In our continuing series, Corporate Governance Expert David Beatty offers insights how to handle the Digital Tsunami that is affecting boards on a global level.

What Should Boards Do to Respond to the Digital Tsunami?

David R. Beatty: People are generally aware that our world is rapidly changing. If you had been in the taxi cab business in Toronto and Uber arrived, all of a sudden, your world is upside down. Take the hotel industry, Airbnb completely revolutionized the notion of where you stay when you go away. They have a larger market capitalization than does Marriott, the world’s largest room kind of hotel company. They have probably 3,000 employees and Marriott has 500,000, and is a larger market cap, amazing.

This kind of transformative change is everywhere, and it’s at a pace that’s unprecedented. I think of it in a visual sense it’s a tsunami, that’s a wave that’s, let’s say, a kilometer high and 10 kilometers long coming at you, you can’t just hold your breath and duck down and it’ll go over. Think of the movies of Indonesia and that water just kept coming in and in and in. That’s what the tsunami does, and that’s what a digital tsunami is doing.

My concern is that boards of directors really are not up to speed on the impact this will have potentially on their businesses. Some boards have responded and responded in innovative ways. But basically, I think it’s underappreciated the degree to which change will occur and the speed with which it will occur and the impact of its occurrence on the businesses you’re now overseeing.

 A number of strategies have been developed, many boards have encouraged the management team to build incubators, there are now 75 incubators attached to the S&P 500 companies. I know the Royal Bank of Canda has built an incubator in fintech in an adjacent building to them, just so they can keep on top. When I was on the Colliers board, we did a joint venture with an incubator to bring it inside of Colliers. That’s one response.

Another response is to change the nature of your board. Walmart has brought on three directors who are 40 years old and very much conversant with the information age to kind of levin the 64-year-old average age that was on their board before. Some boards take visits, I know the Bank of Nova Scotia spent a week in Silicon Valley trying to understand what was going on there.

There’s a lot of different ideas that boards have, but basically, if you as a director, and if you as a member of a board of directors, are not thinking through how you’re going to get up to speed on the impact that the digital tsunami could have on your business, you are not doing your job and you may well be out of business before you know it.

David Beatty is an adjunct professor and Conway chair of the Clarkson Centre for Business Ethics and Board Effectiveness at the Rotman School of Management. Over his career, he has served on more than 39 boards of directors and been chair of nine publicly traded companies. He was the founding managing director of the Canadian Coalition for Good Governance (2003 to 2008). A version of this article will also appear in the Winter 2017 edition of Rotman Management, published by the University of Toronto’s Rotman School of Management.