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Financial services companies need more board-level technology experience, say experts

Out-Law Analysis | 14 Dec 2015 | 5:23 pm | 2 min. read

FOCUS: Like all well-established banks and most existing financial services businesses, Deutsche Bank has a legacy technology problem. Unlike many of its competitors however, the German bank has recently announced that it is committed to addressing the problem as a matter of priority. 

In a strategy document released last month, Deutsche Bank set out a plan to "stabilise the bank and to turn around its long-term performance." Labelled 'Strategy 2020', the plan focuses on four high level strategic goals, the second of which is "to become less risky by modernising our outdated and fragmented technology." The bank has said that it is committed to taking management actions in its business divisions to "save costs by streamlining infrastructure and technology."

That a bank lists technology modernisation as one of its four strategic goals, in company with a need to focus on particular markets, products, and clients and "to become better capitalised, so that we are no longer playing catch-up with regulation and market expectations", may surprise some, but should not be unexpected. Whether or not banks have the expertise and experience in technology at a similar level is currently a major point of debate.

Boards and technology

A recent survey by Accenture reported on the amount of technology expertise present on UK financial services boards. According to the report, only 6% of board directors of leading banks have technology experience, while more than two-fifths have no board members and nearly one-third only having one board member with that experience.

The report concluded that a connection can be made between this lack of expertise and a business's ability to effectively assess the issues and make decisions "about strategy, investment and how best to allocate technology resources."

At Pinsent Masons we conducted our own research on boards and technology expertise, and like Accenture, found that most financial services organisations have not seen the need to make board technology experience a matter of priority. Our analysis of FTSE 100 data indicates that while 53% of listed financial services organisations have at least one board member with technology experience, all but two of these act in a non-executive role.

The wider picture in terms of senior management technology expertise also suggests that the majority of financial services rely on few individuals with significant technology experience when making key strategic decisions. The percentage of financial services senior management teams that include individuals who have held significant technology roles is 58% according to our research.

Do boards need technology expertise?

But does any of this really matter – do boards need to have technology experience? Technology change of any significance takes time and it is never cheap. A high risk of failure is always present and comes in many forms. From backing the wrong technology to underestimating the personnel and cultural consequences of potential change to relying on the wrong suppliers to the unknown reputational and financial implications of cyber incidents, there are many reasons why a business could choose to delay or prevent a path towards technology modernisation.

With the senior managers' regime being rolled out across the financial services sector, more individuals within financial services businesses are increasingly concerned about high risk scenarios which could impact on their personal accountability. To replace a bank's core system or introduce changes which would have similar critical impact on a financial services business will likely continue to require collective board-level sponsorship.

Boards therefore need to have the confidence that they understand the opportunities technology change could present just as well as they understand the potential risk of change. To answer the question then, it is fair to say that if we accept the relative importance of technology to financial services businesses has increased then surely some representation is appropriate.

John Salmon and Luke Scanlon are financial services experts at Pinsent Masons, the law firm behind Out-Law.com