Technology Governance – Lessons from 13 Bankers
13 Bankers, by Johnson and Kwak, is an interesting but at times text-bookish read on the history, successes and failures of banks in the US from the time of the founding fathers to the recent mortgage induced meltdown. The book makes a compelling point that effective bank regulation cannot happen while former bankers are so tightly tied to American politics (witness Paulson, Geithner and several other former bankers as recent Secretaries of the Treasury). Given the size and influence of the remaining 6 large banks, the authors argue that the banks have effectively created an oligarchy. The authors defend their position through recent events; even after one of the worst financial meltdowns of all time we have yet to reign in the level of risk taking of these modern goliaths. Banker compensation is at a near all time high, high risk financial products continue to be developed with little or no oversight and the taxpayer has funded all of this with below market loans in the form of TARP. In every other meltdown in US banking history, we have swung to tightly regulate and control the banks while in this one we simply loaned them money and went back to business as usual. The authors implicitly argue that Jefferson’s (who was against a central bank for fear of it having too great an influence over government) worst fears have been realized.
The book is informative, and it got me to think about governance overall – especially over technology functions within companies. Just as the existing board structures in coordination with the government seem to be ill equipped to properly govern and regulate modern banks, so too are too many product companies ill equipped to govern their technology efforts. CEOs often do not have a deep technical background and while we’ve written that they do not necessarily need to be technical, we’ve also stated that they should ensure that they have the appropriate internal technical talent and outside technical governance. I’m not talking about the tired old topic of internal IT governance here, though that is still important. This is about ensuring that the governance of the company is correct and representative of shareholder interests.
Looking at the boards of most companies private and public companies, you will not find many successful technologists as directors. These boards are likely to have former CEOs, CFOs and CMOs but precious few of them will have former CTOs and CIOs. Given the level of spend within technology companies, what could be more important than ensuring that spending and focus is appropriate to the needs and the direction of the company? Given that the product is what creates shareholder wealth, what could be more important than having someone with relevant technical product experience on the board of directors?
A lack of understanding of the risk of certain financial products (especially in the case of debt derivatives like CDOs) on the part of boards of directors and regulators is at least partially to blame for the most recent financial failures. If former bankers sitting on these boards of directors can’t understand the firm’s financial products, how can a board devoid of technologists have a chance of understanding the ins and outs of developing the company’s products?
While clearly not of the magnitude of our current bank governance problem, it is at least a problem that should be solved as technology continues to play a larger role in each of our lives, our companies and our futures.