Legal Departments Are Uniquely Positioned to Drive Innovation Forward. Here’s How.

Legal, Compliance, Risk - for many corporate innovators, these departments form hurdles to the startup speed they need.

Mach49's Co-CEO David Charpie, MBA takes a contrary view. That not only can these corporate teams help enable break-through innovation inside large corporations: they can spur it on.

The time to start is now. Enjoy.

By Elke Boogert, Mach49 Managing Editor

Legal Departments Are Uniquely Positioned to Drive Innovation Forward. Here’s How.

By David Charpie, MBA , Co-CEO, Mach49

The Legal department’s rigid approach benefits large corporations’ risk appetites. But it’s often at the peril of their corporate ventures.   

In my first corporate startup, we felt like Dorothy and her band of misfits from the Wizard of Oz. We’d just been pulled from our everyday roles by the tornado of corporate innovation and given the chance to achieve our idealized “Emerald City” of self-determination. Only to find that getting to the end of the yellow brick road required a seemingly impossible task. And, like Dorothy, additional barriers were thrown our way when we thought we achieved the impossible.   

I remember one blockade very well: a pilot agreement. We needed our pilot customers to sign it so we could get our venture off the ground. The hiccup? It was a 74-page document.  

It took two months to write and was so onerous that no clients signed it without multi-month negotiations.  

During this period, a venture-backed competitor entered the market and undercut our unique position and timing. Their pilot agreement was just two pages.  

Looking back, this was a seminal moment in understanding the criticality of Legal’s role and impact in building successful corporate ventures. This experience also formed the foundation for the way I now interact with Legal in early-stage innovation.  

I recently told this story to an audience of corporate attorneys at the TLTF Summit in Florida. The roadblocks, silos, and barriers that keep new ventures and investments from gaining traction often originate in the corporate structure: in Risk, Compliance, and Legal. It’s painful because no large corporation can afford to slow down. The average tenure of Fortune 500 companies has decreased from 75 years to less than 15 years in the last five decades and is still declining. And in a recent PWC survey of over 4,700 CEOS, 45% stated their firms will not be viable within 10 years unless they find new sources of growth.   

Large firms must innovate and grow or face extinction

Corporate startups are frequently considered the golden ticket to growth. Yet most fail to gain any traction, citing a lack of product market fit, marketing failures, financial mismanagement, competitive missteps, mistiming market entry, and poor team dynamics.  

All these failure modes are impacted by corporate legal groups that follow a dogmatic, prescribed approach. Though beneficial to large corporations’ risk appetites they’re often at the peril of their corporate ventures.   

An onerous or poorly written pilot agreement can massively delay or kill customer and partnership opportunities. An NDA that attempts to cover every conceivable issue can shut down discussions with potential employees or technology acquisition targets, dealing a death blow to the innovation initiative.  

But Legal isn’t alone. Applying the standard large company operating procedures to growth initiatives in other functions like Purchasing, HR, Finance, Marketing, and IT can also waylay startups trying to gain traction outside of the core business.  

As a CEO building four corporate startups in four different Fortune 500 companies, and as Mach49 helping our clients create hundreds more, I now believe that any company needs to develop three fundamental capabilities to successfully innovate. And for each, Legal teams’ involvement from the earliest phases of development, is crucial. 

1. A dedicated shared services infrastructure 
2. A repeatable innovation methodology
3. An oversight governance in support of its early-stage activities 

Dedicated Shared Service Infrastructure 

For large corporations, Shared Services to support early-stage corporate startups should look like a series of one or more advocates from each of the functional areas noted above, whose role is to facilitate and accelerate the success of innovation efforts. These advocates must be deeply involved with the startups to understand what they are trying to achieve and help them figure out how they can do it.

This requires finding creative people in each functional area willing to bend or break standard internal approaches and rules while meeting the intents of the fundamental bases of existing corporate controls. 

An example from a Midwest healthcare system. Selected employees from operational units, such as legal, regulatory, facilities, and finance, began by learning the details of the venture incubation methodology their early innovation efforts would follow. These so-called Growth Advocates then created detailed operating plans, including a description of risks and mitigation efforts, to describe how they would use their experience to support the venture. A follow-up workshop – after eight weeks – confirmed that the Growth Advocates were positioned to use their operational skills to accelerate the startup, particularly through the intricacies of FDA approval. What’s more, they were measurably faster and more efficient than external services such as FDA consultants.  

Back to Legal teams – similar advocates should get involved in any corporate startup’s operational activities to understand, and guide, their design, reducing risks by imbedding well-thought-out approaches rather than hoping to mitigate all the risks through 50-page contracts trying to cover every imaginable scenario – a fool’s errand. 

Repeatable Methodology 

But even with an embedded ecosystem of shared services advocates, corporate growth initiatives can and do fail without a common, well-understood, methodology for creating, de-risking, and operating these early-stage opportunities.  

To assure all parties involved are on the same page, standard approaches, outcomes, and metrics must be developed and agreed upon. Then Legal, and the other advocates, can work to develop appropriate approaches that balance the risk, speed, agility, creativity, and control aspects needed for success.  

Close to my heart is the methodology outlined in The Unicorn Within, written by Mach49’s CEO Linda Yates . Here’s a free excerpt, which should give you the starting point for developing your own methodology, practices, and metrics.  

Oversight Governance 

Corporate ventures or investments do not start with revenue or margin. Therefore, many of the performance measures used by the corporation are not applicable. The startup team often talks about a solution that doesn’t yet exist, with heretofore unproven value, to a customer who may not know they want it. In this environment, the risks to manage and the measures of success are unique to each initiative and come from the operating plans presented as part of their business plan. 

Overseeing and assuring compliance with these goals should be the responsibility of the New Venture Board (“NVB”).

The NVB is a group of three to five senior executives, representing the major stakeholders for the opportunity that the corporate startup has identified. Frequently, they are C-level executives and Strategic Business Unit, or Shared Services, leads with a personal stake in the outcome of the new growth effort.  

The NVB is responsible for internal and market introductions, providing informed feedback to the startup team, resource provisioning, and go/no-go decisions on the future of the effort. Additionally, the NVB should help the startup and its advocates with exceptions to existing processes, such as unique terms and conditions, expedited hiring, approval of new suppliers, and non-standard IT requirements. 

A large Central American steel producer with additional interests in construction, sustainability, and new innovative growth markets is a notable example of a well-functioning NVB. They formed a New Venture Board made up of the CEO, the CFO, the Chief Sustainability, Risk & Legal Officer, the head of the Venture Studio, and two external board members. Everyone has a vote and the NVB does not require unanimous decisions. The NVB has occasionally been joined by the Chairperson of the Company’s Board of Directors as an observer, who has proven helpful both strategically and for key support. Together, the NVB has put in place a Funding Decision Rubric to make operations more efficient. The New Venture Board members have been strategically very present and immensely helpful with connections for the startup team, while operationally “hands off.”  

The decision to spin out or spin-in the startup is a fundamental deliverable of any corporate venture team and the NVB. Other high-impact outcomes include compensation structure, performance metrics for the startup team, investment structure, strategy for using mothership assets, and fundraising or subsidiary creation, all of which involve participation and actions from Legal.  

Well, same story. Funding, partnering, investing, M&A, structuring, launching, go to market, personnel, and many more, all touch on Legal and all need support and startup speed.  

In an example of using external resources to help achieve preferable outcomes, a Corporate Venture Capital team wanted to invest in a startup. Initially, they collaborated with their in-house counsel, who was used to M&A diligence. The Legal team sent over a 20+ page list seeking hundreds of documents from a startup in whom they wanted to invest.

The startup panicked. They didn’t have 90% of the requested documents, and the firm lost the deal.  

The corporation then brought in outside counsel to create the standards for what documents are “enough” in doing diligence. This helped the fund move much faster and be competitive with other VCs AND still protect the parent company.   

Startup activities are necessary for the viability of large corporations in the longer term, but they are risky. Legal, and other specialized groups supporting these efforts, are critical. However, the support must be structured, integrated, and implemented in ways that drive success, rather than add friction, which, unfortunately, seems to be the case far too often. 

Assembling an ecosystem of internal and external advocates will increase the likelihood of success.

Providing these advocates with a consistent methodology so that everyone can work in concert is even better. Delivering a set of governance structures that meet the support and growth requirements of each innovation initiative based on the needs identified in its business plan, is best. The net result – a more repeatable, positive, and predictable outcome for corporations.  

Today I set out to share my experience that growth companies can successfully create ventures where Legal provides two-page term sheets in a few days, rather than 70-pagers taking months, and the prevailing view of Legal as a blocker to growth and progress can be erased. Replaced with an image of Legal as the team enabling appropriate company risk-taking and success.  

After all, companies need Legal growth champions for their continuing existence.

Let’s deliver.  

This article is based on David Charpie’s keynote at the TLTF Summit in Florida in December 2024.

As Mach49’s Co-CEO, DAVID CHARPIE has extensive leadership experience in Global 2000 firms as well as multiple venture-backed, joint venture, and intrapreneurial startups. He's known for sparking disruptive growth and fostering an entrepreneurial culture within large companies, in industries including big data, cloud, risk management software, and healthcare informatics.

Before joining Mach49, David guided startups for four renowned information services companies: SAP, Partners Healthcare, Dun & Bradstreet, and Healthcare Market Research (a joint venture between CVS and Pfizer). He designed and launched several first-of-their-kind solutions at these firms, including the precursor to the UN / SPSC commodity coding system — the international standard for trade.

At D&B, David founded a supplier information venture that became the company's 3rd-largest business unit, with revenues exceeding $100M. At SAP, he established Supplier InfoNet, a cloud supplier risk management business that positioned the firm as a leader in big data pooling and B2B predictive performance content. Later, David led the merger of InfoNet with Ariba and its $874B-worth of supply chain transaction data, further solidifying its industry-leading position.

David is one Mach49's first team members, and has guided the company through substantial growth, launching successful businesses, developing lasting client relationships, and establishing Mach49’s presence in EMEA

Outside of work, David is an avid sports fan, having played baseball and football, and is a keen theater enthusiast — especially musicals. Having met his wife through a high school show they both performed in, music and theater continue to be a core thread within his family, a connection now shared with their four children and eight grandchildren.

With a BS and MS in nuclear engineering from MIT and an MBA from MIT’s Sloan School of Management, David continues to lead Mach49's Venture Building practice while staying true to his calling — changing lives through corporate startups.

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