The Board’s Role in Driving A Culture of Intrapreneurship

Innovation and intrapreneurship are global governance issues.  Board members and company leaders are the stewards of the assets of the organisation—both tangible and intangible.  Cultivating, harvesting, and protecting those assets, particularly intangible assets, is more important than ever, as companies are operating in an increasingly competitive and global business environment and an era of employee mobility and discontent.  Boards that do not take their fiduciary responsibility to develop and manage the intangible assets of the company seriously—and simply leave this critical strategic issue to managers who might lack the authority, budget, visibility and an ability to advance the strategic ball forward—may miss out on key market opportunities and strategies to drive shareholder value.  And depending on the nature and extent of that oversight failure, boards may lose favour with Wall Street, or the relevant capital markets and financial analysts draw the attention and scrutiny of institutional and activist investors, or subject themselves to shareholder suits by aggressive, creative plaintiffs asserting breaches of fiduciary duty. 
 
The leadership of the company or organisation must be committed to establishing, maintaining, and supporting (with resources – both tangible and intangible) a genuine culture committed to all types of innovation.  Once this culture has been put firmly in place and the seeds of innovation have been planted, the irrigation process begins with a parallel commitment to building on organisational foundation built on pillars of intrapreneurship.
 
Intrapreneurship has been defined in many ways, but for the purposes of this article, it is a person or team within a large corporation who takes direct responsibility for turning an idea into a profitable finished product through assertive risk-taking, the gathering of internal resources, and support and innovation.  It is not merely invention, which may create something new, but typically does not by itself create value to customers or drive shareholder value.
 
When applied inside the four walls of an established or growing company committed to a culture of innovation, great things begin to happen.  People feel empowered, directed, rewarded appreciated, invigorated and reconnected to the reasons they chose this career path and this company as a place to spend 10 to 12 hours a day.  They feel like they are part of something much larger than themselves and realise that their rewards for work far transcend their individual corporation as they became true drivers and contributors to the maximisation of shareholder value.  These happier and more challenged employees are not only considerably more productive; they are also more loyal and tend to stay at the company much longer, significantly reducing costly employee-turnover expenses and chipping away at the alarming global rates of employee under-employment and unhappiness (nearly 50% of all workers in the U.S. and the UK).
 
The Board of Directors and executive team must set the tone and initially write and implement the playbook for the parameters of intrapreneurship within the company.  The playbook will detail the rules for success and failure, resource allocation, ownership of inventors, rewards and incentives, and strategies and structures for intrapreneurship.  Innovation and intrapreneurship can be a central part of the company’s mission, values, and branding, such as is the case with IBM, Proctor & Gamble, and DuPont, or can be a much lower priority in the strategic food chain.  If there is too wide of a gap or disconnect between the company’s intrapreneurial playbook and the skill sets and desires of the employees that are supposed to be acting as entrepreneurs, then all innovation efforts will derail. 

Visionary boards and CEOs surrounded by traditional-thinking corporate managers will make innovation virtually impossible—like trying to drive a sports car around the racetrack with no engine.  Conversely, creative and forward-thinking employees whose projects are constantly being shut down or mired in red-tape will either leave or, worse, just give up and fall back into their risk-free daily patterns.  Alignment and shared values are critical, and all employees should have a crystal-clear picture as to how and where they fit into the intrapreneurship process and why it is mission critical to the organisation and the stakeholders.  For example, some companies, such as Google, have adopted “20% time” and other policies that expressly permit employees to set aside time to pursue pet projects and ideas, a top-down policy that encourages and gives employees a path to pursue bottom-up experimentation and innovation.
 
Sometimes, drawing connections between two very different, yet simple concepts can serve as a catalyst for intrapreneurship.  The story of the Post-It reminds us to keep the lines of communication open and to have forums where employees can share ideas across divisions.  Post-Its were born from the invention of a not so sticky glue and a colleague’s frustration with disheveled and falling notes, and were made successful by the quirky marketing efforts of a third employee.  The frustrated colleague remembered a series of discussions led by the inventor of the not so sticky glue and realised he had the perfect application for the product.  Large corporations have a huge advantage – they have really talented employees with different skill sets and interests.  Sometimes, great ideas require cooperative learning and discovery to reach the point of becoming a viable market solution.  Also, just because a good application of an idea is a mystery today, does not mean it will be tomorrow.  Coupled with employees who are allowed to spend 15% of their time working on new ideas, companies like 3M, the birthplace of the Post-It, are well positioned to be market pioneers and to succeed at it. 
 
The bridge, the glue, and the catalyst responsible for this alignment is typically the Chief Innovation Officer(“CIO”).  This is a relatively new position in global companies, and the precise job description is still evolving as of 2012.  Companies such as Coca-Cola, Humana, Owens Corning, AMD, and Citigroup, representing a diverse set of industries, all include CIOs among their top leadership positions as the pressure to innovate and harvest intellectual capital rises to the top of corporate agendas.  But only a handful of companies have made this commitment when compared to the tens of thousands of organisations that have no senior person or team accountable for managing innovation and fostering intrapreneurship.
 
Some common themes have emerged in building the position descriptions for the CIO, which include:
 
Common and consistent set of innovation values and policies – The CIO needs to develop company-wide values and policies, so that everyone is singing from the same hymnal, and communicate these policies through training, shared success stories and best practices.
 
Determining intrapreneurship strategies and structures – Intrapreneurship can take many forms.  Larger traditional companies tend to gather everything and everyone together under an R&D department that may service multiple divisions within the conglomerate.  But more nimble and progressive companies are turning to ad hoc venture teams, new venture divisions and groups, innovation centers, internal VC funds and research growth, offsite “skunkworks” operations, and even innovation sabbaticals to foster intrapreneurship.  External strategies include outsourcing, teaming and partnering with university research projects, cross-licensing, M&A and joint ventures to achieve intrapreneurship objectives.
 
Attracting and retaining intrapreneurial talent – The CIO must work closely with the human resources department to ensure that innovative workers are recruited, rewarded, and retained.  Policies must be put in place to recognise the accomplishments (and the failures/efforts) of creative teams, both financially and non-financially.  There must be flexibility to reward people who help drive genuine shareholder value and keep them connected to the energy level and culture which attracted them to the company in the first place. 
 
Executing high-level innovation priorities and evaluating bottom-up proposals – Innovation and intrapreneurship are both top-down and bottom-up when the systems are working properly.  The CIO must develop the screens and filters for evaluating ideas, assigning resources, establishing teams, providing capital to them and making sure that organisation-wide innovative goals are met.  Greenhouses and safe-places must be established where new ideas have a chance to be vetted and prototypes and working models can be tested.  The selection and management of test markets, early customer adopters, advocacy groups, market influencers, and early-stage channel partners are all within the CIO’s domain.  The knowledge and the best practices that are gathered when these assumptions are tested must be shared across company lines and, where and when appropriate, to external partners and stakeholders.
 
Boards and leaders who are committed to supporting intrapreneurship as an implementing tool for achieving innovation and an irrigation method for growing strong inventories of intellectual capital view employees as resources, not expenses.  Teams are assembled for the purposes of creating, not for maintaining.  People are rewarded for breaking the status quo, not for protecting it.  Some degree of failure is a given and is embraced as long as it is a learning experience.  Micromanagement is tossed out the window in favor of a hands-off approach that fosters the sort of creative culture that smaller-company entrepreneurs enjoy, but within a larger mothership. The rewards for creating new products and services can include significant bonuses, equity awards, internal and external recognition, and even spin-offs into newly-created partially-owned subsidiaries in lieu of an MBO or a divestiture. 
 
Andrew J. Sherman is a Partner in the Washington, D.C. office of Jones Day, with over 2,700 attorneys worldwide.  He is a recognised international authority on the legal and strategic issues affecting small and growing companies.  Mr. Sherman is an Adjunct Professor in the Masters of Business Administration (MBA) program at the University of Maryland and Georgetown University where he has taught courses on business growth, capital formation and entrepreneurship for over 23 years.  Mr. Sherman is the author of 26 books on the legal and strategic aspects of business growth and capital formation.  His 23rd book, Harvesting Intangible Assets, Uncover Hidden Revenue in Your Company’s Intellectual Property, (AMACOM) published October 2011.  His 24th book, Raising Capital, 3rd edition published April 2012, while his 25th book, Essays on Governance published in late Spring of 2012. 
 
Mr. Sherman can be contacted by phone on 202-879-3686 or alternatively via e-mail at: ajsherman@jonesday.com