Are Boards Embracing Innovation Governance?

DEC
16
2020
DEC 16, 2020

Countering The Pervasive Belief That Governance Stifles Innovation

(Originally appeared in the December 16th, 2020 'Across the Board' publication, a Board Director, Board Advisor, C-Level, and Business Leader publication reaching 26,500+ exceptional business leaders in over 70 countries with articles focused on leadership, strategy, and governance topics - sign up here)

It is unfortunately quite easy and common for Boards of all entity types (public, private, and nonprofit) to be so focused on urgent needs as well as statutory governance requirements that the topic of 'innovation' is relegated far down on the priority list. In some more egregious cases, innovation isn't on the radar at all. Compounding these foundational shortcomings, when the topic of innovation is addressed, there exists a surprising amount of misunderstanding on how a Board of Directors should be involved, enable, support, or govern innovation. 

Innovation Governance: A holistic approach to guiding,
p
romoting, and sustaining innovation

For a Board, a vast amount of data and trending supports the need for not only a mindful short-term approach, but also a robust and sometimes unconventional longer-term vision in parallel. Many organizations seemingly struggle with longer-term vision and accompanying strategies due to their complexity and the inherent inability to predict the future. Michael Raynor's 2007 book, 'The Strategy Paradox: Why Committing to Success Leads to Failure (And What To Do About It),' neatly captures this still-relevant dilemma by showing how a compelling vision, bold leadership, and decisive action are not only the prerequisites of success, but are almost always the ingredients of failure, too. This contradiction is exactly why the need will always exist for Boards to embrace the concept of 'innovation governance.'

With the accurate predictor of modern organizations' future success so dependent on effective innovation practices, the adoption and adaptations that Boards must embrace are incredibly important. Unfortunately, there are many impediments working against the process, most significantly what seems to be the pervasive belief that governance stifles innovation. I have always been baffled by comments alluding to the perception that innovation and creativity are somehow hindered by governance, even when placed within a properly constructed oversight process. In my experience, innovation is enhanced and actually accelerates with the Board's input, insights, and proper governance. Perhaps the core challenge causing negative bias is actually ineffective overall governance which becomes blatantly obvious within more loosely defined lines of business where innovative practices are employed, hence the prevalence of the negative perception. Unfortunately, this belief is not limited to smaller or less-experienced organizations. 

A recent example of governance viewed as a buzzkill can be seen inside Microsoft with the launch of their FATE program (fairness, accountability, transparency and ethics in Artificial Intelligence (AI)). It has been noted that FATE is not deeply integrated within Microsoft's engineering groups, and even though the ambition exists for AI to be closely coupled with the company's sustainability strategy, there is currently no Board-level oversight. Microsoft's CTO stated the belief that an increase in oversight may hinder AI research and allow competitors to overtake them in an area where they have historically led. When translated, the statement could be interpreted by governance experts as actually stating, "...In all honesty, we don't respect the Board's abilities to enhance our work and we definitely don't need any incompetent Board meddling in our affairs." This interpretation may seem harsh, but many times outward perception is reality.

Directors need to force a discussion in the boardroom on how they will govern innovation, first agreeing on foundational innovation components and then defining the actual governance model with a full understanding of how management plans to allocate responsibilities for innovation.

Foundational innovation components include a) roles, responsibilities, and accountabilities of the Board, b) fostering an innovation culture, c) navigating the ethics of disruptive innovation and technology, d) balancing innovation risks with opportunities, and e) overcoming resistance to change both inside and outside of the boardroom.

In the article, '9 Different Models in use for Innovation Governance,' Jean-Philippe Deschamps defines a typology of governance models. He states, "Management has a number of choices to make when allocating responsibilities for innovation within its ranks. The first choice is related to the type and number of bearers of that responsibility, i.e. should innovation oversight be entrusted to a single manager or leader, fully dedicated to the task or not? Should it be given to a duo of managers or leaders? Should it be assigned to a small group of leaders? Should it be distributed among a larger group of managers? The second choice deals with the management level of the appointed innovation heads and their reporting relationships. Should the jobs be filled by top managers reporting directly to the CEO or to the executive group? Should they involve less senior or even middle managers reporting to a lower level of management? When they are combined, these two choices determine nine different models of governance."

Boards that knowingly and willingly disengage innovation from their governance oversight increase organization and personal risk exponentially. When innovation becomes a governance outlier, a Board invites risk from:

  • An incomplete and fragmented view of the organization's goals as well as the inability to holistically measure expected outcomes.
  • The inability to govern through a values-based decisioning methodology.
  • Lack of future vision and mission alignment.
  • Gaps in end-to-end strategic planning understanding.
  • Diminished ability to successfully pivot goals/strategy when required.
  • Diminishing of the Board's authority. 
  • Increased Board legal liability stemming from the perception of dereliction of duties.

These are some pretty serious risks that most Boards would be fearful to take on. With a myriad of pressures on today's Boards, innovation governance is one of great importance to not only shareholders, but many stakeholders, too. Innovation governance, especially as it pertains to organizations' environmental, social, and governance (ESG) transparency, will increasingly be demanded by internal and external forces, further raising the need for an all-encompassing strategy and innovation governance approach.

 

Has your Board properly integrated innovation governance?

 

Reach out directly to Mark A. Pfister to properly integrate your Board's innovation governance with his Consulting & Advisory offerings and International Speaking Tour topics.