Creating a culture of innovation and high performance

Thursday, 10 December 2015


    The Government’s recently released innovation statement sets out a number of reforms and initiatives to encourage greater risk taking, resilience and entrepreneurialism.

    National Innovation and Science Agenda Report
    Federal Government, December 2015

    Innovation statement: safe harbour laws embrace risk of failure
    John Brogden, Australian Financial Review, December 2015

    Australian Innovation System Report
    Department of Industry, Innovation and Science, November 2015

    The Government’s recently released innovation statement sets out a number of reforms and initiatives to encourage greater risk taking, resilience and entrepreneurialism by Australian companies and directors.

    The statement aims to encourage and facilitate a performance and leadership driven corporate and national culture. Innovation was also a key theme in the AICD’s Director Sentiment Index, with 38% of directors seeing a national industry and innovation policy as a main priority for Australia’s future economy.

    Areas where companies and directors are likely to benefit from the new arrangements include:

    • Relaxing regulatory obstacles that prevent growth: The Government plans to reform rules that prevent companies from accessing past year losses when they have entered into new transactions and business activities. It is also introducing new rules that allow companies to access losses where their business uses similar assets or generates income from similar sources.

    • Incentivising early-stage and longer-term investment: The Government is introducing new laws that will enable certain unlisted companies to access crowd-sourced equity funding. The Government is also introducing tax offsets and incentives for Early Stage Venture Capital Limited Partnerships, as well as tax offsets and longer-term capital gains tax exemptions for early stage investors in high growth potential start-ups.

    • Celebrating success rather than penalising failure: The Government is reforming insolvency laws by reducing the bankruptcy period from 3 years to 1 year. It also plans to introduce ‘safe harbour’ provisions for directors who appoint professional restructuring advisors during periods of financial difficulty, as well as new laws that allow companies that have experienced an insolvency event to maintain contractual relationships while going through a restructure.

    The Government has established an independent statutory body, Innovation and Science Australia, to oversee its long term strategic vision for innovation and science.

    How innovative is Australia in comparison with other major economies?

    The Department of Industry, Innovation and Science’s Australian Innovation System Report (AISR) reveals that only 16% of Australian companies had a high performance innovation culture in comparison with 44% of the Global Innovation 1,000. The AISR also found that more than a third (39%) of Australian businesses have little or no innovation culture at all.

    Australia was also ranked last of OECD countries in terms of research and business collaboration, and 30th of OECD countries for innovation efficiency (despite being ranked 17th overall for innovation).

    What are the implications of the innovation statement for Australian boards and directors?

    “These reforms will help change our business culture”, writes John Brogden, in an article published in the Australian Financial Review. “We need to embrace the risk of failure in order to allow innovation to succeed.”

    The proposed reforms will promote greater collaboration, risk-taking and diversification of activities within the business community and across different sectors, all of which are essential to innovation. Boards and directors play an important role in fostering an organisational culture that promotes such innovation and facilitates innovation at all levels of their organisations.

    In addition, the relaxation of the regulatory environment may allow boards and directors to adopt riskier strategies that could provide for greater opportunities. According to Lindsay Maxsted FAICD, strategy and risk are “two sides of the same coin” and “any discussion on strategy can be turned into a risk discussion, and vice versa”. Boards and directors can work towards better integrating strategy and risk through, for example, the effective use of audit and risk committees.

    The Government’s investment in research infrastructure may also help promote longer-term thinking and help boards to overcome issues associated with excessive short-termism.The proposed tax offsets and capital gains tax incentives will also encourage more long-term thinking among the investor community.

    The Government’s proposals also provide for greater collaboration between industry and research sectors, as well as the commercialisation of research projects. Boards may consider seeking directors with broader experience to help facilitate this collaboration.

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