Boards Need a New Approach to Technology

The boards of too many publicly traded companies are downright timid when considering matters involving science and technology. More often than not they focus on security and digitization—a defensive posture that overlooks the bigger opportunities emerging from new materials, space science, and a better understanding of the genome, to name just a few areas. It’s easy to be lulled into thinking that science doesn’t matter to a nontech company. But that distinction isn’t quite so meaningful when it comes to capitalizing on the technological change that is now ubiquitous, rapid, turbulent, and often emerging from increasingly unlikely corners.

We have seen an effective way to address such shortsightedness: the board technology committee. This entity can offer ideas for capitalizing on advances not only in the areas just listed but also in climate science, cybersecurity, blockchain, and large language models.

Each of us has served on the boards of many publicly traded companies in the United States, Europe, and Asia—some of them with tech committees and some without. Independently concerned with these issues, we had a serendipitous opportunity to participate in an informal brainstorming session in Palo Alto in mid-2023 with more than a dozen directors, primarily of Fortune 100 companies, all of them intrigued by the implications of spiraling technological change. That group represented a broad range of sectors, including technology, retail, consumer goods, and hospitality, and all our respective boards had catalyzed technology committees.

As we discussed our own experiences on such committees, we found abundant examples of the value of playing offense. The Innovation and Technology Committee of the global energy company AES (where Tarun has been a director) has acted in concert with the company’s technology managers to nurture electrical-grid-level systems for battery storage so that large-scale renewables (solar, wind, hydro), with their less-predictable ability to generate power, could be more seamlessly integrated into the mainstream electrical grid to reduce reliance on fossil fuels. That effort ultimately led to a spin-off of AES’s energy storage business, now traded on the Nasdaq as Fluence Energy, into a joint venture with Siemens.

At Johnson & Johnson (where Mary is a director) the Science & Technology Committee (each organization has its own name for the board committee that addresses matters related to science and technology; we refer to them broadly as technology—or tech—committees) has encouraged and overseen a number of transdisciplinary collaborations. One, for example, enabled the development of a novel approach for minimally invasive diagnosis and treatment of lung tumors by combining then-new miniaturized imaging and surgical technology with robotic bronchoscopy. The committee consistently articulated its conviction that innovation flourishes at the interface of various disciplines and requested updates from management on synergies that could emerge from integrating the work being done in its Innovative Medicine and MedTech organizations. An internal cross-sector working group focused on interventional oncology was key to pioneering a creative lung-cancer intervention and continues to seek opportunities in other disease areas.

At Altria (where Nabil was until recently a director) the Innovation Committee has supported in-house technologists’ attempts to transform the organization from a tobacco company to a “tobacco-harm-reduction company” by developing noncombustible, smoke-free tobacco products using designs based on materials science to vaporize formulations, to heat tobacco without burning, or to deliver nicotine in an oral-pouch format. Altria’s wet nicotine pouch is being test-marketed in Europe; some of its other products are going through FDA prequalification.

In this article we argue that the technology committee’s time has come. The National Association of Corporate Directors reports that the share of Fortune 100 boards with such committees rose from 7% a decade ago to 36% today. Our analysis of boards of public Fortune 500 companies shows that the share has risen from 13% to 20% over the past five years.

A board’s technology committee should develop and refine its own methodology for considering and monitoring technologies.

Public companies outside the United States are in the earlier stages of this evolution. For example, only four of the top 20 European companies by market capitalization (from software, aeronautics, semiconductors, and insurance) have some form of technology committee on their boards.

To be sure, not every company needs a board-level tech committee. Our message is intended for those whose boards are too narrowly concerned with the immediate—and urgent—challenges of digitization and security. They are the ones that we believe are inadvertently missing bigger opportunities. We’ve seen that tech committees can deliver substantial benefits if they’re managed appropriately. In this article we offer guidance for that.

Why Are Boards in a Defensive Scientific Crouch?

Boards have many reasons to approach technological change with anxiety rather than excitement. Here are some of them.

Directors with technical backgrounds are relatively scarce. According to data from Equilar, just over a third of U.S. public boards have directors who are proficient in technology-related issues, up from less than 10% a decade or so ago. (Financiers, accountants, lawyers, and generalists account for a preponderance of board directors.) Outside the United States the percentage of tech-savvy directors is significantly lower. But even these percentages can be misleading; in our experience, scientific training acquired decades ago (as is often the case at the board level) is no substitute for the kind of broad and deep knowledge required to understand developments in technology and science.

Scientific and technological change is rapid. Clearly this is true. But let’s consider how the life sciences have changed in just the past few years. The volume of health care data is projected to increase from 153 exabytes (an exabyte is 1 billion gigabytes) in 2013 to more than 10,000 exabytes by 2025. Artificial intelligence patents in the life sciences burgeoned in the same period, from just 256 in 2016 to more than 1,800 in 2020. The cost of sequencing a human genome decreased from $1 million in 2007 to $1,000 in 2014 to a few hundred dollars today. Sequencers can now be carried in a hip pocket. Advances like these can offer substantial opportunities well beyond the sectors in which they were developed.

The nature of the scientific value chain is changing. Given all this progress, and the potential it offers, it’s not surprising that access to know-how is being transformed everywhere. Open innovation is one important development that Altria’s Innovation Committee, for example, has prioritized, connecting the company to newer sources of ideas.

Intermediary organizations in research and product development are popping up to help existing companies identify relevant knowledge beyond their traditional silos. Newlab (in which Tarun has a small investment), an innovation hub launched in 2016, incubates ideas in science and technology in response to the needs of its client corporations; it has locations in Brooklyn, Detroit, Uruguay, and soon the Middle East. Plug and Play, a similar tech incubator founded in the Bay Area in 2006, has outposts all over the world. A board’s tech committee must work with internal management to decide whether and how to tap into the growing scientific value chain.

How the Technology Committee Can Help

Technology committees advance the interests of their organizations in several important ways.

Identifying and prioritizing relevant technologies. The committee should oversee the process by which the company scans for scientific and technological insights with the objective of short-listing items to bring to the attention of the full board. It’s important to include advances in adjacent industries that can complement areas in which company personnel may already be anchored.

The committee should develop and refine its own methodology for considering and monitoring technologies along relevant dimensions: proximity to the company’s core technological expertise, extent to which the technology being tracked has matured, and likely time horizon over which it will become germane to the company.

The appropriate levels of risk and the time horizon depend on a range of factors. Microsoft’s size, for example, allows it to consider technologies that are “really far out” and to track them over the long haul, according to Ray Ozzie, formerly the company’s chief software architect and a participant in our Palo Alto group.

AES’s Innovation and Technology Committee

AES is an energy company with roots in fossil fuels and four decades’ worth of global experience. It has become recognized as an innovation leader as it repositions itself to focus on renewable energy and decarbonizing technologies. Its tech committee has played a catalytic role in that transformation.

The committee’s initial work was launched in a memo from the CEO, Andrés Gluski, to the executive leadership team in 2012. It directed the new committee to consider challenges and ideas from both an inside-out and an outside-in perspective.

Regarding the former, technological evolution was needed to resolve business problems, building on ongoing work to harness innovation across the company. As for the latter, the committee would provide a forum whereby technologies from adjacent or unrelated industries could be brought to management’s attention. For that, “technology radar” would be maintained to identify significant breakthroughs with potential for impact on AES years in the future so that they could be acted on at an opportune moment.

The committee was also clear about what it would not do. It would not be a de facto internal venture capitalist to fund novel ideas. Rather, it would seek proven technologies. The CEO’s memo noted that a prior incarnation of the committee had taken AES too far away from its field of competence. To guard against that, the committee engages with generalists from the field to keep the commercial interests of the business firmly in mind.

By contrast, AES decided that it would consider only proven technologies, reasoning that it could add value to them by using its global footprint and extensive reach across energy systems to allow them to rapidly scale up while also infusing its own operations with new insights. To this end it developed a “technology radar” to keep track of relevant scientific and technological advances. For example, even though AES bet on grid-level battery-storage solutions, ultimately leading to Fluence Energy, its technology committee decided it was probably far too early for non-lithium-ion batteries to be economically viable and thus to warrant significant investment; it put that technology on the “monitor for now” list.

Triggered partly by what it learned from the incubation of Fluence Energy, AES created an internal organization called AES Next to shepherd scientific advances toward fruition as the “next lines of business.” The tech committee provided oversight and counsel. Of course, routine, quotidian innovations continued to emanate from the thousands of AES employees across the globe. A separate program, AES Performance Excellence (APEX), harnessed those decentralized insights, and the tech committee summarized the results annually for the rest of the board.

Dassault Systèmes (3DS)—a spin-off from the French Dassault Group, with its roots in aeronautics—specializes in creating software for virtual twins of a wide range of physical products and processes in manufacturing industries. The twins help streamline processes and create visibility into the complex systems of which they are a part. The 3DS board’s Scientific Committee and Patrick Johnson, the company’s executive vice president of corporate research and sciences, are charged with constantly updating a narrative view of scientific progress over the next 20 years.

At each of the tech committee’s meetings, members engaged with what they called an “experience platform” that brought together scientific data about various phenomena of interest from an array of disparate fields, including space avionics, protein engineering, and AI hardware, along with data on related industries, to help stimulate thinking about possible future competitive landscapes. The exercise had to encompass the “what, who, and how” of emergent phenomena, and it led to a view of how societal change would evolve, resulting in a more actionable three-to-six-year perspective on the implications for the company.

Embracing risk. Boards are explicitly tasked with considering risk—including technological risk. But we believe that in the area of technology most of them are overly focused on risk reduction. Nick Donofrio, a scientist and a past or current board member at U.S. companies including AMD, BNY Mellon, Delphi, Liberty Mutual, and Mitre, offers a counterexample. Back in 2008, amid rising concern over global warming, it was already clear to technologists that batteries were rapidly improving and that the internal combustion engine would have to evolve or it might disappear. Donofrio formed a technology committee at Delphi, an automotive systems company, to reimagine the car as almost entirely electrical. He and his committee spurred Delphi to experiment with promising but unproved technologies that positioned it to play an important role in the rise of electric and hybrid vehicles. Many of the rank-and-file at Delphi resisted the changes, but the committee had enough credibility and influence to move the company past its immediate concerns with compliance to focus on the greater threat and the opportunity. Delphi eventually evolved to become Aptiv, a company that develops software-defined vehicles.

Embracing risk can also mean reframing the considerations that arise in sourcing technology. At Johnson & Johnson the Science & Technology Committee plays a very active role in this regard. When the company’s pharmaceutical division shifted its approach from laboratory-based identification of promising therapeutic targets to reorganize around selected disease areas, J&J developed deep disease-area expertise and evolved new mechanisms, such as JLABS, to find and nurture external innovation. Its tech committee worked closely with management during this transformation, reviewing both external and internal technologies, highlighting areas of innovation opportunity, and making site visits to innovation hubs to assess talent. That shift propelled J&J into the forefront with Zytiga and Erleada for the treatment of prostate cancer and Darzalex and Carvykti for the treatment of multiple myeloma.

Shepherding core technologies. Today half the world’s medical devices are designed using Dassault Systèmes’ digital-twinning software. That achievement was by no means guaranteed when 3DS entered the life sciences sector, 15 years ago. It required establishing and shepherding collaborative resource- and risk-sharing arrangements with other companies and institutions, a series of acquisitions (including that of Medidata, in New York, for managing decentralized clinical trials), and a steady increase in internal resource allocations as the company refined its capabilities for this space. None of that would have been possible without the tech committee’s prompting and support.

AES’s stewardship of what became Fluence Energy also took years of monitoring relevant external developments in battery and software technology and the creation of complex architectures for grid-level batteries to stabilize the interface between clusters of renewable-energy assets and the mainstream electrical grid. The organization’s technologists and tech committee adopted Wayne Gretzky’s famous advice to “skate to where the puck is going to be”: that is, target an architecture that would leverage technological developments over a decade or more. The tech committee reviewed the AES battery-storage business plan annually and advised the executive team on the strategic development of the business, including the decision to do the spin-off that created Fluence. Ultimately, an investment of $25 million yielded a sixfold return after the company sold a stake in the newly listed Nasdaq entity at the end of 2023, along with more than $1 billion in equity that AES still held in Fluence.

Counseling the board. An essential role for the tech committee is to educate the rest of the board. At all companies with which we’re familiar, most board members regularly—and voluntarily—attend technology committee meetings. Clearly there is a demand for what such a committee can offer, which is especially important in times of transition.

Johnson of Dassault Systèmes describes a profound two-decade evolution, with which he was involved, to adapt the company’s core positioning and value proposals according to its vision of the future in aeronautics and automobiles and extend them to the field of life sciences. The technology committee, in conjunction with the company’s technologists, orchestrated a learn-as-you-go set of initiatives for the board as a whole, including an early collaboration with Sanofi and other French pharmaceutical giants and Inserm, France’s public medical-research organization.

The tech committee also counsels the rest of the company. Consider the often tricky issue of voluntary disclosure of a company’s technology, beyond what is required by regulation. Standard public-company regulations stipulate that material items warrant disclosure, but leaders must distinguish between what’s required and what’s not, especially concerning information that may compromise any competitive advantage.

AES chose in 2018 to inform its stakeholders of how it was testing the robustness of its business model against plausible scenarios for climate risk. Significantly in advance of SEC mandates regarding climate-risk-related disclosure, it was the first investor-owned utility company in the United States to comply with nonmandatory recommendations from the Task Force on Climate-Related Financial Disclosures, a global organization created by the Financial Stability Board. Counseled by its in-house technologists and board tech committee, AES provided specific near-term, intermediate, and long-term targets. Its 2030 carbon-intensity target, unlike that of any other electricity company, leveraged scientific principles commensurate with a rise in temperature of less than two degrees C (above preindustrial levels). The disclosure was made both as a precommitment device and to ensure that the company was not inadvertently aiding and abetting what sometimes felt like enthusiastic societal greenwashing.

The tech committee also counseled the investor relations function and the company’s chief financial officer. For example, AES’s decision to carve out its new energy-technology initiatives into a separately reported business unit was made in conjunction with the committee, not just to bind the company to disclosing results from its new growth activities but also to make it easier for Wall Street analysts to carry out a sum-of-the-parts analysis that valued technologically unique activities differently from the prior business model.

How to Set Up a Technology Committee

It’s best to think of the tech committee as an intermediary between the rest of the board and the company at large. Particularly important is the committee’s interface with management. One executive described this to us by interlacing his fingers: That’s how close the committee must be with C-suite technologists, such as the chief technology officer or the chief strategy officer. The committee is the wind in the technologists’ sails when appropriate, making the case for investments—especially those that will pay out over terms longer than the next few quarters, with which publicly traded companies are often preoccupied. That long-term orientation is critical to playing offense.

Because the technology committee is a relatively new construct (P&G’s was established in 2001, Altria’s in 2009, and J&J’s in 2012), there is room for discretion in its charter—more so than with other statutory committees such as audit and compensation. For example, at AES its charter is focused on scanning for technologies, recommending promising ones to the full board, and then shepherding them through their nascency, whereas Altria’s committee also leans in to steer the rest of the company’s innovation ecosystem. The full board should debate various mandates to build consensus.

Composition. The tech committee helps the rest of the board navigate the complexities and contradictions of new technologies. Committee members should be good at explaining the strategic business implications and clarifying the threats and opportunities without being simplistic. Those skills are often developed over the course of years, as members are exposed to technologies and managers in multiple settings. The ability to articulate the “what” and “why” of technology often comes from batting around ideas. In our experience, a committee of three or four members with diverse expertise and perspectives allows for vibrant discussion.

J&J’s Science & Technology Committee

Johnson & Johnson is the world’s largest, most diversified health care products company. Following the separation of its Consumer Health business, in August 2023, the company organized into two business segments: Innovative Medicine and MedTech. Its tech committee has for decades helped J&J evolve its approach to innovation, science, and technology.

It started as an advisory committee to the board and grew into a standing committee. Through several iterations, while its scope broadened, the committee maintained its focus on the intersection of science and technology and driving the priorities of the business. Over the years, the committee has been essential in helping J&J address health challenges such as HIV and tuberculosis. Its charter currently includes these areas of responsibility:

• Monitor and review the overall strategy, direction, and effectiveness of the R&D organizations supporting the businesses

• Assist the board in identifying and comprehending significant emerging science and technology policy and public health issues and trends that may have an impact on the company’s overall business strategy

• Assist the board in its oversight of major acquisitions and business development activities as they relate to new science or technology

• Serve as a resource and provide input as needed regarding the scientific and technological aspects of product-safety matters.

The committee partners with management to set and review progress against annual R&D and external innovation goals, reviews the capabilities of various business functions, and considers significant M&A activities. This oversight, sharing of insights, and partnership with management has helped drive J&J’s success.

The committee should be led by someone who is steeped in science or technology and joined by others who have what we’d call crossover experience: a technologist who has run her own company, say, or an early-stage venture capitalist accustomed to engaging with the promise and perils of emerging technologies. Committee members add value through their breadth of awareness of even nascent trends, their ability to intuit potential connections, and their encouragement of management’s consideration of such opportunities.

At Dassault Systèmes the technology committee typically has at least one technologist board member. But just as important are curious individuals who can synthesize information across fields—ideally a mix of the hard sciences, the social sciences, and the humanities.

Johnson & Johnson’s Science & Technology Committee is populated with scientists, clinicians, health innovators, and regulatory experts. Its broad range of expertise ensures diverse perspectives because its members can draw on current thinking in many proximal industries. That knowledge base also helps them focus on probing questions about the current landscape, future trends, and the core principles underlying management’s prioritization of opportunities.

Agenda. Tech committees’ agendas will of course be tailored for the needs of each company, but in general they may include a regular review of its R&D strategy and progress toward annual goals. They often also include deep dives into emerging innovation areas and technology development, such as applications of AI and real-world evidence, review of potential acquisitions or divestitures from a science and technology perspective, and annual reviews of the charter, the committee’s performance, and its composition.

AES has a formal annual process for agenda setting. The company’s chief technologist interviews each board member at the beginning of the fiscal year, soliciting topics for discussion during the six committee meetings scheduled in conjunction with each board meeting.

AES board members or senior executives have sometimes brought to light topics from completely unexpected scientific or technological directions, triggering input from members of the full board about whether a suggestion should be on the tech committee agenda. When possible, topics are aligned with broader board-level discussions. Agenda items fall into three categories: tracking the evolution of technologies and surfacing issues for the board; highlighting salient opportunities and risks; and ensuring that at least a third of the overall time is spent on new-business creation.

J&J and Altria are similarly explicit about using the technology committee primarily to play offense. Areas of risk are adequately covered by their boards’ audit and regulatory, compliance, and sustainability committees. In fact, both companies are drawn more toward basic science than are many other publicly traded companies we’ve encountered; they consciously take a longer-term view to ensure that their organizations aren’t swayed by the hype that inevitably surrounds many emerging technologies.

The tech committee’s annual agenda should include injections of external thinking. Aptiv’s committee meets a few times a year and almost always includes an external perspective. It also takes field trips to the company’s R&D centers in the United States, Europe, and Asia, or to the Consumer Electronics Show in Las Vegas, for exposure to nascent developments. This firsthand view of how technologists are grappling with problems is invaluable in helping the committee fulfill its mandate. AES’s tech committee invites one or two external speakers each year to report on topics that are either germane to current technological challenges or designed to expose board members to unfamiliar scientific and technological vistas. J&J’s committee members routinely request deep dives from experts on emerging technologies to clarify how they are being incorporated into the company’s R&D strategy.

Tech committees as a board function are still evolving, so there’s no one way to evaluate them. Of course, good boards usually have committee members go through some sort of self-assessment and solicit the views of directors who are not committee members. But the tech committee’s performance against expectations should be reviewed regularly. Given how new these committees are, we should all continue to experiment and find ways to share our experiences. That will help more organizations discern and seize the opportunities rapidly emerging from science and technology and pursue the kind of experimentation that leads to breakthrough innovation.

Copyright 2024 Harvard Business School Publishing Corporation. Distributed by The New York Times Syndicate.

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