Leveraging board talent for innovation strategy

Human capital has been traditionally viewed in terms of how an individual’s investment in knowledge, skills and abilities can lead to higher pay or promotions. More recently, human capital has been regarded as a unit-level resource using the term “human capital resources” to consider the aggregate effects of human capital. The purpose of this paper is to examine the collective human capital present in a firm’s board of directors as a valuable resource leading to superior firm outcomes.

The study examined the effects on firm innovation of the scientific expertise of corporate directors, average board tenure and the presence of a firm’s founder on the board. Data from a sample of pharmaceutical firms were analyzed with the dependent variable, innovation, measured as patent applications and both individual and unit-level human capital measures of the predictor variables.

The results show that the presence of a founder-director is positively related to innovation and more pronounced when combined with the board’s scientific expertise. Board tenure shows a relationship to innovation and is more evident in combination with the board’s aggregate level of scientific expertise. The effect of directors’ scientific expertise is also greater when measured at the board level of scientific expertise.

Future studies should examine these relationships within a broader context extending the research to other industries thereby incorporating wider variation in both the antecedents and measures of innovation. In addition, future studies might investigate a likely non-monotonic relationship of board tenure with strategic outcomes, recognizing the non-linear nature of effects of board tenure.

In addition to the theoretical and empirical implications, this research may also inform practicing managers charged with constituting their boards of directors and provide some guidance for the recruitment and retention of board members. The research may also assist top managers and investors in knowing when the presence of a founder on the board is useful and supportive of the firm’s strategic direction.

The study extends scholarly understanding of human capital theory beyond the top management team to boards of directors demonstrating the importance not only of directors’ individual capital but also how it combines with that of other directors. Moreover, it enhances understanding of board characteristics beyond the bounds of demographic characteristics to show that additional qualities affect firm strategy. This research also informs managers, boards and investors how boards might be more effectively constituted to impact firm strategy.