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In the latest article of the Salzburg Questions for Corporate Governance, Jeffrey D. Grant explores how scientists and engineers can help boards make more informed decisions
This article is part of the series, the Salzburg Questions for Corporate Governance by the Salzburg Global Corporate Governance Forum
History is witness to a seemingly endless number of major technology disruptions to large publicly held companies. These disruptions can result in significant sales and profit declines, market share erosion, and on occasion… bankruptcy. Some of these disruptions occur slowly, over months to years, while others occur very rapidly, in days to weeks. This essay will consider what, if any role, the makeup and structure of a board of directors could have in minimizing the impacts of technology disruptions.
Alvin Toffler, the author of the classic book, Future Shock, wrote, “The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn, and relearn.” This observation includes not only the management team at a company trying to avoid and adapt to disruptive events… but also the board of directors responsible for corporate strategy and key management selections, oversight, and incentives.
The accelerating combination of globalization, technology revolution, and competition requires both management and boards to move rapidly when a disruptive event occurs. Management and boards must be positioned to anticipate a disruption with agile decision-making capabilities. Risk management processes must include technology disruption scenario plans, and they should be regularly reviewed and updated. Quarterly or annual assessments and re-planning are insufficient for many challenges.
While it is impossible to predict most if not all specific disruptive events that can threaten a company, one can be confident they will occur regularly. Boards must ensure they and the management of the company are prepared to mitigate or minimize the negative impacts. Toffler also wrote, “If you don’t have a strategy, you’re part of someone else’s strategy.”
The board of directors’ foremost responsibility is to ensure the company is being managed well. They must not only be savvy about the financial aspects of the company, but they have a responsibility to ensure the company has the right leadership with the right capabilities at the right time. And the board’s interests must extend beyond the leadership team. They need to understand the culture of the company, the corporate climate where the strategy is operationalized. Does the company have the right corporate culture to anticipate and respond quickly to dynamic changes, technical or otherwise?
Consider the current board of General Motors… over half of the board (including the chairman and CEO) have strong technical backgrounds with degrees in engineering, computer science, and economics. A board with this type of technical depth and breadth is necessary to oversee a revitalized company that is focused on technology differentiators such as all-electric vehicles, complex hardware, and software systems for autonomous operations and drive by wire features to successfully compete with Tesla and other car companies seeking to disrupt the automobile market. Two of the current board members have technical degrees and come to the GM Board of Directors from the aerospace industry… maybe the car industry is, in fact, rocket science.
It is also instructive to look at recent board changes at Boeing, where two of the board members nominated/elected since the 737 MAX issue have strong engineering backgrounds, and a new board-level aerospace safety committee has been established. Boeing’s Aerospace Safety Committee was formed in September 2019 after the two 737 MAX crashes. The committee charter states, “The committee shall comprise to the extent possible members who have knowledge, experience and/or expertise in safe product design, development, manufacture, production, operations, maintenance, and delivery.” In addition, the committee charter further states, “The responsibility of the Committee is to provide, on behalf of and in assistance to the Board, the direct oversight over the Company’s engineering, design, development, manufacturing, production, operations, maintenance, and delivery of aerospace products and services, necessary to ensure the safety of the Company’s commercial, defense, space, and aerospace products and services.”
While new board members with targeted backgrounds and new board structures can be of great value to a company, these steps will probably not be sufficient to avoid damaging consequences of major disruptive events unless the culture of the company and the board is aligned with the challenge Toffler noted… “to learn, unlearn and relearn.”
Changing people, organizations, and adding structural elements to the board and management is far easier than changing the culture of a company. In addition, it is not enough to just have individuals with technical or science backgrounds on boards of companies facing technology disruption… the boards should be looking for relevant technical competency, which, in many cases, means young board members who have current science or current engineering skills. This can be hard for governance committees used to bringing on board members in their 50s, 60s, and even 70s onto boards of directors. These individuals may have once been at the top of their technical game… but not 30 or more years later.
In both of the companies mentioned above, the boards have responded to significant disruptive events… a bankruptcy in one case and a tragic loss of human life in the other. While the board’s responses appear to be prudent and appropriate steps now, shareholders should consider the composition and structure of the board before disruptive events occur.
Jeffrey D. Grant was sector vice president and general manager of Space Systems at Northrop Grumman Aerospace Systems, from 2011-2018, a provider of manned and unmanned aircraft, space systems, and advanced technologies. In this role, Grant led the division, which provided space solutions for civil, military, and restricted customers. Jeffrey joined Northrop Grumman via the acquisition of TRW in December 2002. Prior to his joining TRW in February 2002, he held a variety of government and private sector positions. Most recently, he was vice president and chief technical officer for Astrolink International, LLC. Before joining the private sector, Grant served for 21 years at the United States Central Intelligence Agency (CIA) in positions at the CIA/National Reconnaissance Office, Directorate of Science and Technology, and Directorate of Intelligence, Office of Scientific Intelligence. He is the recipient of numerous awards, including the Distinguished Intelligence Medal, the Intelligence Medal of Merit, the CIA’s Engineer of the Year, the Intelligence Certificate of Distinction, and the CIA Certificate of Distinction. Grant currently serves on the board of directors for the Space Foundation. Jeffrey received a bachelor of science in ocean engineering from the Florida Institute of Technology. Jeffrey is a Fellow of Salzburg Global Seminar.
The Salzburg Questions for Corporate Governance is an online discussion series introduced and led by Fellows of the Salzburg Global Corporate Governance Forum. The articles and comments represent opinions of the authors and commenters, and do not necessarily represent the views of their corporations or institutions, nor of Salzburg Global Seminar. Readers are welcome to address any questions about this series to Forum Director, Charles E. Ehrlich: cehrlich@salzburgglobal.org. To receive a notification of when the next article is published, follow Salzburg Global Seminar on LinkedIn or sign up for email notifications here: www.salzburgglobal.org/go/corpgov/newsletter