the Corporation’s technology planning and strategy. #BNYMellon
The Committee shall review the financial, strategic, and operational benefits of proposed major technology-related projects, including impact on the Company’s performance, growth, and competitive position. #Autonation
The Committee shall periodically review the Company’s technology strategies, including existing capabilities, infrastructure and systems. #Autonation
Periodically oversee assessments of the Company’s product, service and technology portfolio and its effects on the Company’s growth, performance, and competitive position. #Medtronic
Recommend
Make recommendations to the Board with regard to the Company’s internal and external investment in research and development. #Medtronic
Make recommendations to the full Board regarding the Company’s product, service and technology portfolio and its effects on the Company’s growth, performance, and competitive position. #Medtronic
Make recommendations to the Board regarding the Company’s major technology plans, strategies and intellectual property, including its research and development activities, the technical and market risks associated with product development and investment. #AMD
Make recommendations to the Board with respect to technology-related investments that require Board approval. #Hertz
The Committee shall make recommendations to the Board with respect to technology-related projects and investments that require Board approval. #Autonation #Sabre
The Committee may also make recommendations to the Board as to scope, direction, quality, investment levels, and execution of the Company’s technology strategies. #Autonation #Sabre
R&D Performance
Periodically evaluate the progress of major technology-related projects and systems architecture alternatives to ensure that they are in support of the overall business strategy. #Hertz
The Committee shall review the progress of major technology-related projects. #Autonation
The Committee shall also appraise and review the progress of major technology-related projects. #Sabre.
Receive reports from management concerning the Corporation’s technology operations including, among other things, software development project performance, technical operations performance, technology architecture and significant technology investments and approve related policies or recommend such policies to the Board for approval, as appropriate. #BNYMellon
Monitor the performance of the Company’s technology development in support of its overall business strategy. #AMD
Human Capital/Workforce
Review, evaluate and make recommendations regarding talent and skills of the Company’s workforce supporting its technology and research and development activities needed to be successful now and in the future. #AMD
Periodically evaluate technology-related systems architecture to assure its consistency with the organizational structure, strategy and business objectives of the Company. #Hertz
Quality and Safety
As requested by the Quality Committee, provide updates to the Quality Committee regarding recent technological developments relevant to the quality and safety of the Company’s products and services and the methods by which such developments could be implemented. #Medtronic
Periodically evaluate the effectiveness of technology systems relative to customer service capability and performance. #Hertz
Periodically evaluate the capacity, performance, reliability and competitiveness of the Company’s technology-related systems. #Hertz
Technology Competitiveness
Review with management the Company’s technology competitiveness, including the effectiveness of its technological efforts and investments in developing new products and business. #Litelfuse
Keep the Board apprised of instances in which competition has successfully launched superior products in the Company’s categories of interest. #Medtronic
IP Portfolio
Periodically oversee assessments and make recommendations to the full Board regarding the Company’s intellectual property portfolio and related strategy. #Medtronic
Review, evaluate and make recommendations to the Board regarding the protection of the company’s intellectual property. #AMD
Interface With Risk/Audit Committees
Notwithstanding anything in this charter, responsibility for the oversight of risks associated with technology, including risk assessment and risk management, shall remain with the Risk Committee of the Board, with reports to the Audit Committee of the Board as appropriate. #BNYMellon
Assess the Company’s risk mitigation policies and procedures relating to products based on new technology or significant innovations to existing technology. #AMD
The Committee will, as requested, consult with the Audit Committee of the Board regarding technology systems and processes that relate to or affect the Company’s internal control systems. #Sabre
Summary
You can argue that the most significant shareholder risk is technology, and the field is littered with companies that made bad choices. In the consumer world, look at Blockbuster-Netflix, Apple-Nokia, and Amazon-Barnes & Noble. So as a board of directors, how will you preserve shareholder value in the face of technology risk? What role will your board take in technology governance? And what tools will you use?
