Magazine Fall 2014 Research Feature

How Strategic Is Your Board?

Many corporate boards lack clarity about their role in strategy. A structured assessment of the board’s strategic responsibilities — and how these should evolve if the company’s competitive context shifts — can change that.

Didier Cossin and Estelle Metayer Reading Time: 18 min 

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Stratego

One aspect of strategy involves redefining the company’s competitive domain. For example, Fujifilm diversified into areas such as skin care items and dietary supplements.

Image courtesy of Flickr user John.

In a world where business models are evolving rapidly and new competitors can emerge almost overnight, strategic thinking — especially at the top of the company — is more important than ever to a company’s survival. Unfortunately, boards of directors have no clear model to follow when it comes to developing the strategic role that is best suited to the company they oversee. At one extreme, the board does little more than rubber-stamp the CEO’s decisions, while at the other, the board constantly second-guesses the executive team. Neither extreme adds value.

As with other leadership roles, the one played by the board varies with the company’s culture and the norms and legal requirements of its home country, as well as the norms of the industry. More importantly, the board must play a role that matches the strategic needs of the company and the state of its sector. The board of a young company usually needs to wrestle with different strategic issues than the board of a long-established company, and the board of a company in a young and chaotic industry generally needs to operate differently than the board of a company in a mature industry. In this article, we will look first at how to assess the strategic value that your board currently delivers; second, at whether that value matches your company’s needs, based on the current competitive situation; and finally, if there isn’t a good fit, how to realign your board’s style so that it meets your company’s current needs. (See “About the Research.”)

Three Strategic Dimensions

Three dimensions shape the board’s contributions to strategy. These factors differ from culture to culture and from company to company, but they are always present in varying degrees:

1. A Definition of Strategy

Companies define strategy in different ways, depending on their place in their industry and the nature of their industry. Often boards go wrong simply because they have not defined the right measures of competition or the right challenges on which to focus.

2. The Role of the Board

The board’s role in strategy may range from that of advisers who supervise the strategy to full coauthors of the company’s game plan.

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About the Authors

Didier Cossin is a professor of governance at IMD in Lausanne, Switzerland, and is director of the IMD Global Board Center. Estelle Metayer is the founder and president of Competia, a consulting firm that advises boards and executives on strategic issues; she is also an independent director on the boards of two public companies and an adjunct professor at McGill University in Montreal.

References

1. Scholars have long debated the definition of strategy. For a range of such strategy definitions, see A.C. Hax and N.S. Majluf, “Strategy and the Strategy Formation Process,” Sloan School of Management working paper no. 1810-86, August 1986, available at http://dspace.mit.edu.

2. See H. Mintzberg, “The Rise and Fall of Strategic Planning” (New York: The Free Press, 1994).

3. D.J. Snowden and M.E. Boone elaborate on this framework. See D.J. Snowden and M.E. Boone, “A Leader’s Framework for Decision Making,” Harvard Business Review 85, no. 11 (November 2007): 68-76.

4. R. Rumelt illustrates this view. See R. Rumelt, “Good Strategy Bad Strategy: The Difference and Why It Matters” (New York: Crown Business, 2011).

i. H. Mintzberg, “Patterns in Strategy Formation,” Management Science 24, no. 9 (May 1978): 934-948.

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Comments (5)
Kheepe Moremi
Clarity of thought about the strategy context, strategy content, the strategy process as well as the strategic outcomes need to be laid bare for the board to be effective in executing its agency.
Olegario araujo
It is really an excelente article. It is very clear, simple in the way that was written and also deep in its content!
Anilkumar N Pillai
Appreciate the good research done in this direction . One important thing which is being missed out is the fact that a lion's share of corporates irrespective of its size are Family Business Units and hence Parents , Children and cousins constitute the Board in many of the companies . Thus Generational Stack up, friction between the siblings , level ,capacity and educational  differences amongst the cousins etc will act as barriers for a constructive discussion to take place . As a result only less than 10% of the family businesses survive in the hands of the second generation . Is there any way out
Alencar Gomes Leal Filho
Sincerely, excellent article. Thanks a lot for sharing.
Scott Newton
Thank you for publishing this thought provoking article on the role of the board in Strategy.

One point that is often missed is for the firm and their business units to consider what processes they are using to drive strategy and how well the processes are working or not working.  In addition to definition of board roles and responsibilities in Strategy we have found that the explicit use of visible repeatable processes in Strategy formulation significantly increased the quality of thinking and decision making at executive and board levels.

I look forward to your next coverages on the Strategy topic and the role of the board as this is an area many readers are thirsty for content on.