The world faces unprecedented grand challenges of which the recent Covid-19 pandemic is just one pertinent example. Innovation is crucial for addressing these grand challenges and business is an important source of innovation and needs to be integrated. However, to harness the full potential of innovation in addressing grand challenges, the resulting novel products or services need to be subject to a responsible innovation process.
In a series of recent articles (in 2020, 2017 and 2019), we have worked on the idea of responsible innovation. We have proposed an understanding of responsible innovation consisting of three types of responsibility: (1) the responsibility to do no harm, (2) the responsibility to do good, and (3) responsible governance, which involves establishing institutions, structures, and procedures on multiple levels in order to facilitate innovations that suffice (1) and (2).
Legitimacy, effectiveness and efficiency
In our most recent work, Corporate Governance for Responsible Innovation: Approaches to Corporate Governance and Their Implications for Sustainable Development, we focus on corporate governance and suggest that corporate governance can help steer business toward innovations that avoid harm and do good. We discuss legitimacy, effectiveness and efficiency as criteria with which corporate governance models can be explored with regard to their contributions to responsible innovation and, ultimately, sustainable development.
Corporate governance ideally influences the corporate innovation process so that the outcomes are socially acceptable (legitimacy), meet sustainable development goals (effectiveness), and use appropriate means (efficiency). Drawing on political science and deliberative democracy research, we outline participative and reflexive structures as useful mechanisms for facilitating responsible innovation.
We propose that corporate governance can learn from deliberative democracy research. Deliberation aims at dialogue with stakeholders and at producing decisions that are informed by discussion, relevant information, and claims made by those affected. Deliberation should therefore be open to all potentially affected parties and be based on free exchange of information and opinions.
As such, deliberation can help corporations to (1) define the right goals (through public discourse), (2) choose the appropriate means (by involving stakeholder expertise) and (3) secure social acceptance (by securing the support of those affected).
Corporate governance can create individual and structural conditions for deliberation and reflexivity by including stakeholders with various perspectives and providing arenas for open discourse. However, to fully harness the positive potential of deliberation, corporate governance needs to make sure firms can find a balance between potentially conflicting demands: participation and expertise, between polycentricity and centralisation, and between diversity and consensus.
Involving stakeholder expertise and creating polycentric innovation structures allow for idea generation, while broad-based stakeholder inclusion and centralisation of the innovation process facilitate idea implementation. Allowing for a diversity of stakeholder voices guarantees social acceptability of the innovation, while having focused discussions facilitates the agreement on consensual solution. To achieve this balance, corporate governance can open up for different degrees of stakeholder participation and thereby build deliberative capacities that can be leveraged depending on the situation.
In our research, we provide various examples alongside different dimensions of corporate governance. For instance, with regard to stakeholder participation, companies can include expert stakeholders in the composition of the board of directors or employ stakeholder advisory panels. This allows for direct participation of stakeholders and increases reflexivity through different voices. It provides expertise that helps to reflect on the goals and means of the firm’s innovation strategy and can contribute to innovative ideas.
With regard to modes of decision-making, the innovation process can open up to various forms of involvement of stakeholders in the decision-making process. Such an open discourse aimed at consensus among stakeholders when making decisions about investing in R&D and innovation secures social acceptance of innovation as the decision is widely supported.
Adopting a legal statute that is emerging in several countries and ties the corporation to a social purpose (e.g., benefit corporation, business with purpose, etc.) increases managerial reflexivity about the goals of its innovation processes and legally obliges managers to dedicate resources to foster the corporation’s social purpose and thus to pursue innovations that foster sustainable development.
As a case in point, innovative solutions to address Covid-19 challenges often face trade-offs between legitimacy, efficiency and effectiveness. We propose that reflexive and deliberative governance can help companies navigate these trade-offs, because deliberative capacities create slack resources for such innovations, e.g., through previously established stakeholder relations, intersections to the public sector and the sensitivity to social acceptability of innovation, especially when contributing to the provision of public goods like health care.
Deliberative governance creates the preconditions for perceiving potential trade-offs between the legitimacy, efficiency and effectiveness of innovative solutions, because deliberation creates the necessary sensitivity to stakeholder rights and related legitimacy questions, and enables the search for innovative solutions that try to take all three aspects into account, as e.g., in the case of solutions relying on anonymous tracking of individuals to control the spread of the disease.
To summarise, corporate governance can facilitate a process that allows the company to develop innovations while taking societal needs and concerns into consideration, thereby increasing the potential for doing good and decreasing the potential for causing harm, and thus, ultimately, enabling a contribution to sustainable development.
Andreas Georg Scherer is a professor of business administration at the University of Zurich and an associate editor of the Business Ethics Quarterly.
Christian Voegtlin is professor of managerial responsibility at Audencia Business School, Nantes, and is a former section editor of the Journal of Business Ethics. He currently serves as associate editor for Business & Society.