CIO on board
- 29 December, 2003 09:04
For many CIOs, being asked to serve on an outside board of directors is evidence that they've finally arrived. And why not? Board membership is public recognition that a CIO has experience that another company craves. It's also an opportunity to network with the bigwigs that populate most boards. Then there's the extra compensation, which can run into five figures, even without stock options.
However, CIOs dreaming about board membership must realize that being asked to serve on a board isn't like winning an award. Ever since Congress passed the Sarbanes-Oxley Act reforming corporate governance, boards have gained more responsibility, which means that board members have more work to do. There's also the risk of lawsuits, especially now that shareholders are so quick to sue when a public company goes south.
To better understand the pros and cons of board membership, Computerworld asked five board-serving CIOs (and some corporate governance experts) what a CIO really needs to know before joining a board.
1. You're a valuable asset to the board. There's no question that a CIO can add value, according to Marty Chuck, CIO at Agilent Technologies Inc. in Palo Alto, Calif., who serves on the board of ServGate Technologies Inc. in Milpitas, Calif. "CIOs regularly counsel their own executives regarding choices they can make to optimize their business with IT," so it's not a stretch for CIOs to advise other companies' CEOs, Chuck explains. "This experience puts CIOs in a unique position to guide and counsel emerging as well as established companies."
Faisal Hoque, chairman and CEO of Enamics Inc., a Stamford, Conn.-based IT management software and services firm that has always had a CIO on its board, agrees that this is true, especially when the board is for a high-tech firm. "A CIO helps the IT vendor stay on target with its customers," says Hoque. "It's a way to make certain that your sales efforts will work in the real world."
2. You may not be their first choice. Boards are getting smaller and more selective, which makes it less likely for CIOs to be recruited, according to Phil Schneidermeyer, the CIO practice leader at Highland Partners, an executive search firm in Stamford, Conn. "Most firms are looking for top executives with extensive operational and financial experience," he explains. Unfortunately, CIOs aren't always seen as having a wide business perspective. "CIOs tend to rise through the technical ranks and thus lack the high-level exposure of a CEO or CFO," says Richard White, CIO at Ross Stores Inc. in Newark, Calif., who serves on the board of PerformanceRetail Inc. in Austin. White was previously a management consultant.
3. You'll need to be highly visible before you're asked. Boards are looking for CIO candidates who have consistently delivered innovative results and value through technology for their companies. In order to be considered for a board, you'll need to increase your visibility to outside companies by actively networking with key industry influencers and board-level decision-makers. Receiving prominent industry awards and maintaining a strong relationship with your own company's top leaders will also foster your professional reputation, says Carl Wilson, CIO at Marriott International Inc. in Bethesda, Md., who serves on the board of Enamics. "When interviewing for a seat at the board table, a CIO candidate should directly highlight how his unique skills would add value in guiding the outside company and enhance its board's composition," he says.
4. The board may be a disaster waiting to happen. CIOs asked to serve on the board of a publicly held company must be acutely aware of any potential regulatory problems that the firm might face in the future, according to Maryanne Peabody, vice president at Boston-based Stybel Peabody Lincolnshire Associates, a consulting firm that works on corporate governance issues. She says board candidates should never be satisfied with the information a company provides during the recruitment process. Instead, they should dig through financial reports and even check the employment history of the chief executives. "A company that's restated its revenues is a big red flag," she says. "Another danger signal is a board that's dominated by insiders."
5. You, and the rest of the board, could get sued. While most boards have special liability insurance that covers stockholder lawsuits, the coverage may be inadequate. For example, a policy written 15 years ago might only cover each director for a quarter of a million dollars -- an absurdly small sum in today's litigious environment. Worse, some policies stipulate that the board members don't get reimbursed for legal fees until after a case is settled, according to Ralph Ward, publisher of "Boardroom Insider," an online corporate governance newsletter.
"Being on a board isn't what it used to be," bemoans Jack Cooper, former CIO at Bristol-Myers Squibb Co., who sits on the board of Lourdes Health Care Center Inc. in Wilton, Conn., and Concord Communications Inc. in Marlboro, Mass. "There's a lot more risk, especially if the firm is public."
6. You might not get all the information you need. While boards are required to understand what's going on inside a company, they aren't always able to get the quality information they need to make good decisions. "You're very much at arm's length," says White. "Unlike in your own firm, you don't have the ability to see what's happening day to day." CIOs should also be aware that some companies have a history of keeping their boards in the dark, according to attorney Thomas M. Parry, a partner at Marzouk & Parry, a Washington law firm that specializes in high-tech litigation. Parry recommends that board candidates talk to other independent board members to find out what documentation the company provided to resolve past issues. "You should never get into the position where you're a rubber stamp for management," he warns.
7. Your fellow board members might be computer-illiterate. Remember back when executives thought it was degrading to have a PC on their desks? Boards of directors are the last bastion of this curious form of computer illiteracy, Cooper says. "There's still a general level of ignorance about technology in the top bastions of corporate life," he says. "Board members know, theoretically, that technology is important, but they're fearful of having their ignorance exposed."
The danger is that the board may consider the CIO a "token techie" rather than a real contributor. "I've seen companies hold out a CIO on the board as proof that they believe technology is important, when in fact the company was behind the times," says Schneidermeyer.
8. You'll be asked to do some real work. Gone are the days when serving on the board meant a half-day meeting each quarter, followed by golf and then drinks by the pool. Given the current climate of regulation and scrutiny, companies now expect their board members to make substantial contributions of time and effort, Cooper says. "Make sure you have an understanding of what the board expects you to do," he advises. Travel can also become a burden, adds Joe Farrelly, CIO at Aventis Pharmaceuticals Inc. in Bridgewater, N.J., who serves on the boards of Aperture Technologies Inc. in Stamford, Conn., and NetNumber Inc. in Lowell, Mass. "From a practical and personal standpoint, always bear in mind that travel and time-zone logistics can become an issue, given the need for recurring face-to-face participation," he warns.
9. Your compensation is unlikely to be lavish. Being on a board used to mean serious money and lucrative stock options. That particular gravy train has just about run out of steam, according to Parry, who points out that regulators now look askance at assigning options to outside board members, because doing so might compromise their independence. That's not to say that there can't be financial rewards for serving. Nonstock compensation can range from $50,000 to $75,000 for a major company and considerably less for a smaller firm, Schneidermeyer says. However, Cooper notes that some CIOs may not be able to collect that extra salary because "some companies don't let their CIOs receive compensation from being on outside boards."
10. Your CEO might not be enthusiastic about the idea. Ideally, a CIO on an outside board gains experience and perspective that are valuable to the CIO's own company. However, CEOs may not see it that way. Even some CIOs are skeptical. "I'm not convinced that Ross Stores gets much out of my sitting on the board of another company," White acknowledges.
Don't lose heart, though. "Your participation on a board is an opportunity for you to draw on the experience of a wide range of executives," says Farrelly. "And it's a chance to round out your own knowledge of budgetary, HR and other non-IT-specific issues." Board membership can accelerate your career as a top executive, and that may be worth losing a point or two with your current employer.
How to Get On a Board Of Directors
- Ask for your CEO's permission and assistance. You want to be certain that your management is comfortable with the idea.
- Attend your own company's board meetings. This is an opportunity to learn more about how boards of directors operate.
- Obtain management expertise outside of IT. If you can show that you know more than bits and bytes, you can separate yourself from the techies.
- Become visible outside your company and industry. Serving on advisory boards and speaking at industry conferences signals that you're no corporate drone.
- Shoot for a board membership at a small IT vendor. Those companies are the ones that need your expertise the most.
- James, the author of numerous high-tech books and articles, can be reached at his Web site, www.geoffreyjames.com.