Companies must innovate or face stagnation, said the former boss of MI5 at Microsoft’s Future Decoded event today.

Dame Stella Rimington, who was director general of Britain’s internal spy agency from 1992 to 1996, warned business leaders not to create a blame culture among staff, and to encourage free thinking and innovation in order to succeed.

She said: "All companies atrophy unless people are willing to take risks. But they can’t do that with a culture of blame."

Dame Stella was recruited into MI5 after a "tap on the shoulder", in what she described as the secretive days of the 1960s and 1970s. She experienced a "second class" career structure as a woman in a male-dominated workplace.

She told the audience at Microsoft’s London event that the management style was distant and indirect.

"The leadership was removed and very defensive. We never actually saw our director general. We never heard from them at all unless something went wrong, and then there was a mad rush to find out whose fault it was.

"We had a blame culture."

Dame Stella explained that she sought to change this during her leadership, under which new threats such as the IRA required them to move faster and react more quickly to negate possible attacks.

With the consequences of getting decisions wrong being "disastrous", Dame Stella praised then-Prime Minister John Major for his reaction when hearing of potential threats MI5 could not guarantee against, with him simply telling her ‘Do your best’.

Microsoft CEO Satya Nadella echoed her advice to business leaders when he appeared on stage later, urging firms to innovate by embracing a three-point strategy in order to thrive.

Point one was to constantly come up with new concepts rather than relying on old innovations of the past, followed by developing new capabilities, pointing to Microsoft’s capabilities in the cloud and on silicon.

"Most importantly you have to have a culture that’s also evolving to support the new capabilities and new concepts," he added.

"That’s what any organisation needs to be able to innovate to reinvent themselves."