Anastassia Lauterbach - Why Must Corporate Boards Discuss Innovation?

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Feb 25, 2020
by Anastassia Lauterbach
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Anastassia Lauterbach - Why Must Corporate Boards Discuss Innovation?

Technology strategist and entrepreneur provides clarity about what innovation in corporate boardrooms implies Anastassia Lauterbach at Salzburg Global Seminar

This article is part of the series, the Salzburg Questions for Corporate Governance by the Salzburg Global Corporate Governance Forum

In the previous installment of the Salzburg Questions for Corporate Governance series, Dottie Schindlinger outlined four best practices for corporate directors to cultivate innovation. But given the conservatism of many boards, particularly of companies that have historically been successful at their existing missions, directors may need to convince themselves that innovation matters in the first place. I want to further reduce confusion around what innovation in corporate boardrooms implies, how to make progress on innovation visible in business, and what factors enable it.

Does innovation matter on corporate boards’ agenda?

Corporate boards all over the world deal with three significant issues. They safeguard shareholders’ capital while ensuring their company’s strategy is valid and competitive, that their leadership is up to implementing it, and major risks are being properly mitigated and managed. To fulfill their fiduciary duty, boards increasingly think about how to support management in developing a compelling innovation strategy and, in addition to that, reduce the peril their company might get disrupted long-term.

There is a lot of confusion on what innovation in a particular business implies, what risks and upsides it bears, and how it can be linked to managing quarterly pressure from investors.  Making innovation tangible requires three things. First and foremost, the board needs to be clear about their company’s innovation vision, and how it translates into reality in terms of organizational culture, processes, and measuring and management metrics to track changes. Second, directors need to support diversity within their ranks, and more broadly in the organization. Third, they need to more actively (and maybe differently) engage with their management.

Measuring and managing innovation

Innovation is not just about what a company does (or does not do), but about how it goes about doing it. It is a reflection of corporate culture and processes, which evolve slowly, requiring leadership from the top, and the support of employees and managers with influence across all layers of an organization. Avoiding risks might be as damaging as trying to change too many things at once.

The balancing act between the long-term well-being of companies with traditional risk oversight requires a superior understanding of the current and future competitive landscapes, technology disruption, regulatory trends, and existential threats from potential “black swan” events, impacting profitability and reputation.

Quite often, boards lack transparency over organizational capacity to pivot into uncharted territory with new products and services, business models, and ways of getting work done. When it comes to venturing outside of the core business (e.g., developing product line extensions, reducing costs, or improving customer centricity via digital channels), boards and the management should jointly agree on how one or another activity will add value and increase the resilience of the business.  Translating innovation into a set of measurements is necessary.  Some firms are ahead in this, e.g., the Alphabet OKR (Objectives and Key Results) system is one of the most important ingredients of the company’s daily life, while Amazon monitors 500 measurable goals. Workforce rotation and investing 10 percent of working time into education and the development of new products are examples of non-financial targets which might be as important for innovation as R&D vs. revenues ratio benchmarks.

According to The Economist (February 8th – 14th 2020, page 9), 32 percent of firms in the S&P 500 of big American firms invest more in intangible assets than physical ones, and 61 percent of the market value of the S&P 500 can be found in intangibles such as R&D, customers linked by network effects, brands and data. These intangibles should be measured in order to be managed. Shifts in them should be properly discussed in the boardroom.

Promoting diversity

One of the most important triggers of innovation is diversity. By diversity, I don’t mean promoting gender, age, or ethnic backgrounds in the boardroom. I am talking about the ability to master the context and environment in which a company competes. Today this requires experience in international operations, technology and data, mergers and acquisitions and post-merger management, and talent acquisition. Good communication skills and the business network that directors nurture will grow in importance along with their technology literacy. The same thing is true within the management team.

Actively engaging with management

CEOs and top management appropriately have more insights and power than non-executive directors over corporate affairs and significant decisions. But without the full support of the board, management is unlikely to take the big bets required to innovate.

Embracing innovation in a boardroom requires a more active and engaging partnership between non-executive directors and senior management. Best directors spend time with the company beyond their board meetings. They understand the art of leadership by asking good questions. They are generous with their own network and lessons learned from their own executive carriers. They dare to disagree without being disagreeable. They don’t limit their discussions to these with CEOs, CFOs, and marketing professionals. They understand what engineering and design of their companies do and in what circumstances they thrive.

Ultimately, there is no silver bullet to solve the innovation dilemma in the boardroom. No AI will give directors all the answers. Traditionally conservative boards might open up for experiments. There is no doubt that any innovation discussion will require directors to invest more time to engage with management while challenging their own views. It might not be an easy path. It is, however complacent and even dangerous not to get on it.

Have an opinion?

We encourage our readers to share your comments by joining in the discussion on LinkedIn.


Anastassia Lauterbach is an international board member, technology founder and entrepreneur. She serves as a non-executive director for Dun & Bradstreet, easyJet PLC, and Wirecard AG. Anastassia is member of the Advisory Council Next Generation Directors for NASDAQ and of the Diligent Institute of Corporate Governance. Anastassia serves on the advisory boards of the Ocean Protocol, a private global blockchain infrastructure and intellectual property company; Cogitanda AG, a private European cybersecurity insurance broker; and TM Forum, a non-profit global association of telecommunication companies and their vendors. Previously, Anastassia served as senior vice president and executive vice president at Qualcomm, Deutsche Telekom, and Daimler Chrysler. She started her professional path at the Munich Reinsurance Group and McKinsey & Company. She is CEO and founder of 1AU-Ventures and currently advises several U.S. and European based artificial intelligence (AI) and cybersecurity companies and investment funds, including Evolution Partners and Analytics Ventures. She trains boards in cybersecurity and cognitive AI and robotics-related technologies and their links to corporate governance. She advises the International Telecommunications Union, a United Nations organization, on AI policy and governance. Her book The Artificial Intelligence Imperative: A Practical Roadmap for Business has sold 35,000 copies. Anastassia has a Ph.D. in linguistics and psychology from the Rheinisch Friedrich-Wilhelms Universität Bonn and a diploma in linguistics from the State Lomonosov University, Moscow. She is a Fellow of Salzburg Global Seminar.

The Salzburg Questions for Corporate Governance is an online discussion series introduced and led by Fellows of the Salzburg Global Corporate Governance Forum. The articles and comments represent opinions of the authors and commenters and do not necessarily represent the views of their corporations or institutions, nor of Salzburg Global Seminar. Readers are welcome to address any questions about this series to Forum Director, Charles E. Ehrlich: cehrlich@salzburgglobal.org. To receive a notification of when the next article is published, follow Salzburg Global Seminar on LinkedIn or sign up for email notifications here: www.salzburgglobal.org/go/corpgov/newsletter

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