April 26, 2019 - by Prasanthi Vasanthakumar Governance

The idea of innovation can be intoxicating, evoking images of trailblazers like Apple, Amazon, Tesla and Netflix game-changers we admire and envy. Yet innovation can be a tricky concept for many boards. Our fall Director Lens survey shows that 82 per cent of directors identify disruptive technology/innovation/cyber-threats as important political and socio-economic challenges facing their boards, while 42 per cent believe their organizations need to significantly innovate to stay viable in the next 10 years. But innovation itself can be a risk and put current profits on the line. How can boards navigate this dreaded ‘damned if you do, damned if you don’t’ dilemma? What’s the best way to govern innovation?

The bored board
While innovative companies are often abuzz with vibrancy and passion, the stereotypical board meeting is not exactly synonymous with “incubation.” Old habits, “death by PowerPoint,” and a desire to avoid conflict can stifle fresh thinking and ideas. Instead, boards could learn to tolerate some chaos in meetings, encourage contrarian viewpoints, and actively seek out directors who want to mix things up in the boardroom. This could also mean saying goodbye to directors that return each year despite minimal contributions.

The value of a tech-savvy director
Having the right team of directors at the table is critical to keeping the spark alive. Many directors and CEOs struggle with boards that lack the innovation experience necessary to properly assess the risk and reward of proposals. One corporate survey found that 74 per cent of board directors believe social media will significantly impact business in the next three to five years, yet 80 per cent of companies surveyed had no digital expertise on their boards. This is why many boards now seek out ‘digital directors’ from tech trailblazers who can dish out informed advice on the challenges of innovating, as well as assess if a company is investing enough in technology.

Groupthink vs. collective literacy
But digital savviness is only one component of the innovation equation. To be able to offer different perspectives on the various issues that accompany innovative proposals, boards need diversity of thought – which often can’t be accomplished if everyone around the table looks and thinks the same way.

Indeed, many boards are clueing in that diversity enables innovation, while groupthink paralyzes it. And the proof is in the pudding: A recent report from the ICD’s Canadian Foundation for Governance Research shows that companies with more women on their boards file a greater number of patents. To truly fan the flames of innovation, boards may need to rethink their renewal and hire more women, visible minorities and, even millennials.

For these diverse individuals to effectively collaborate, many forward-thinking companies go one step further and develop a collective literacy through shared experiences and knowledge. This common foundation can be built by holding sessions with angel investors and venture capitalists to gain industry insights, visiting technology hubs together, meeting key customers in small-group settings, and attending industry conferences together. These group activities fuel discussion about innovation by exposing directors to “next practices,” not just best practices.

Is your CEO poised for innovation?
Getting suited up for innovation also means looking outside the board. A key decision is, of course, choosing the right CEO or working more effectively with the CEO you have. If your lead executive plays it safe, the board’s job is to nudge him or her outside the comfort zone. If your CEO is brimming with new ideas, the board should keep up and provide insight. And if you’re hiring a new CEO, it’s important to look at candidates’ abilities to lead innovation. In fact, some board members prefer candidates who have experienced failure and learned from it.

Smart partnerships
Indeed, boards and companies shouldn’t shy away from experimentation and failure in the quest to innovate. Faced with slowing sales, both Coca-Cola and Unilever partnered with startups to get early access to consumer technologies. In exchange, the startups could tap into these giants’ marketing expertise, scale and funding. For Coke, these partnerships have produced ideas it would never have thought of itself. Unilever reports enjoying solutions that are half the cost of the company’s traditional suppliers, greater buyer engagement levels and a positive impact on its own internal culture. For some organizations, the best way to stay relevant is to partner with those that are reimagining the future.

Damned if you don’t
It takes courage to reinvent the future, especially if your organization is currently successful. However, long-term success can hinge on the risks you take today. Panic-inducing studies that indicate half of the companies on the S&P 500 could be replaced in the next decade suggest organizations must innovate to stay alive. With disruption taking place at lightning speed, your board needs to embrace innovation to keep up.

ICD resources
The following resources can help you stay on top of innovation governance:

• 2018 ICD National Conference: Boldness in the Boardroom, with a session on Empowering Transformation: How Your Board Can Enable Innovation.
• One-day course, The Digital Director (available to Alberta DEP alumni)
• One-day short course, Board Oversight of Strategy
• Chapter Event: Future Digital Impact – Governance in the Digital Era – Cambridge/London, Ontario
• Chapter Event: Digital Disruption – Victoria, B.C.

Originally published in the Institute of Corporate Directors’s Director Lens, April 2018. (for INSPIRING INNOVATION)