Private companies need boards focused on innovation, too: proposal: an innovation subcommittee of the board.

• Author: Warren, Tracy

Innovation is the lifeblood of high-growth, private companies. With a three-to-five-year time horizon to major growth inflection points, these companies must aggressively pursue strategies in all aspects of business. Boards must support innovation efforts not only in product development but also in sales and marketing (e.g., the implementation of social media engagement to reach and retain customers), finance, and all other areas across an organization.

While boards of emerging companies tend to be small in number, experience shows that creating a science and technology (S&T) subcommittee--or an innovation subcommittee--of the board is highly effective in providing insight and accountability to such efforts.

The S&T subcommittee should also be small in number, nimble and full of diverse skill sets. Ideally, the subcommittee is led by an independent director with knowledge of the company's market sector who not only can provide insight on product development innovation but also has the historical knowledge of the workings of a market sector necessary to evaluate sales strategy and even finance. In many cases, the model profile is that of a former C-level executive of a major player in the company's space who can dedicate ample time to engaging and building rapport with the executive committee.

The S&T subcommittee might also include an investor-director who has made investments in adjacent or complementary sectors and can provide a unique perspective in how other companies in the value chain for a particular market are evolving.

Given the variations in sizes of private company boards, it is recommended that 20% of the directors serve on the S&T subcommittee, recognizing the diverse and far-reaching elements of innovation and its role in defining a company's future.

While the S&T subcommittee may not have voting power, its influence is in acting as a sounding board to management in its quest for innovation and market superiority. Incentives, processes and implementation strategies for innovation can be challenging for emerging private companies, as they are under pressure from stakeholders to execute against particular business plans. However, the pace of high-growth industries requires innovation to remain a critical component...