A seat on a board of directors is one of corporate life's marks of distinction. In the tight-knit world of senior executives, boards function as both serious governing bodies and can-you-top-this status symbols, and either way, inclusion is a notable achievement.
With technology now widely viewed as a key -- even, in some cases, the key -- to business success, you might expect that boards would be aggressively courting CIOs. But that's not the case. Last year, global public relations firm Burson-Marsteller checked with more than 3000 businesses, including the Fortune Global 500, to see how many had installed CIOs on their boards of directors. The answer: a depressing 5 percent.
The study confirmed what Burson-Marsteller staffers suspected. "A few of us had noticed" the dearth of CIOs on boards, says Heidi Sinclair, global chairman of Burson-Marsteller's technology practice. "CIOs' profiles were raised by Y2K, then they were torn down" when the Internet bubble burst in 2001, she said.
Businesses that do have CIOs on their boards of directors tend to outperform their competitors, with profits averaging 6.4 percent above their industry averages, according to the study, which included senior IT executives such as vice presidents within the CIO category.
So, what value do CIOs bring to the board of directors? Why aren't more invited to join? And will their numbers grow in the near future?
Why it matters
The corporate crime spree that came to light a few years ago with the Enron debacle brought fresh attention to corporate governance. As a result, while the activities of boards vary widely, their visibility today is high.
The composition of a board of directors hints at the CEO's priorities. For example, some boards are stacked with illustrious names in an effort to impress investors and analysts, while others are composed of members who are less well known but may be more innovative and willing to question the status quo than their more famous counterparts.
The dearth of CIOs on boards of directors indicates that, lip service aside, few CEOs view technologists as likely to impress outsiders or contribute mightily on questions of strategy.
There are plenty of reasons for the absence of IT voices on corporate boards, and some are perfectly logical. Despite the recent evolution of the high-profile IT leader, nearly 60 percent of all CIOs report to the chief financial officer or chief operating officer, according to business adviser, The Hackett Group. This organizational structure guarantees that the entire IT function is perceived as part of operations.
"Traditionally, a CIO's focus was operational effectiveness, and most boards spend very little time discussing operations," says Jon Piot, CEO of Impact Innovations Group an IT consulting firm, and co-author of The Executive's Guide to Information Technology (Wiley, 2003).
Carl Dill, former CIO at AOL Time Warner and McDonald's and now a member of the board of directors at ThoughtWorks, puts it bluntly: "The typical CEO is looking for [board members] he can be learning from, and most CEOs are probably hesitant about what they can learn from a CIO." However, Dill says he hopes "that will change as CEOs begin to see how much the CIO is responsible for."
Other reasons for the scarcity of CIOs in the boardroom have to do with marketing and old-fashioned networking. Boards of directors are often as much about glitz as they are about governance. Big names are at a premium, and in the business world, it's exceedingly rare for anybody other than a CEO to possess a big name.
Moreover, like CIOs, chief executives have an informal network built through roundtables, industry confabs and the like. So it's understandable that when a CEO seeks to stock his board, the names that come to mind are people he's served with on panels or played golf with.
But when it comes to barriers that are within the control of technologists, the theme of communication arises most frequently. Whether fairly or not, technologists are still seen by many business people as too eager to discuss speeds and feeds, bits and bytes. "Most CIOs grow up in the IT department," says Piot. "They work on the network or infrastructure, then in project management. Nowhere in that chain are they exposed to the language of running a business."
In today's world, technology budgets are expected to mirror the priorities of the business and bring about competitive advantage. Not only are CIOs expected to make this happen, but they also need the ability to make their fellow executives understand that it's happening.
Senior IT managers say the CIOs and former CIOs who are most likely to serve on corporations' boards are those who have used IT to transform a business in a high-profile way. "The common theme is visionary use of technology to achieve business results and a demonstrated ability to communicate that vision to the CEO," says Bill Masters, CIO at a pharmacy benefit management provider.
As an example, Masters cites Dawn Lepore, who is now CEO of Drugstore.com. Previously, in her 20 years at Charles Schwab, including several in the CIO position, Lepore helped the brokerage firm become a leader in the online arena. Before taking the top job at Drugstore.com, she served on the boards of Wal-Mart Stores and eBay.
Once a CIO does get on a board of directors, other invitations often follow. "CIOs who get on boards become enough of an influence on business leaders so that they surface on people's lists" when there's another slot to be filled, says Dill, who currently sits on two boards.
The key, he adds, is to "be thought of as a business change leader, not just a back-office operator." Dill notes that the way in which he came to be on ThoughtWorks' board of directors exemplifies the informal networking that's common among CEOs. While he was at AOL Time Warner, Dill worked frequently with an executive search firm. Later, ThoughtWorks used the same firm to help identify potential board members, and it was natural that Dill's name arose.
Plenty to offer
CEOs who fail to offer a slot to a top technologist may be depriving their boards of directors of valuable cross-company knowledge. "CIOs have access to the broadest and deepest amounts of the information needed to manage a company," says Tom Lewis. Once the CIO for the Executive Office of the President during the Reagan administration and also CIO at USF&G Insurance Co., Lewis now sits on the board of ITM Software, a vendor of business management systems.
"We add a lot of value because our responsibilities cover all areas of the business, not merely one function," says Dill. "IT is like a business within a business. A CIO needs to know marketing, finance, sales, operations and so on, so there's a broad business understanding."
Dill adds that in certain areas of concern to business today, CIOs are likely to be the senior executives with the most real-world experience. "IT is typically first to get into outsourcing, including offshoring," he says. "And other departments are now thinking more about that." The same goes for procuring professional services in general, an area that's old hat for many CIOs.
One common critique of boards of directors is that their makeup overemphasizes certain skills. The benefits of having a board member who launched or ran a business in an impressive fashion are obvious, but many boards include several such members at the expense of the complementary knowledge a CIO could bring. "Business people know where they want to lead the company," says Lewis. "CIOs have much more ability to extract value from assets. Corporations that exploit both sets of skills find great value."
In the end, the lack of CIOs on corporate boards may be a symptom rather than the ailment. "The problem is broader than just not being on boards," says Lewis. "It's not being a peer in the major decisions of the company. It's important for CIOs to assert themselves and establish that peer relationship, and that's a philosophical change."