How Strong Is Your Board's Digital Banking Technology IQ?

Financial institutions of all sizes are spending more on technology than ever and the demand to keep up with changing methods and channels internally and externally shows no sign of stopping. The line between banking and the tech to carry it out has just about disappeared on many fronts.

Yet as increasingly banking = tech, Accenture says there is one part of many institutions that hasn’t kept up with the industry’s shift, and it’s right at the top: the board of directors

In an international analysis, Accenture found that only 10% of bank directors have technology expertise. This is a rise of only four percentage points over a 2015 edition of the study. In the U.S., banks surveyed came in higher, with 19% of directors having tech expertise versus 16% in the earlier research.

Accenture believes today’s technology challenges merit at least 25% of a bank board’s members have tech expertise.

The firm defines tech expertise as “currently or previously holding a technology role, or previously having senior responsibility at a technology company.” For comparison’s sake, the report notes that more than half the directors of tech companies usually come from tech backgrounds.

The only country where bank boards hit Accenture’s recommended level is the U.K., at 26%.

Why This Matters:

Accenture says without tech expertise on boards critical issues will be missed when strategy is developed and mistakes made on key technology-related decisions made that will reverberate throughout the institution.

Examples of the impact of a “tech-light” bank board include not questioning the adequacy of a cloud computing vendor’s privacy policies and insisting on testing to make sure that an automated lending system doesn’t produce biased decisions.

How Bank Boardrooms Must Change

Until roughly 15 years ago, technology was something most directors didn’t want to get into and most top managers preferred it that way. “Getting into the weeds” with tech discussions just wasted time.

Paula O’Reilly, Managing Director in the Accenture Financial Services practice, says board members need to be asking about the impact of new technologies on their institution as well as on the competitive picture. The firm favors development of “TQ” — technology quotient — through continual coaching and education from the boardroom down. Artificial intelligence, machine learning, even how the blockchain works, are all topics boards should be discussing, she says.

Having directors in the boardroom who already know about such technologies and can help bring along fellow board members is important, she adds. Even having directors who “get” digital marketing will help the board relate to what staff is out in the trenches doing every day.

What This Is Not About:

No one expects directors to be able to code software. But they should have a broad-based understanding of current practices and developments.

Adding to the bank board’s understanding of technology by bringing in more directors with specialized backgrounds, while important, has to be balanced against traditional roles for directors, says O’Reilly. This includes overall awareness of business challenges, a sense of being a regulated business, and a view of the institution in its community.

“Maintaining a strong culture and a collaborative board remains important,” says O’Reilly. At the same time, she says, attention must also be paid to gender and ethnic representation on bank boards.

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Putting The Challenge Of Tech Expertise In Perspective

Adding technology expertise to financial institution boards is a relatively new wrinkle. In the past legislation and regulatory policy have sometimes required that larger banks add certain types of expertise to their boards. After the financial crisis, for example, bank holding companies having $10 billion or more in assets had to form risk management committees at the board level and those committees had to have a member who was an expert in risk management.

In a Nutshell:

Requirements for risk management skills resulted from the perceived lack of such expertise on boards. There hasn’t been a “technology crisis.” But the challenge of technological change has grown for all boards.

David Baris, President of the American Association of Bank Directors, points out that the larger the financial institution, the more tech challenges there are likely to be. They are relatively limited for community banks that adhere to a traditional community bank model, though every institution faces some.

Baris, who has worked with bank directors and boards for over three decades, says adding tech expertise to boards voluntarily could be helpful. Smaller institutions might be able to do just as well by hiring consulting help if an expert is not available.

“Directors can still ask tough questions without knowing the subject well,” says Baris. “But someone with the right type of tech background would be helpful to the board.”

There is no formal requirement for tech expertise, though Baris has heard of examiners suggesting, here and there, that a board add an expert. He says Accenture’s recommendation that 25% of the board consist of tech experts is not particularly useful; each institution should make a determination of the specific need for board member expertise in tech matters and the number of directors, if any, that would serve the best interests of the institution.

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Where Do You Find Tech People Who Make Good Directors?

There are multiple ways to find potential tech experts to join a board. Networking is one solution. Headhunting firms also conduct searches for board members with specific skills or background. AABD’s Baris says his association conducts searches for potential directors at no charge. (He can be reached at [email protected]) O’Reilly says Accenture consultants are often asked to help find qualified board members.

Baris says that many community banks are reluctant to search for new directors outside their community but that may be necessary where the expertise the board is seeking is not available locally.

The Financial Brand canvassed various bank board listings to see how many tech experts institutions had and what their background is. Some had no expertise at all, and some boards had an abundance of it. A fair number of tech experts in the sample are women and minorities. And some come from backgrounds with companies like Apple, Amazon and Microsoft that represent new competition for banking:

JPMorgan Chase: Virginia Rometty, Executive Chairman of IBM (retired).
Citigroup: Renée James, CEO and Founder, Ampere Computing, and former President, Intel.
Bank of America: Maria Zuber, VP for Research and Professor of Geophysics, MIT.
U.S. Bank: Elizabeth Buse, former CEO of Monitise, a mobile banking and payments company; Marc Casper, CEO of Thermo Fisher Scientific, a life sciences and healthcare technology company; Kimberly Ellison-Taylor, Executive Director of Finance Thought Leadership of Oracle; Yusuf Mehdi, Corporate Vice President of the Modern Life and Devices Group of Microsoft.
Goldman Sachs: Peter Oppenheimer, former SVP overseeing information systems at Apple; Jan Tighe, specialist in technology and technology risks, most recently as Deputy Chief of Naval Operations for Information Warfare and Director, Naval Intelligence.
PNC: Toni Townes-Whitley, President, U.S. regulated industries at Microsoft Corp.; Daniel R. Hesse, former President and CEO, Sprint.
Capital One: Peter Thomas Killalea, former VP of Technology, Amazon; and Pierre E. Leroy, Managing Partner, Aspiture, LLC, which invests primarily in digital companies; François Locoh-Donou, President, CEO, and Director, F5 Networks, Inc.
Frost Bank: Cynthia Comparin, founder and recently retired CEO of Animato Technologies Corp., which provides business and technology solutions to enterprise clients; and Graham Weston, Co-Founder of Rackspace Hosting, Ltd., a cloud solutions company.