Cornerstones of responsible innovation

If business wants to do good and help solve historic global challenges, it needs to engage with society

The world faces unprecedented challenges: the Covid-19 pandemic is but one example. Innovation is crucial for addressing our present and future challenges, and business has a central role to play. However, if companies want to harness the full potential of innovation, it is vital that they put new products and services through a thorough responsible innovation process prior to going to market.

Responsible innovation involves three key dimensions: avoid doing harm, do good, and be motivated by responsible governance.

Avoid doing harm

Of course, no organization that wants to stay in business would set out to harm its customers; one can also assume today that most businesses would not do anything on purpose that damages the environment. However, an inherent danger of innovation lies in ‘dual use’ or the ‘double effect’. In other words, innovations can be both beneficial and harmful, both to people and the environment. Nuclear fusion is a prominent, if extreme, example of this dual effect.

Existing risk management frameworks that aim to mitigate harm and approve innovations – such as standardized procedures for the clinical testing of new medicines, or universities’ ethics committees – are not sufficient to deal with the complexity and uncertainty of today’s grand societal challenges. We suggest that rigid regulations and risk management frameworks should be complemented with more flexible and adaptable voluntary standards for business responsibility – and that organizations should involve stakeholders in the innovation process as early as possible to establish dialogue and get necessary feedback.

Doing good

Merely avoiding harm is insufficient for the challenges that the world faces today. The question is: how can businesses be convinced to help mitigate these challenges by producing innovations that ‘do good’, despite shareholder pressure to maximize profits at any cost?

The incentives for business to innovate are based on the expected return on investment for their products or services. Unfortunately, investment in responsible innovations may drag until incentives are in place – such as anticipated regulation relating to the transition to clean energy in many countries. We propose that alternative incentives come from stakeholder collaboration. These include reputational benefits, learning opportunities and information advantages gained through collaboration.

Responsible governance

We have found that corporate governance can help steer business toward innovations that avoid harm and do good. More specifically, by involving outside expertise, corporate governance that allows for reflexivity and stakeholder inclusion can make businesses more sensitive to the potential harmful effects of their innovation. Such governance also allows for deliberation on the goals of innovation, enabling dialogue with stakeholders and producing decisions that are informed by discussion, relevant information, and the needs of those affected. Deliberation can help corporations to define the right goals, through public discourse; choose the appropriate means of acting, by involving stakeholder expertise; and win social acceptance, by securing the support of those most affected.

Stakeholder participation is key to deliberation. Some companies include expert stakeholders at board level, or employ stakeholder advisory panels. This allows for stakeholders’ direct participation in the company’s decision-making and increases reflexivity by enabling different voices and more innovative ideas to be heard. Corporate governance arrangements can also allow stakeholders to become involved in the innovation decision-making process. Decisions to invest in R&D and innovation are far more likely to be accepted by stakeholders when they are part of the discourse.
Some key aspects of corporate governance can be leveraged to make business innovation more reflexive and participatory. This includes ownership structure, management accountability arrangements, modes of decision-making and resource allocation processes.

In practice this could mean making long-term shareholding mandatory, to avoid short-term profit-maximization pressures, or ensuring that a percentage of company shares is held by socially responsible investors to allow for the increased participation of shareholders with an interest in sustainable development. Incentives for managers to contribute to triple-bottom line performance (that is, profit, people and planet) may be required; as may be resources, particularly financial, to support new social ventures, whether within the corporation or in collaboration with external partners.

The effect of reorienting corporate governance toward stakeholder responsibility in this way is exemplified by the B-corporation (or B-corp) certification, which recognizes businesses which “meet the highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose” (see B-corps tie the accountability of management not only to profit but also to pursuit of a specific social purpose. One prominent B-corp is outdoors goods brand Patagonia, which has a well-known sustainability agenda. Such movements have now been backed by legal statutes supporting ‘business with purpose’ or ‘benefit corporations’ in several countries, including the US, France, Italy and Brazil.

A still more radical approach to stakeholder inclusion and open innovation can be found at Patient Innovation. Through its online platform, patients, caregivers and partners around the world connect to share and create healthcare solutions, providing responsible innovations that ‘do good’.

Managing trade-offs

Innovative solutions to address today’s grand societal challenges often face trade-offs between conflicting goals, as the fight against Covid-19 has illustrated. For instance, there were trade-offs to be made between developing innovations quickly but making sure that they do not harm patients, as in the case of vaccines; or in using smartphone data to track Covid cases and contacts, while respecting privacy rights.

Deliberative governance creates the preconditions for managing these trade-offs, as it creates the necessary sensitivity to stakeholder rights and related legitimacy questions. It also enables the search for innovative solutions that try to take stakeholder concerns into account. By ensuring that society’s needs and concerns are taken into consideration, corporate governance can increase the potential for business’s innovations to do good and decrease the potential for causing harm – and thus, ultimately, make a major contribution to sustainable development.

Andreas Georg Scherer is professor of business administration at the University of Zurich. Christian Voegtlin is professor of managerial responsibility at Audencia