Do Boards Need a Technology Audit Committee?

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What does FedEx, Pfizer, Wachovia, Mellon Financial, 3Com, Shurgard Storage, Sempra Energy and Proctor & Gamble have in common? Although board committee exists for just 10% of firms that are publicly traded but yields 6.5% greater yields for those businesses? What’s the single biggest budget item after making gear and wages?

Technology choices will outlive the tenure of the management team making those choices. While the present rapid pace of technological change means that corporate technology choices are not infrequent and far reaching, the results of the choices-both poor and nice -will remain together with the company for a number of years. Normally technology choices are made unilaterally within the Information Technology (IT) group, over which senior management decided to don’t have any input or supervision. For the Board of a company to do its obligation to exercise business judgment over crucial decisions, the Board has to have a mechanism for directing and reviewing technology choices.

A recent example where this kind of supervision would have helped was the Enterprise Resource Planning (ERP) mania of the mid-1990’s. At the time, many businesses were investing tens of millions of dollars (and occasionally hundreds of millions) on ERP systems from SAP and Oracle. Generally these purchases were vindicated by their purchase being firmly advocated by executives in Finance, HR, or Businesses as a means of keeping up with their opponents, who were additionally installing such systems. Line executives as well as cIO’s frequently didn’t give enough consideration to the issue of the best way to create a successful transition to these quite complex systems. Alignment of direction of organizational change brought by these brand new systems and corporate resources was missed, frequently leading to a disaster. Many billions of dollars were spent on systems that were purchased before the customer firms were prepared or must not have been purchased.

Surely, no successful moderate or big company could be run now without the applications which makes them useful as well as computers. Technology additionally represents one of the single biggest capital and operating line item for company expenses, outside of production and labour gear. For these two motives, Board-level supervision of technology is suitable at some degree.