Tech-Smart Boards - InformationWeek

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10/29/2004
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Tech-Smart Boards

Few companies have IT vets on their boards of directors. But those that do get bottom-line benefits.

CIO Bob DeRodes faced a tough sales challenge: Convince Home Depot Inc.'s board of directors not to outsource the home-improvement chain's IT operations, a move some executives thought could free the $64.8 billion-a-year retailer to focus on its core capabilities and save it millions of dollars each year.

Home Depot CIO Bob DeRodes has staunch and credible allies on the home-improvement chain's board who really understand technology issues

Home Depot CIO Bob DeRodes has staunch and credible allies on the home-improvement chain's board who really understand technology issues.

Photo by Steven Vote
DeRodes ended up with strong numbers to back his case when analyses of bids from finalists EDS and IBM showed that keeping IT in-house actually would save hundreds of millions of dollars. But making that case was made easier because Home Depot's board has several tech-savvy board members--including the chairman of a committee that oversees IT, former EDS president Mitch Hart--providing staunch and credible allies to help explain his position. "It's not me against a bunch of board members who might not understand specific technology issues," DeRodes says.

Having tech-knowledgeable board members may help shareholders as well as CIOs. Companies like Home Depot with IT veterans on their boards perform better financially, delivering annual returns 6.4% above the average performance of the biggest global companies, according to a study conducted earlier this year by Burson-Marsteller, a public-relations, marketing, and management consulting firm. "Superior companies benefit from the appointment of an IT-expert director," says Heidi Sinclair, chairwoman of Burson-Marsteller's global technology practices.

Despite the financial advantage and the extent to which companies rely on IT to run their businesses, those that can boast of tech-savvy board members are the exception. Among the Global 500 companies that release their directors' biographies, less than 5% have directors with top-level IT-management experience, according to Burson-Marsteller.

Aside from IT vendors, which seek out CIOs to provide a customer's perspective, there's no clear trend of other industries pursuing tech know-how for their boards in great numbers. Still, some companies see the advantage. Office supplies and equipment wholesaler United Stationers Inc. has been a believer since 1998, when it named former American Airlines CIO and Sabre Technology Group president Max Hopper, now an IT consultant, to its board. Handleman Co., a $1.2 billion-a-year recorded-music distributor, last year elected General Motors Corp. CIO Ralph Szygenda to its board. And earlier this year, FedEx Corp. CIO Rob Carter joined the board of retailer Saks Inc.

In Carter, Saks got experience that complemented that of its other directors. Five of the $6.1 billion-a-year retailer's outside directors either hold or are retired from top posts such as CEO or president; four head investment firms; one is an academic steeped in corporate governance; and another is a corporate lawyer. "Being a good board member means more than being a good technologist. [It requires] being a well-rounded businessperson," Carter says. "I have a specialty to bring to the table as well."

Handleman CEO Stephen Strome made a similar point when he disclosed Szygenda's election to his company's board last year. Strome cited Szygenda's extensive understanding of IT and his expertise as a corporate leader who understands the integration of technology and business. "Technology is a critical component as we continue to focus on enhancing our ... business model," he said.

By dollars alone, IT's budget impact is enough to make it critical to have people who can challenge and hold CIOs accountable for decisions made about business technology. "The role of the board is to ask intelligent questions about every function of the company," says Katherine Hudson, a former Eastman Kodak Co. CIO and ex-CEO of sign and coated-material products maker Brady Corp., who is the nonemployee board chair of CNH Global NV, a $10.1 billion-a-year heavy-equipment maker. "You need to ask the right questions to make the right decisions," she says.

Yet tech-smart board members are even more important when it comes to setting and questioning the strategic use of business technology. That's what Hopper is doing at $3.8 billion-a-year United Stationers. He and board member Alex Zoghlin, a venture capitalist and former chief technology officer at online travel-service Orbitz LLC, make up the board's newly formed IT committee. They meet at least every other month with CIO Dave Bent to discuss IT's role in corporate strategy.

Bent, whom Hopper helped hire a year and a half ago, was brought on to upgrade United Stationers' business technology, which primarily consists of reliable but inflexible 1970s-era Cobol-based systems. Board members, aware of the problem, regularly query Bent about using IT to improve distribution, wean customers from paper catalogs, and outsource payroll IT. But Hopper insists it's not his or the board's role to micromanage United Stationers. "We're not here to run IT or the company. It would be foolish for me to think I can do that anymore," he says. "Directors aren't here to make decisions but [to] hire the managers for that. Our role is to help ask the questions."

At Saks, it's expected that Carter's relationship with Saks CIO Bill Franks will differ from other board members because of his job as FedEx CIO. "I'm not watching over his shoulders; I'm someone who he can use to bounce ideas off of," Carter says. If anything, Carter sees himself as a champion on the board for IT initiatives, explaining the business value of major IT expenditures in a way directors can relate to.

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