Every company is a technology company now. So why do compliance boards still dominate?

The term compliance director was coined in 2006 by Tom Perkins, the famed venture capitalist and HP board member. In his view, ‘compliance’ directors were board members focused on Sarbanes-Oxley, social responsibility and regulatory issues. On topics that were not at the core of HP’s survival. At that time HP was a mature tech company competing with startups and other traditional tech companies and where new technology cycles appear every 18 months.

Rules and regulations for board of directors have only increased since then. For example, in addition to Sarbanes-Oxley, board members now have to deal with a wide range of environmental and sustainability requirements. The vast majority of board member discussions are now about compliance issues, and board members who have specific qualifications to deal with these issues are sought to join supervisory boards.

At the same time the pace of technology evolution and global competition is rapidly increasing, compressing the response time traditional businesses have to adapt before they are disrupted.

Perkins noted that an overemphasis on compliance is detrimental, as it results in boards lacking a deep understanding of the business they govern. This lack of insight may lead to more scandals, not fewer, as directors may fail to notice early warning signs related to business matters of strategic relevance.

Perkins strongly advocated for ‘guidance’ directors on the boards of public companies and called attention to the following qualities

• Governance: Advocated for a board that was not only a governing body but also a strategic partner to the company. He believed in leveraging the board's collective expertise to contribute to the company's strategic direction.
• Stewardship-focus: Emphasized responsible management and long-term success
• Decentralized decision-making: Advocated for autonomy and decision-making power for individual board members and teams.
• Transparency and openness: Believed in open communication and transparency within the board and the company and emphasized the importance of ethical governance.

A ‘guidance’ board was seen in action when UiPath replaced the CEO with the original founder in May 2024. The emergence of Large Language Models (LLM) and Generative Artificial Intelligence (GenAI) pose an existential threat - and opportunity - to the company, and the board felt it needed to act quickly and decisively. Everyone on the board is from the high tech industry or its customers: Three venture capitalists, one CFO, one former CEO and one former VP, one former CIO and UiPath’s founder.

Boards are not only about compliance with the rules, but they are about the conduct within the rules and boundaries. ‘Guidance’ directors want to spend board meetings and technology committee meetings concentrating on ways to beat the competition.
And it is the responsibility of the nominating and governance committees to shape what the board does and to enlist these kinds of ‘guidance’ directors that understand technologies and their cycles.

‘Compliance’ boards are at their peak. 

It is time for a comeback of the ‘guidance’ director.

This article was first posted on LinkedIn on October 1, 2024