Upfront: Board innovation

Elizabeth Proust sets the agenda for modern boardroom thinking.

Last month, I was delighted to attend a joint Trans-Tasman Business Council and AICD luncheon to discuss whether boards and organisations are set up for innovation.

Attended by some of Australia’s leading business minds, conversation quickly turned to a board’s role in innovation and how boards can establish a truly innovative culture in the organisations they govern.

I remain convinced that regardless of differences between boards and the organisations they govern, driving innovation must come from the top.

While no notion of innovation, let alone the appetite and capacity of a business to be innovative, is the same, it is the board’s role to work with the executive to determine what innovation means to the organisation and to define why the organisation needs to innovate.

In my experience, the boards that are able to do this best have considered their own composition, as well as that of their committees.

However, the ability of boards to do this effectively has been somewhat limited in the context of Australia’s corporate culture – which is governed by a complex regulatory environment that too often forces directors to exercise excessive caution. This has helped create a situation in which boards have been unwilling to take the well-judged risks that are essential to entrepreneurialism and innovation.

The government’s recently introduced draft legislation for insolvency law reform – including a proposal to introduce a safe harbour for directors from insolvent trading laws – is a positive step.

Our current laws hold directors personally liable for the risk of insolvent trading with very limited defences. This can lead to premature invocation of insolvency, resulting in job losses, contract terminations, destruction of goodwill, and overall value diminution.

The current insolvent trading regime also discourages experienced directors from joining boards of companies at the very point when they would add greatest value. Indeed, concerns over inadvertent breaches of insolvent trading laws are often cited as a reason early-stage investors and experienced directors are reluctant to become involved in start-ups. A safe harbour will help save more of the business that can be saved along with the jobs and value they create.

The AICD has called for reform in this area as a national priority. The Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017, which will deliver this reform, has passed the House of Representatives and is now before a Senate Committee. While the proposed legislation could be further improved, the AICD strongly supports the Bill. The impact of this proposed reform, as it currently stands, should not be underestimated – it has the potential to to drive far-reaching changes in Australia’s business culture.

However, we can’t expect one piece of legislation to change everything. There must be a renewed push for a national culture of innovation and entrepreneurialism. This is critical for Australia to prosper and grow.

Currently, we are dealing with stagnating productivity growth and an economy in transition from the latest resources boom. Innovation-led growth is essential to our prosperity.

The AICD announced in successive Blueprints for Growth in 2016 and 2017, reform recommendations to drive progress. In 2017, we recommended that the government:

Push back on protectionism to support an open, export-orientated economy.
Reform the regulatory environment to foster innovation, including a safe harbour under insolvency laws.
Boost Australia’s innovation system, prioritising collaboration in R&D and targeted skills investment.
Achieving this requires a national focus, policy consistency and a bipartisan agreement on the priority actions and reforms. Download the 2017 Blueprint from Governance of the Nation.

Trade mission to Israel

In May, Carol Schwartz AM FAICD and I led a trade mission to Israel with the support of the Australia-Israel Chamber of Commerce. Meeting with senior executives from key sectors, we discussed the issues facing directors internationally and developed an understanding of Israel’s unique innovation ecosystem.