John Cannon & Stacy Baird - Is The Board Ready to Address Disruption? 




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May 20, 2019
by John Cannon and Stacy Baird
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John Cannon & Stacy Baird - Is The Board Ready to Address Disruption? 

Corporate governance lawyer John Cannon and law and tech consultant Stacy Baird address board composition, director tech literary, and the use of expert advisors in this month’s Salzburg Question for Corporate Governance

This article is part of the series, the Salzburg Questions for Corporate Governance by the Salzburg Global Corporate Governance Forum

Disruptive innovation is now a fact of life in most industries. Entrepreneurs and established businesses alike are challenging incumbent companies by creating paradigm-changing new products, services, and business models that supplant existing products, markets, and value networks. Disruption challenges traditional business paradigms, but it often also brings with it opportunity. The question to address for any business entity: is its board adequately equipped to anticipate, address or take advantage of disruption?

A board needs traditional knowledge of markets and competition, but also an understanding of the impact of network effect and evolving customer relationships for businesses. Innovation has always – by definition – underpinned new business models, and new products and services. But a new dimension is the pace of innovation, the impact of network effect, and the fact that innovation substantially is coming from non-traditional market players. Businesses never present before in a particular sector are entering with very creative offerings to challenge, often blindside, more traditional businesses. 

Another necessary board competency is an understanding of technology. For example, can your board anticipate the impact of machine learning (ML) or artificial intelligence (AI) on your company? These technologies will have profound impact on all industries. But in what way? The most recent wave of disruption has been as a result of advances in network technology, means of access to consumers, and the ability to network individuals on a mass scale to match individual service providers to consumers through new and evolving channels such as the internet, handheld devices and more recently, the Internet of Things. Companies now have many more ways to interact with consumers and can develop new products and services that take advantage of the ubiquity of the digital domain. Further, it is easier than ever for companies and individuals to network directly with consumers to provide new services that challenge old providers, e.g., online payment systems (Alipay, Apple Pay, Google Pay) v. traditional credit providers; Uber v. taxis; AirBnB v. hotels; Spotify v. traditional music distribution channels; and Netflix content production v. traditional movie studios. Even in this context, data analytics is having a transformative impact. AI and ML will go further to transform the marketplace, but how remains the critical question. 

Putting it all together, there is a substantial need for an understanding of the potential for radical new business models facilitated by new technologies. 

What expertise does your board have, or need, to address potential paradigm-changing disruptive innovation, the impact of technology on the traditional market, and the potential for new business models that can be anticipated as technology evolves? It seems unrealistic to rely exclusively on educating existing directors on the accelerating pace of technological change and disruption of business models. As a consequence, board “refreshment” – already an objective of institutional shareholders – should actively be pursued and involve the identification of director candidates with expertise in the real-world applications of technology and/or business reinvention. 

Technological sophistication may not alone be sufficient for these purposes. Equally important is the capacity of directors to think “outside the box” with management regarding a company’s business model. The dangers of groupthink – particularly in being wedded to the status quo operation of a business – can be mitigated through populating a board with individuals with a diversity of backgrounds and thinking as well as a leavening of knowledge of technological trends and experience with disruption. 

Yet even this may not be enough for boards to successfully navigate the challenges ahead, especially given the ever-increasing oversight and compliance responsibilities also imposed upon them. Boards of directors should consider retaining as soon as possible permanent staff, outside advisors or panels of experts to assist them in dealing with the impact and implications of artificial intelligence and other disruptive technologies. 

Prompt action may mean the difference between a company being the victim or the beneficiary of technological revolution.


We encourage our readers to share your comments by joining in the discussion on LinkedIn.

John Cannon is a partner in the Compensation Governance and Employment Retirement Income Security Act (ERISA) Group of Shearman & Sterling LLP, and co-chair of the firm's Corporate Governance Advisory Group. He is an inaugural fellow of the American College of Governance Counsel, and is a frequent speaker to boards of directors, professional groups, and law students on executive compensation and corporate governance matters as well as the international regulation of pay in the financial services industry. In his practice, John focuses on all aspects of corporate governance and executive compensation and benefits, including state corporation, securities, banking, bankruptcy, employment and tax laws, and the ERISA. John has extensive experience in advising corporations and boards of directors on management succession, shareholder engagement, compliance with Dodd-Frank and Sarbanes-Oxley, and the employee issues raised in the mergers and acquisitions context, including in cross-border transactions. He received a J.D. from the New York University School of Law and an A.B. from Harvard College. John is a Fellow of Salzburg Global Seminar and a member of the advisory committee for the Salzburg Global Corporate Governance Forum.

Stacy Baird is a consulting director at the Singapore-based consulting firm TRPC. His expertise lies in law and advising businesses and governments on information technology, privacy, data protection, cloud computing, and intellectual property (IP) public policy matters. Stacy also serves as executive director of the U.S.-China Clean Energy Forum Intellectual Property Program, where he helps address bilateral technology transfer and IP issues in the context of clean energy research and commercialization. Previously, Stacy served as Senior Policy Advisor to U.S. Senator Maria Cantwell, including work on the U.S. Patriot Act, and advisor to U.S. Congressman Howard Berman on issues of first impression related to the then-nascent internet and the mapping of the human genome. Prior to law, Stacy worked as music recording engineer with clients including Madonna, Stevie Nicks, Elvis Costello, Brian Eno, and Francis Coppola. He held appointments as Visiting Scholar at the University of Southern California College of Letters, Arts and Sciences and Visiting Fellow at the University of Hong Kong Faculty of Law. Stacy has a J.D. from Pace University and a B.A. in radio and television communications from San Francisco State University. Stacy is a Fellow of Salzburg Global Seminar and a member of the advisory committee for the Salzburg Global Law and Technology Forum.

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: To receive a notification of when the next article is published, follow Salzburg Global Seminar on LinkedIn or sign up for email notifications here: 

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