Can a board govern innovation?
Innovation happens, it’s what people do, and it is essentially neutral. In part two of this blog on innovation I look at the role of the board and what they can, and do, govern – and mostly don’t.
The first part looked at Is Innovation Good or Bad for Business – and Society?
1. Boards should not drive innovation
Boards do not, in my view, have a role in driving innovation. They do not have the skills or the knowledge to do it and it is most certainly not what they are there for.
Innovation happens, it is not something you can drive. You just need an executive team that is good at stumbling across people innovating and rewarding them appropriately.
Having said that, I do think executives have a role to play in creating a culture that fosters innovation – there are some interesting ideas in this blog involving Pace, where I am currently the senior NED, and Bradford University School of Management where I was on the advisory board.
I have never succeeded in mandating innovation – give people the opportunity and they will innovate. Tell them to do it and they will stare at the ground and mutter a lot.
2. Can boards predict the impact of innovations?
I mentioned in the first blog that the international accountants, Mazars, asked me to speak about the benefits of innovation to society.
It’s not clear to me that you can decide whether an innovation will benefit society – it’s only in the application that the benefits or disadvantages arrive and that judgment is very subjective.
Most innovations have winners and losers and in the current round of innovation the losers are going to be the 80% of the working population that does not have really high end skills.
3. The role of a board in innovation
The role of the board in innovation is two-fold:
- Boards need to understand what their companies actually do, and to do that they need to put effort into understanding the innovation, the market it will be used in and its potential uses and misuses. Few boards do this – they are far too concerned with ticking regulatory boxes to really understand whether the pot of gunpowder they have been presented with can or will be used to make bombs or fireworks
- A board needs to decide whether the business case for a particular innovation is not merely financially sound, which most boards are good at; they then need to decide whether in the context of the company’s values it is ethically sound. Which most Boards are not good at, because they do not see it as their role.
4. Boards and moral compass?
There is no such thing as an innovation that benefits society; it is the application that benefits and that benefit will differ over time and geography.
The role of the board in this increasingly complex global market place is to provide a moral compass that is consistent with the values of the company and its stakeholders.
It may be that a board decides that it will make bombs because it will provide jobs and please its shareholders. But they should do that with their eyes wide open to the consequences and not stumble into it blinded by an egomaniac of a CEO and a total lack of understanding of the products they were selling – as the board of RBS did.
So how would you apply a board charter to the applications of innovation? Firstly the Board needs to have a values driven debate about where the company wishes to position itself in the global market. At this point hard choices need to be made.
We live now in an increasingly global market where we compete for customers, capital, resources and jobs. We increasingly compete with companies whose values and cost bases are very different from ours. How far are you prepared to go in following your values if to do so makes your company less competitive – possibly terminally so? And what will you do when your values conflict with corporate survival?
I have always been clear that while I do not sanction murder, as a general rule I would kill to protect my children if I had to.
5. Absolute independence of NEDs and auditors
Boards also need to be clear about the absolute independence of the NEDs to be the guardians of the corporate soul, to be whistle-blowers in chief and encouraged to do so. The city does not like whistle-blowers – they make for an uncomfortable time; but unless NEDs in particular are prepared to take a very objective view of innovation we will have more applications that will destroy economies.
Image courtesy of Stuart Miles at FreeDigitalPhotos.net
We also need auditors who have an equally strong moral compass. You have to ask why none of the auditors in the banking crisis blew the whistle when the early signs began to emerge – they at least should have understood what was happening?
So, in conclusion, and hopefully to stimulate debate, innovation is neutral. The Board’s role is to look at the application and decide whether it meets the values of the company, which may or may not be in line with the values of wider society. One hopes, for all our futures, that they make the right decisions.