Proper board composition is an increasingly important consideration as health care sector companies create subsidiaries designed to focus on innovation-based initiatives and investments.

There is some recognition that these subsidiaries are more likely to succeed if their governance structure reflects Silicon Valley-styled orientation and expertise. This view is supported by recent tech sector controversies where traditionally-composed boards apparently failed to recognize warning signs of product failures. The Theranos board, composed  of a broad cross section of business and former government leaders, is a leading example of this concern. Recent news reports indicate that a group of prominent investors lost more than $600 million they had invested in the company.

Oversight is a particularly critical component of the governance responsibilities of innovative technology-focused subsidiaries. Some subset of directors should have the skills to spot “red flags” that might arise, for example, in product development and roll out. Yet there have historically been subtle differences between the “Silicon Valley” approach to governance, and that which is applied in more traditional industry sectors such as health care. Often times these boards are more focused on performance, and are very involved in matters such as strategy, tactics, hiring and firing, technology, and engineering reviews.

These and other differences of the board’s proper role should be recognized in a properly balanced governance structure for an innovations subsidiary, be it an operating company or an investment vehicle. Such a structure should also incorporate a robust management-to-board reporting relationship.