How future-oriented company boards drive innovation
Publicly listed companies are under growing pressure to deliver short-term results while at the same time driving long-term innovation. Against this background, it is crucial for the board to focus on the company’s long-term strategic development. In academia and in the business community, there are increasing calls for bringing more relevant expertise to the boardroom to be able to master the challenges of the future. However, this expertise only pays off if directors actually share it as part of their governance responsibilities. WU Professor Patricia Klarner, head of the Institute for Organization Design, investigates the role of the board in long-term, high-risk product innovation.
As the central supervisory body of publicly listed companies, the board plays a key role in shaping a company’s long-term strategy. Innovation is central to long-term corporate growth, but it also involves high risks and requires considerable investments. What is the role that the board can play with regard to innovation? WU Professor Patricia Klarner and her coauthors set out to answer this question. In their study, the researchers looked at four leading pharmaceutical companies from the US and Switzerland. They interviewed board members and employees and analyzed detailed secondary data on the companies, their strategic activities, and the composition of the boards.
The gatekeeper role: Sharing innovation-related expertise
“One of our key findings is that the boards of innovative companies are characterized by a specific board design and specific governance behaviors. They pool their scientific expertise in specialized board committees. Committee members actively engage in an exchange of ideas with managers and employees involved in research and development projects to find out more about the company’s current activities and to contribute their own expertise,” explains Professor Klarner. “We saw that in addition to official meetings, informal and spontaneous interactions with employees were particularly important factors in facilitating the exchange of ideas.” A strong innovation culture on the board strengthens this dialog between directors and the organization. Directors who reach out to executives and employees at the forefront of R&D to learn about and discuss innovation activities function as important gatekeepers for the entire board, sharing their insights with other directors who lack specific innovation expertise. In this way, the entire board – a body with a very diverse composition – is then able to discuss strategic aspects of the innovation pipeline.
What boards with a long-term perspective need to do
To be able to steer long-term strategy, board members need to have expertise in areas of strategic importance for the company, and they need to share this expertise as part of their governance responsibilities. The study shows that it is not only important to identify the expertise required from board members but also to set up structures to facilitate the exchange of knowledge between directors and the organization. “Specialist or ad-hoc committees are particularly well suited to achieve this goal,” Professor Klarner points out. It is also very important to evaluate the directors’ ability to communicate effectively with different employees. “In many cases, shareholder representatives and regulatory authorities only call for the disclosure of the expertise that the board brings to the table. It is equally important, however, that directors play an active role in strategic discussions and have the required soft skills,” says Patricia Klarner. This involves discussions about long-term strategic issues with specialists and people working in different areas.
About Patricia Klarner
Professor Patricia Klarner is head of WU’s Institute for Organization Design. She holds a PhD in Business Administration from HEC, University of Geneva, and she repeatedly worked as a visiting scholar at the Wharton School of the University of Pennsylvania. In 2015, she earned her venia docendi in business administration at LMU Munich. Prior to her position at WU, Patricia Klarner worked at LMU Munich and the Rotterdam School of Management, Erasmus University. She was also a research associate at the University of St. Gallen’s Center for Organizational Excellence. Her research focuses on strategic management and adaptation, corporate governance, and strategic leadership. Her work has been published in leading international journals such as the Academy of Management Journal, Academy of Management Perspectives, Strategic Organization, Corporate Governance, and Long Range Planning. Patricia Klarner serves as associate editor of the Journal of Organization Design, as an editorial board member of the Journal of Management and Strategic Organization, and as chair of the Strategy Process Interest Group of the Strategic Management Society Conference, the largest international strategic management conference. For more information about Patricia Klarner, please see our FIDES database.
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