[Update 1st Sept.: I've done a better analysis of Board skills in the subsequent post.]
Continuing the theme of the culture of innovation I raised in an earlier post, this entry considers what role do and should the Boards of Directors of New Zealand’s Crown Research Institutes play in innovation.
Unlike universities, the CRIs have a mandate to support specific sectors to
innovate and grow. They strive to address New Zealand’s most pressing issues and achieve economic growth by improving sectors’ productivity and improving the sustainable use of natural resources.
Many research institutes have scientific advisory boards and/or a board of trustees to help shape their direction and strategy. Few government research labs though seem to have a board of Directors, so the CRIs appear unusual in this regard. Australia’s CSIRO has a board but that is much more high level – overseeing the whole organisation rather than the particular specialities of CSIRO’s different flagships.
In the commercial world the quality of the board and senior management is usually critical to the success or failure of the company. Having a good spread of experience and skills in a board is one of the critical factors associated with high performance.
CRI boards, though, have some different constraints compared to a private company. Notably, the government has considerable say about corporate intent and who joins the Board.
The CRI Taskforce review [Pdf] noted the need for CRI governance boards to include a broader range of skills. The suite of changes introduced in 2010 were intended to make CRIs less reliant on competitive funding to shape their research and to become more strategically focussed on their core purpose and better connected with their key sector(s). Their boards were given a greater role in shaping the scope and direction of research.
As set out in the CRI Toolkit, functions of the Board include:
- providing leadership and vision to the company in a way that will enhance shareholder value
- developing and reviewing company strategy and performance against the strategy
- monitoring the performance of senior management
- reviewing and approving the company’s capital investments and distributions
- ensuring compliance with statutory requirements
- providing leadership in its relationships with key stakeholders including, where relevant, industry groups, Maori and staff
New Zealand’s small population, and scarcity of large companies, means local companies have a shallow pool of suitably experienced and talented potential Board members to draw upon – for private as well as public entities. Relatively few boards make up for this by having Directors from other countries. For research and development intensive organisations, like CRIs, the governance talent source is more a puddle than a pool if you want people with experience in the more specialised nature of their operations.
How well equipped then are the CRI boards to provide leadership, vision, and strategy? And how well can performance be monitored (apart from a narrow input/output focus of counting funding income, papers and patents) in areas that aren’t about producing widgets or growing market share?
To “provide leadership and vision to the company in a way that will enhance shareholder value” I’d expect to see boards with not just good governance, financial, legal and strategic chops, but also some practical understanding of the sectors the CRIs are supposed to be working with, as well as some experience in commercialising or transferring R&D. How else could they develop a good understanding of the opportunities, challenges and options facing the CRI?
Relevant science expertise wouldn’t be amiss either. The CRI Taskforce recommended that each board include an “eminent scientist”.
How well do the CRIs stand up to my expectations? Based on the brief biographies provided by the CRIs for their board members I have allocated their skills and expertise into one of four categories:
- general governance skills (ie standard Director types with financial, legal, previous directorship experience, and/or experience in working with Maori organisations)
- sector knowledge – experience (beyond directorship) in the sector(s) that the CRI has an interest in. For example, farming, horticulture, manufacturing, wood processing, regional council or running a small business relevant to the CRIs interests
- scientific knowledge – science expertise relevant to that CRI
- technology transfer – have hands on involvement in converting science or technology into a business opportunity or helping a company commercialise R&D.
Somewhat simplistic perhaps, but useful in providing a broad overview. I’ve avoided double counting by putting each director in the category which I think best describes the main attribute that they bring. If, for instance, an AgResearch board member is a farmer as well as being involved in a range of other boards then I’ve classified them as having sector knowledge. If a scientist has set up a company to commercialise their research then they are in the tech transfer box rather than the scientist one. Someone who is sitting on lots of boards, or has done marketing, but doesn’t appear to have handled a pipette professionally gets allocated to general governance.
I’ve included Callaghan Innovation as a CRI even though it has a broader role than the others.
Out of 58 CRI board members (one sits on two CRI boards), nearly two thirds have general governance experience and just 10% appear to have direct hands-on technology transfer experience. More than passing knowledge of the relevant sectors and science are also low (Click on image to get a larger view).
Is this good or bad? A similar analysis of eight “high tech” or R&D intensive New Zealand firms (six ranked in the TIN100) shows that sector knowledge is more common:
(The firms included are F&P Appliances, F&P Healthcare, Orion Health, NDA Group, Tait Radio, Rakon, LanzaTech and Blis Technologies – a spread of small to large firms).
Looking at each CRI, there’s variability in how much sector knowledge each board has. Only three appear to have board members with hands on experience in the relevant sector(s) for that CRI, and only four appear to have board members familiar with research commercialisation or technology transfer:
[Agr = AgResearch, CI = Callaghan Innovation, ESR = Environmental Science & Research, GNS = GNS Science, LCR = Landcare Research, NIW = Niwa, PFR = Plant & Food Research, and SCI = Scion]
AgResearch’s board is the one CRI that seems to have the expected diversity.
Its possible that there may be a greater knowledge of the sectors than is indicated by the Director’s brief bios, but you’d expect that to be highlighted (as some of the Directors do). Overall the composition doesn’t fill me with confidence that most of the boards have a sufficiently good understanding of their sectors and what it takes to provide technological services and products.
Callaghan Innovation is the most worrying. While their sector – manufacturing – is very broad, there are a range of largish companies from which experienced board members could potentially been drawn. This is the research organisation most in need of developing a better understanding of its sector. And the one most in need of having a good understanding at the board level of technology transfer.
You could say that this experience doesn’t matter on the board. They have access to that through their management, staff, or other advisory groups. The Taskforce report suggested that CRIs may wish to set up advisory groups to provide the boards with sector and science insights, but its not obvious from the CRI websites that any have formally established such advisory panels. So I’m not sure if they are getting good independent advice on these matters, or being overly reliant on the one or two board members with such knowledge.
You could also say that the main function of the boards is to stick to regulation, governance and compliance – the areas that many NZ boards already seem to focus on - and leave strategy and that innovation stuff to management and the scientists and engineers. That’s the impression I get from the current board composition.
But the CRI toolkit, and the changes to funding and governance arrangements are clear that the board has a role greater than just assuring Ministers that the CRIs are financially sound. Understanding their sector seems an essential part of any board’s core functions.
Internationally company boards are thinking more about strategy rather than just compliance (see here too). And boards that think and ask management hard questions about innovation are good for the organisation.
So I do think innovation is a critical issue for CRI boards to take more leadership on. And the government needs to think more about the range of experience that each CRI board needs to do that better.