IoD: ‘Governance and Innovation: Report of findings’

The IoD Centre for Corporate Governance has today published a new report, ‘Governance and Innovation: Report of findings’, exploring the impact of the UK’s governance arrangements on innovation.

The report identifies the most relevant factors that boards should consider so that the company’s detailed governance arrangements encourage rather than constrain innovation. These factors include:

  • Having a clear purpose and values;
  • Board composition;
  • How responsibilities for innovation are allocated;
  • The information and metrics boards use to assess innovation;
  • How rewards and incentives are used.

The report, produced with the support of Morrow Sodali and Board Intelligence, notes four characteristics that are common to successfully innovative companies of all sizes and sectors. These are:

  1. A board level appreciation of the relevance of innovation to the company’s strategy and business model;
  2. Undertaking innovation in order to achieve identified objectives or outcomes;
  3. Integrating innovation appropriately into the company’s processes and activities; and
  4. A culture that encourages innovation.

The report also looks at the influence of collaboration, ownership, public policy and regulation on a company’s ability to innovate.

This report comes at a time when the government has signalled a focus on innovation. In a recent speech the Prime Minister stated that innovation is “a defining focus of my government” and committed to creating “the most pro-innovation regulatory environment in the world”.

Commenting on the findings of the report, Dr Roger Barker, Director of Policy and Governance at the Institute of Directors, said:

“Innovation is an essential driver of economic growth and productivity. It is therefore crucial for the UK to unlock the key to successful innovation to enable the many innovative start-ups and small businesses to scale up and reach their full potential, and remove barriers to the ability of larger businesses to innovate.

“Policymakers and regulators need to adequately consider the impacts of their work on innovation. The cumulative effect of regulation on boards has had indirect adverse effects, with some boards spending a disproportionate amount of time dealing with compliance issues at the expense of discussing strategy and innovation. It also influences the selection of new board members, favouring those who may be risk averse by nature. This had contributed to the stifling of innovation in the longer term.”

Chris Hodge, Senior Advisor at the IoD Centre for Corporate Governance, and the report’s author, said:

“With the proportion of UK businesses defined as ‘innovation active’ in decline, now is an important time to uncover and address the causes.

“There are many factors that will influence a company’s ability and willingness to innovate, such as access to capital, skills and support. However, the way a company is governed has a significant influence. The governance framework must be conducive to innovation, to ensure a company is in a position to take advantage of the opportunities and cope with the challenges ahead.”