Innovation blog: Innovation in the board room

In June 1619, at the East India Company’s annual general meeting, a group of shareholders demanded the company directors endorse the use of a new technology: the ballot box. They thought this new tech would make the annual election of the board of directors much fairer.

The directors refused, condemning the techn an ‘innovation’ that would lead to the ‘endangering and subversion’ of the company. King James, recognising the potential disruptive power of the promoted tech, weighed in and declared he ‘would have no Italian tricks brought into his Kingdom’. To the directors and regulator of this seventeenth-century company, innovation was no good thing.

At the time, the request for balloting (rather than elections conducted through the raising of hands) was pitched in part as a means to bring new blood and new ideas into the board of directors. It was proposed that 6 or 8 new directors should be elected each year (into a board of 24). This would enable young directors to ‘grow up with the rest in experience’ and develop the skills necessarily for successfully managing the company in the future. Others argued that a more diverse board would benefit the company and suggested people with different backgrounds should be chosen.

In the end the board agreed to welcome new directors each year, sacrificing the potential short-term drain on expertise in order to secure to long-term good governance of the company.

Innovation balance 

While the directors of some modern companies might break into a cold sweat at the thought of annual elections, this episode is more interesting for revealing the pressures facing boards around innovation.

How do you balance stability with new ideas? How do you match long-term investment with short-term profits? What approach to innovation will keep your current customers happy while you try to attract new ones?

What can boards do to stay on the innovative edge without risking operational excellence?

When I spoke with Mark Broadhurst, of Intellect Design Arena, he highlighted how these challenges are on the minds of many leaders in today’s insurance industry. Mark suggested that the challenge of integrating innovation into corporate strategy stems in part from the approach the insurance has taken when dealing with crises.

From challenge to opportunity

From challenges in the 1980s through to responses to Solvency II the insurance industry has turned to new business models and methods to turn challenges into opportunities – often with great success. However, one consequence of these forced changes has been that greater credence is often given to measures limiting risk rather than leading the way for change.

This effectively means that board rooms today are not only faced with similar challenges regarding new blood and new ideas, but they are exacerbated by 400 years of experience in building an alternative, risk-averse corporate culture. For these companies the greatest strength can be their brand, with years and years of stability used to attract and retain business. In turn, it becomes increasingly difficult for companies to institute new policies, or new board members, focussing on innovation.

Need for new approach 

To develop more innovative cultures in corporations, at board level and across the company, it is impossible to avoid the need for new, different ideas to not only be given a voice, but for these voices to be integrated thoroughly into the governance of an organisation. Most boards have experts focussing on finance, operations and tech, but new ideas can’t just be generated by one innovation tsar. As the pace of change quickens we need a new approach to keeping up to date.

Overcoming these challenges is vital for companies today to effectively develop a culture of innovation. Indeed, overcoming them is essential for simply keeping up. While the East India Company solution, welcoming six new directors on to the board each year, is probably a bit extreme, it’s certainly worth thinking about.