A risk averse board can crush innovation. Here is a way to lean into risk

A board’s main function is to keep the company alive. As Jack Cowin (founder of Hungry Jacks) says “The first rule of business is to stay in business.”

A well functioning board has a practice which finds a way to take risks while obeying this primary objective. The sad truth is that without risk, there is no innovation. And without innovation, existing companies become irrelevant and startups don’t materialise.

Here’s Vinod Khosla, one of the world’s most successful venture capitalists:

“most people in their life in their business, reduce risk to the point where the probability of success goes higher, but the consequences of success are inconsequential”

Know how your board goes ‘to the edge’ and has a practice of managing risk from there

If our board culture requires a zero failure rate, we can’t perform our other function as a board to make it deeply relevant for decades to come by discovering extraordinary value. Khosla

Here’s Khosla again:

In the edges where things are uncertain, is where all the evolution is and where interesting changes in business or society happen. And unless you’re there, and learning fast from being there and not being too arrogant to believe you know what’s going to happen. You’re not going to be in that learning edge of the way, where new things are happening, and as career advice I say, and that’s where failure happens often. You want failure to be small and success to be very large.

When we feel a board discussion pulling us to what Khosla calls ‘’the edge’, we can express our doubts, call sub-committees and swallow up whole meetings trying to imagine the future. Or we can build a practice of going to the edge deliberately and safely.

#1. Ask: “What if they are right?” instead of “Are they right?”

As directors we can be ‘knowers’ who say things like “In my experience, it never works like that.” But what if the person who suggested the idea has a perspective that we don’t have? What if the environment has changed? A board culture can change dramatically if this is the framing question.

#2. Design the experiment — doing wins arguments

Now we need something to do with that new perspective. How do we try something risky (and something that some directors think is also a waste of time) and get to a decision?

Experiments. Ask what small, inexpensive project could we run to get the evidence we need to make a bigger commitment. Even better if management already have this habit and come to the board with edge ideas and an experiment to understand them better.

#3. Have a clear definition of success and a cadence for review

We still need to get to the real decision or these experiments stay small or drift away. Ensure that each experiment has a success metric or state and a date for the board meeting that the decision will be reviewed. At that board meeting have evidence and have discussions around that as well as our own experiences as directors.

Quickly a learning culture emerges on the board. Risk is managed but not avoided. We go to ‘the edge’ and take a look.

The practice also gets to clarity with limited risk, in less time than many boards who run the standard opinion war, committees and white papers across months of board meetings.

I’d love to hear your ideas about allowing innovation to prosper on boards. I am @philmorle on Twitter

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