CONFIDENTIAL & PROPRIETY | ALL RIGHTS RESERVED INNOVATION IN FAMILY BUSINESS OKEILI & CO 1 Session 2: Governance in Family Businesses: The Innovative Role of the Board of Directors Mr. Akram Okeili Founder Okeili & Co.

CONFIDENTIAL & PROPRIETY | ALL RIGHTS RESERVED INNOVATION IN FAMILY BUSINESS OKEILI & CO 2 DEC 2014 This document contains confidential and proprietary information belonging to Okeili & Co only which information may be used only in connection with the business of Okeili & Co. DRIVING INNOVATION IN FAMILY BUSINESSES The Innovative Role of the Board of Directors EXCLUSIVE FOR WORKSHOP AUDIENCE

CONFIDENTIAL & PROPRIETY | ALL RIGHTS RESERVED INNOVATION IN FAMILY BUSINESS OKEILI & CO 3 WHAT IS ORGANIZATIONAL INNOVATION? ? ? ?

CONFIDENTIAL & PROPRIETY | ALL RIGHTS RESERVED INNOVATION IN FAMILY BUSINESS OKEILI & CO 4 WHAT IS ORGANIZATIONAL INNOVATION? “ INTRODUCING A NEW PIECE OF TECHNOLOGY “ RESPONSE FROM MANAGEMENT

CONFIDENTIAL & PROPRIETY | ALL RIGHTS RESERVED INNOVATION IN FAMILY BUSINESS OKEILI & CO 5 WHAT IS ORGANIZATIONAL INNOVATION? “ INTRODUCING A NEW PIECE OF TECHNOLOGY “ “ INTRODUCING A NEW PRODUCT “ RESPONSE FROM MANAGEMENT

CONFIDENTIAL & PROPRIETY | ALL RIGHTS RESERVED INNOVATION IN FAMILY BUSINESS OKEILI & CO 6 WHAT IS ORGANIZATIONAL INNOVATION? “ INTRODUCING A NEW PIECE OF TECHNOLOGY “ “ INTRODUCING A NEW PRODUCT “ “ MAKING USE OF SOCIAL NETWORKS “ RESPONSE FROM MANAGEMENT

CONFIDENTIAL & PROPRIETY | ALL RIGHTS RESERVED INNOVATION IN FAMILY BUSINESS OKEILI & CO 7 WHAT IS ORGANIZATIONAL INNOVATION? “ INTRODUCING A NEW PIECE OF TECHNOLOGY “ “ MAKING USE OF SOCIAL NETWORKS “ “ CARVING OUT A NICHE IN THE MARKET “ “ INTRODUCING A NEW PRODUCT “ RESPONSE FROM MANAGEMENT

CONFIDENTIAL & PROPRIETY | ALL RIGHTS RESERVED INNOVATION IN FAMILY BUSINESS OKEILI & CO 8 WHAT IS ORGANIZATIONAL INNOVATION? “ INTRODUCING A NEW PIECE OF TECHNOLOGY “ “ MAKING USE OF SOCIAL NETWORKS “ “ CARVING OUT A NICHE IN THE MARKET “ “ GOING MOBILE “ “ INTRODUCING A NEW PRODUCT “ RESPONSE FROM MANAGEMENT

CONFIDENTIAL & PROPRIETY | ALL RIGHTS RESERVED INNOVATION IN FAMILY BUSINESS OKEILI & CO 9 ORGANIZATIONAL INNOVATION INVOLVES TWO (2) DIMENSIONS INNOVATION IN PERSPECTIVE “ REVIEWING IDEAS IN THE RIGHT MANNER “ 2 “ COMING UP WITH CREATIVE IDEAS “ 1

CONFIDENTIAL & PROPRIETY | ALL RIGHTS RESERVED INNOVATION IN FAMILY BUSINESS OKEILI & CO 10 ORGANIZATIONAL INNOVATION HAS TWO (2) DIMENSIONS INNOVATION IN PERSPECTIVE “ REVIEWING IDEAS IN THE RIGHT MANNER “ 2 SOMEHOW COMMON IN FAMILY BUSINESSES LESS COMMON “ COMING UP WITH CREATIVE IDEAS “ 1

CONFIDENTIAL & PROPRIETY | ALL RIGHTS RESERVED INNOVATION IN FAMILY BUSINESS OKEILI & CO 11 CRITICISM / SHYNESS / AWARENESS THE ABSENCE OF THE RIGHT CULTURE, BREAKS THE INNOVATION BRIDGE INNOVATION BRIDGE “ REVIEWING IDEAS IN THE RIGHT MANNER “ 2 “ COMING UP WITH CREATIVE IDEAS “ 1

CONFIDENTIAL & PROPRIETY | ALL RIGHTS RESERVED INNOVATION IN FAMILY BUSINESS OKEILI & CO 12 KEY MANDATES ON FIVE (5) DIMENSIONS CAPABILITY & INVOLVEMENT STRATEGY & PROCESS CULTURE BOUNDARIES DILIGENCE SO, WHAT IS THE ROLE OF THE BOARD IN ENSURING A ROBUST INNOVATION BRIDGE?

CONFIDENTIAL & PROPRIETY | ALL RIGHTS RESERVED INNOVATION IN FAMILY BUSINESS OKEILI & CO 13 CAPABILITY & INVOLVEMENT STRATEGY & PROCESS CULTUREBOUNDARIES DILIGENCE IN THEORY, THE BOARD SHOULD: −Have the capabilities and competencies to understand, advise and vote on any material innovation IN PRACTICE, THE BOARD SHOULD: − Pursue independent directors who experienced the innovation journey on other boards − Take the extra mile and act as change agents – lead in suggesting areas of innovation and value creation − Receive the right training on research and innovation capabilities THE FIVE (5) KEY MANDATES OF FAMILY BUSINESS BOARDS

CONFIDENTIAL & PROPRIETY | ALL RIGHTS RESERVED INNOVATION IN FAMILY BUSINESS OKEILI & CO 14 CAPABILITY & INVOLVEMENT STRATEGY & PROCESS IN THEORY, THE BOARD SHOULD: −Embed innovation in the company strategy and planning −Formalize the process of generation and capturing of ideas to facilitate their crystallization into viable projects IN PRACTICE, THE BOARD SHOULD: −Consider three tiers of planning and ask management to submit their plans in line with the: +short term focused on managing today’s business profitably +medium term on how to grow the core business within a 3-5 year timeline +explore innovation and opportunities for transformation for the long-term viability of the business − Put in place “Employee Idea Systems” that can permit employees voice new ideas − Establish “Ideas Review Committee” & “Evaluation Frameworks” to assess ideas that made the pipeline − Ensure the process seek third party experts’ opinion on technical matters − “Think Big but Start Small” - Dedicate some time, resources and place to pilot ideas that make sense 12 CULTUREBOUNDARIES DILIGENCE 345 THE FIVE (5) KEY MANDATES OF FAMILY BUSINESS BOARDS

CONFIDENTIAL & PROPRIETY | ALL RIGHTS RESERVED INNOVATION IN FAMILY BUSINESS OKEILI & CO 15 CAPABILITY & INVOLVEMENT STRATEGY & PROCESS IN THEORY, THE BOARD SHOULD: −Embed innovation in the company strategy and planning −Formalize the process of generation and capturing of ideas to facilitate their maturation and to turn them into viable projects just like any other business process IN PRACTICE, THE BOARD SHOULD: −Consider three tiers of planning and ask management to submit their plans in line with the: +short term focused on managing today’s business profitably +medium term evaluating how to extend or grow the core business within a 3-5 year timeline +explore innovation and opportunities for transformation for the long-term viability of the business − Put in place “Employee Idea Systems” that can permit employees voice new ideas − Establish “Ideas Review Committee” & “Evaluation Frameworks” to assess ideas that made the pipeline − Ensure the process seek third party experts’ opinion on technical matters − “Think Big but Start Small” - Dedicate some time, resources and place to pilot ideas that make sense 12 CULTUREBOUNDARIES DILIGENCE 345 THE FIVE (5) KEY MANDATES OF FAMILY BUSINESS BOARDS “Google Micro Kitchens” - Ad word.. “Apple Labs” - Apple Watch.. “Google Micro Kitchens” - Ad word.. “Apple Labs” - Apple Watch..

CONFIDENTIAL & PROPRIETY | ALL RIGHTS RESERVED INNOVATION IN FAMILY BUSINESS OKEILI & CO 16 BOUNDARIES 3 IN THEORY, THE BOARD SHOULD: −Understand that innovation has risks and unsure outcomes −Set the boundaries or what is known as risk appetite / risk tolerance IN PRACTICE, THE BOARD SHOULD: − Ask management to develop 3-years projections illustrating potential performance of innovation programs − Assess the risk factors, set their boundaries and carry out a sensitivity analysis to see the variations of performance beyond those boundaries CAPABILITY & INVOLVEMENT 1 CULTURE DILIGENCE 45 STRATEGY & PROCESS 2 THE FIVE (5) KEY MANDATES OF FAMILY BUSINESS BOARDS

CONFIDENTIAL & PROPRIETY | ALL RIGHTS RESERVED INNOVATION IN FAMILY BUSINESS OKEILI & CO 17 CULTURE 4 DILIGENCE 5 STRATEGY & PROCESS BOUNDARIES 23 CAPABILITY & INVOLVEMENT 1 IN THEORY, THE BOARD SHOULD: −Understand and act upon the fact that innovation is not driven by one individual but is rather by a clan −Implement and incentivize cultures that promote sustainable and compliant innovation IN PRACTICE, THE BOARD SHOULD: − Choose a CEO with drive for innovation, preferably who worked in companies that care about innovation − Develop recognition programs for innovation “ The innovation champion of the year” − Link innovation to Total Reward (“bonuses for innovative ideas, annual prizes with in-kind incentives”) − Share and celebrate innovation stories to encourage the discussion, exchange and refinement of ideas THE FIVE (5) KEY MANDATES OF FAMILY BUSINESS BOARDS

CONFIDENTIAL & PROPRIETY | ALL RIGHTS RESERVED INNOVATION IN FAMILY BUSINESS OKEILI & CO 18 ON STORIES, 3M HAS A DEDICATED WEBSITE FOR INNOVATION

CONFIDENTIAL & PROPRIETY | ALL RIGHTS RESERVED INNOVATION IN FAMILY BUSINESS OKEILI & CO 19 DILIGENCE 5 STRATEGY & PROCESS BOUNDARIES 23 CAPABILITY & INVOLVEMENT 1 CULTURE 4 THE FIVE (5) KEY MANDATES OF FAMILY BUSINESS BOARDS IN THEORY, THE BOARD SHOULD: −Track innovation program results to understand what works, what did not and why −Learn and transform failures into opportunities IN PRACTICE, THE BOARD SHOULD: − Establish, collect data, monitor and track key performance measures that drive innovation – the sorts of: +Idea Yield: The percent of ideas accepted into concept development +Ideas to Reality: The percent of ideas that materialized into viable projects +Innovation Investment Ratio: The percent of investments devoted to new ideas, products, process, etc +Innovation Value: The total $ amount of economic value saved or generated from new ideas

CONFIDENTIAL & PROPRIETY | ALL RIGHTS RESERVED INNOVATION IN FAMILY BUSINESS OKEILI & CO 20 About Okeili & Co. Okeili & Co. is a boutique management consulting firm and the region's leading advisor on Family Business. The firm focuses on three practices mainly Family Firm Governance, Strategy & Planning and Mergers & Acquisitions. Our Family Firm Governance involves Succession Planning, Family Governance and Corporate Governance. Our Strategy & Planning practice includes Strategic, Business & Operational Planning for both start-ups and existing business units. Our Mergers & Acquisitions practice focuses on maximizing shareholder value by advising board and company leadership on buy-side and sell-side transactions.