MANCHESTER, DATE – UK firms can improve their operating margins by as much as 10% if they appoint an innovative non-executive director, research from academics at Alliance Manchester Business School has found.
Researchers Ning Gao, Ian Garrett and Yan Xu discovered that companies who recruit non-executive directors from a pool of CEOs with a track record of innovation, benefit through improved innovation and operating performance in the post-appointment years.
The study of 1,234 CEOs from 814 firms – 550 of whom were also non-exec directors elsewhere – used patents as a measure of innovation and found that firms with innovative CEOs sitting as non-exec directors on their boards secured more than six times the number of patents (59.05) as those without (9.12) over an eight-year period (2000-2008).
Firms with innovative CEOs on their board also receive 3.6 more citation per patent over a three year period, and 3.4 more successful patent applications.
Ian Garrett, Professor of Finance at Alliance Manchester Business School, said: “Innovation is a word that many businesses talk about, but often misunderstand the best route to achieve it. Our research shows that having an innovative CEO as a non-executive board member not only improves a firm’s innovation success, but also enhances its financial performance. Perhaps this is an area where companies should make a serious reconsideration about which potential board candidates can make a real difference to them.”
Yan Xu is a doctoral researcher and Dr Ning Gao is a Senior Lecturer in Finance at the Alliance Manchester Business School.
More details about the research that Ning Gao, Ian Garrett and Yan Xu conducted can be found on the Alliance Manchester Business School website