Non-executive directors key to business innovation

Non-executive directors key to business innovation

Non-executive directors key to business innovation

The FINANCIAL -- UK firms can improve their operating margins by as much as 10% if they appoint an innovative non-executive director, research from academics at Alliance Manchester Business School has found.

Researchers Ning Gao, Ian Garrett and Yan Xu discovered that companies who recruit non-executive directors from a pool of CEOs with a track record of innovation, benefit through improved innovation and operating performance in the post-appointment years.

The study of 1,234 CEOs from 814 firms – 550 of whom were also non-exec directors elsewhere – used patents as a measure of innovation and found that firms with innovative CEOs sitting as non-exec directors on their boards secured more than six times the number of patents (59.05) as those without (9.12) over an eight-year period (2000-2008).

Firms with innovative CEOs on their board also receive 3.6 more citation per patent over a three year period, and 3.4 more successful patent applications.

Ian Garrett, Professor of Finance at Alliance Manchester Business School, said: “Innovation is a word that many businesses talk about, but often misunderstand the best route to achieve it. Our research shows that having an innovative CEO as a non-executive board member not only improves a firm’s innovation success, but also enhances its financial performance. Perhaps this is an area where companies should make a serious reconsideration about which potential board candidates can make a real difference to them.”

Yan Xu is a doctoral researcher and Dr Ning Gao is a Senior Lecturer in Finance at the Alliance Manchester Business School.