Tag Archive: shareholder return

The ‘Why’ and ‘How’ of Driving Innovation Through Corporate Governance

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The most compelling obligation of a board is to create shareholder value. The most enduring way to create shareholder value is to create customer value. Creating great customer value is an ongoing process of continuous renewal. In today’s marketplace, most competitive advantages (even seeming monopolies) are fleeting. Great intellectual property (IP) is vulnerable to alternatives and to advances in the state of the art. Human talent has never been more mobile. Advances in communication, universal access to information, and the lowering of trade barriers have opened many markets to global competition. Supply chains can be anywhere. What’s a director to do?

I am convinced that the only sustainable competitive advantage is to create an innovative enterprise. To be truly sustainable, innovation cannot be a eureka moment, where a liquid accidentally falls on a hot stove and we have rubber. Further, it cannot be built just on individuals who are innovative. Great individual contributors are necessary but not sufficient. To be truly sustainable, innovation must be deeply imbedded in the culture of the organization and in the collective behavior of its leaders. Sustainable innovation must also be baked into processes that are documented, taught, and repeatable.

Boards must have a broad-based expectation of innovation from management. That expectation must be imbedded in CEO recruiting, in establishing visions and goals, in measurement and reward. This innovation must be pervasive; a critical quality dimension to everything that management does. Innovation can occur in a firm’s products and services, in their business model, in their approach to markets (advertising and sales efforts), in their staff recruiting and retention practices.

How does a board operate, staff, and structure itself to drive innovation?

Circumstances vary so widely. I doubt there is a rigid answer to that question. However, I do believe there are universal success contributors:

  • Full board engagement. When the very broad functional potential for deploying innovation is laid over the skills’ breadth of a well-diversified board (legal, operational, financial, business development, etc.) it could be limiting to assign the responsibility for innovation oversight to a subset of the board. An alternative is to require that innovation be deeply imbedded in all of management’s plans, strategies, and goals and reviewed by the full board.
  • External market awareness. Directors who stay aware of best innovation practices across the economy are best able to contribute to continuous innovation on the boards on which they serve. Directors must become students of the discipline of innovation.
  • External perspective. There are innovation experts. Just as a board equips itself with experts in compensation, taxes, and organizational development, we need to find competent advisors who can help us to stay current and focused on our innovation progress.
  • Fundamental alignment between the board and the CEO on innovation. CEO position descriptions are usually written to reflect the board’s definition of success within a certain time frame. The capacity to passionately lead innovation must be fundamental to the CEO position description.
  • Patience. Creating an innovative culture is a longer-term project than is introducing an innovation to an individual product. The history of business is littered with stories of spectacularly successful short-term product/market innovations that were not sustained in subsequent products. One primary reason that the life of an S&P 500 company is now down to 20 years (from over 50 years a generation earlier) is that some firms are innovating in a more effective and sustained way than others.

Final thoughts on innovation and risk: Innovation is a form of change. Some innovations represent disruptive change that can impact the innovator as well as the markets they disrupt. For example, a new-product innovation can disrupt an existing successful product, or even an existing monopoly. Risks of this type can be effectively managed through thoughtful planning, integrated communication, and solid enterprise-wide controls.

The biggest risk in today’s economy lies in not innovating.


Thomas J. Furst served as senior vice president and chief financial officer of SRI International for 18 years until 2014. He was a director of the Sarnoff Corp. until its absorption into SRI. Tom currently speaks, and advises management and boards, on innovation and related topics. He can be reached at tomfurst@comcast.net.

The Face of the 2020 Board

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On the heels of the NACD Directorship 2020 panel, Virginia Gambale, director, JetBlue and managing partner, Azimuth Partners LLC; Helene D. Gayle, president and CEO, CARE USA; director, The Coca-Cola Co. and Colgate-Palmolive Co.; Michael D. Rochelle, founder and president, MDR Strategies LLC, director, Military Officers Association of America, trustee, U.S. Army War College Foundation; and Clara Shih, CEO, Hearsay Social and director, Starbucks, discussed the perspectives, expertise, and skill sets that will be critical for boardrooms of the future.

Gambale noted that some of the issues that will confront boards in 2020 are obvious today. Globalization, technology and innovation, the drive for transparency coupled with short-termism, and a focus on shareholder returns will require a certain expertise at the board level. To meet these challenges, Gambale suggested one valuable mindset is contextual awareness—the ability to lead and make decisions in the context of what is going on in the environment around you with the information you have.

“Another way of thinking about contextual awareness is as the intersection of situational awareness and the ability to use intuition to take advantage of opportunities,” said Rochelle. “It’s a 360-degree awareness.”

“Part of situational awareness is to ensure that in a globalized world you have the ability to speak each other’s language and talk across the divide,” explained Gayle. “We can be brokers for merging creating wealth with creating social value.”

Reinventing the Future

While some technologies, such as social media and mobile, enhance existing business models, some companies are developing technologies that will completely alter the future. Shih pointed to the examples of 3-D printing and self-driving cars, noting that embracing embrace rapid innovation can redefine the customer experience.

Directors and management will need to prepare to keep pace with evolving technology. “The bylaws in corporate governance were meant to maintain stability. We need to be aware that in that environment we need to try harder to carve out time to brainstorm about how businesses can be transformed by these technologies.”

Onboarding Future Directors

“Ensuring a board is prepared to embrace emerging technologies starts with an effective onboarding process. Boards must do a better job of thinking about diversity as more than numbers,” Gayle explained. “How do we make sure what that person has to offer is brought to light? In onboarding, we need a focus on dialogue—having a discussion about what that member brings to the table.”

In addition, considering younger directors may also prove fruitful, she continued: “We have deliberately looked for younger candidates on my board—they understand some of these worlds better.”