We love talking about nurturing a culture of innovation; yet, our list of practical measures to promote entrepreneurial spirit is depressingly short. For this reason, I’ve set out to create a list of specific corporate policies that organizations may try in order to establish the culture of innovation.
One entry on this list could initially appear as not immediately related to innovation at all: labor laws. A 2001 study showed that labor laws making it more difficult to fire employees increase their participation in corporate innovation activities. The authors of the study argued that the lower threat of termination produced by stronger anti-dismissal laws decreased the “cost of failure” for employees to engage in potentially risky innovation projects. Another study, published by MIT researches, found that companies in 34 U.S. states having the so-called constituency statues produce more high-quality patents than those in 16 states lacking the statues. A constituency statue encourages corporate directors to consider non-shareholder (e.g., employees) interests when making business decisions, therefore forcing them to think of the long-term interests of their companies rather than the short-term profits. The both studies strongly suggest that removing the proverbial Sword of Damocles of punishment for innovation failure encourages risk-taking and experimentation. In other words, providing employees with freedom to fail is a great way to promote innovation activities.
The effect of personnel policies on innovation has again been brought into the spotlight in a recent study described in an August 17, 2016 Harvard Business Review article. The study shows that U.S. state-level employment nondiscrimination acts (ENDAs)—laws that prohibit discrimination based on sexual orientation and gender identity—spur innovation. More specifically, the study found that U.S. public companies headquartered in states that have passed ENDAs experienced an 8% increase in the number of patents and an 11% increase in the number of patent citations relative to companies headquartered in states that have not. Interestingly, the result was more pronounced for companies that previously have not implemented nondiscrimination policies, for companies in states with a LGBT population and for companies in human capital-intensive industries. The authors of the study argued that ENDAs positively affect innovation by matching more creative employees with innovative companies.
I’m not going to argue, of course, that in order to be more innovative, you have to be a gay, lesbian or permanently employed (as opposed to employment at will). What I do want to argue is that innovation implies certain level of freedom, be it freedom from fear of failure or freedom from being discriminated for whatever reason.
Sounds too farfetched? Hold on. Last week, the 2016 version of the Global Innovation Index (GII) was revealed. The GII gauges the world economies based on infrastructure, market and business sophistication and research. As in the previous years, Switzerland took the title of the world most innovative country; Sweden was second, the United Kingdom third and the U.S. fourth.
Back in 2014, I made a notion that the top of the GII ranking was heavily populated by countries representing developed democracies, the societies with strongly upheld political and individual freedoms. (And to make sure that this observation had any statistical meaning, I compared the 2013 GII with the 2013 Freedom of the World Report published by Freedom House, a U.S.-based non-government organization that monitors democratic developments around the world.) Nothing seems to have changed on the innovation Olympus since then. Moreover, it’s so tempting to argue–in the light of the findings discussed above–that it’s not by sheer coincidence that among the 10 most innovative countries in the 2016 GII, there are eight Western European countries with strong labor and antidiscrimination laws.
Are we watching a growing body of empirical evidence to what many of us always intuitively knew: in order to innovate, you need freedom? Do we need any further proof to this thesis at all?
Image credit: http://crossroadswaunakee.org/event/celebrating-freedom/