NACD Commission on strategy: An increased role for the board?

3/5/2014

The National Association of Corporate Directors (NACD) has announced the establishment of a commission to make recommendations about the "board's role in recalibrating the enterprise's corporate strategy in response to market forces". The decision, to consider the topic and present guidance, is a positive step towards more effective governance in the USA.

For some time now, researchers have suggested that strategy needs to be part of the board's remit, although a consistent interpretation of what that means remains unclear. Some directors and consultants think boards should be actively involved in the process. Others disagree. Clearly, there are several options to be considered, along a spectrum:

Management drives the entire strategy development process, and the board, at best, rubber-stamps the result.
The board simply approves strategy developed by management. This is the default option for many companies today.
The board speaks into the strategy development process, but it remains largely controlled by management.
The board is an active participant in the development of strategy, together with management.
The board drives the strategy development process, albeit with considerable input from management.
The board imposes strategy on management.

Irrespective of the recommendations that Commission presents later in the year, boards are responsible and accountable for business performance, and board contributions need to be recalibrated accordingly. I await the outcome of the NACD process with interest.

Thomas Doorley link

3/5/2014 04:44:50

A great idea. I led the first NACD Masters Class on the Board's role in the strategy dialogue I'd love to contribute my expertise

Peter Crow

3/5/2014 05:39:29

Hello Thomas! Great to hear from you. The names of the Commission members are listed on the release, so that would probably be your best first contact point. I suspect you will know some of them.

Azmina Manji

8/5/2014 21:39:57

I believe the point 4 approcah would be realistic. It is a partnership ensuring both Board and Management have a buy into the process and clear understanding, and in developing the strategy, keeping in mind first and foremost the interests of the corporation and its sakeholders. In fact an external faciliatator may enable objectivity in setting strategy objectives, discussions and outcomes. Thats not good enough - ultimately it is the CEO and Board's Accountability that the strategy is implemented in a prudent and effective manner.

9/5/2014 00:15:08

Thank you for your comment Azmina!

Your comment about 'partnership' is important, although many Americans and American-inspired directors may challenge this, because they see 'independence' and 'control' as being more important. Many American boards interpret acting in the best interest of the shareholder (the US statute is different from that in many Commonwealth countries) as simply controlling the CEO. The selection and implementation of strategy is seen to be the CEO's job.
I'm of the view that the 'best' configuration is somewhere around point 4 or point 5. My doctoral research is pointing to this, although the analysis is not complete yet, and I am yet to test the ideas fully back against the data.
In the meantime, if you have some additional evidence to back up your 'I believe' statement, I'd be most interested to see it.

9/5/2014 09:07:07

Thanks for your insight on the American Boards. Having given more thought I am leaning towards a 4/ 5 combo. To clarify, I do acknowledge it is important to distiguish between setting a strategic plan (Board and Management) vs.Operational Plan(Management) . In this regard, I see the Board as ultimately accountability in setting, approving, overseeing and monitoring the strategy and strategic direction, including the risk appetite, the latter also very much a part of strategy. I do agree Management is responsible for executing/implementing the strategy, and in ensuring it has the capacity to achieve the strategy. I would say there is greater involvement by the BC (Canada) Credit Unions Boards in the setting of strategy and risk appetite. Perhaps it could be the nature of Canandian credit unions being "financial services cooperatives". I provide you with the following link for BC Regulator - FICOM Governance Guidelines which may be useful.
http://www.fic.gov.bc.ca/pdf/creditUnionsTrusts/GovernanceGuidelineCUs.pdf. You may also to check the OSFI website for Canadian Banks.
I look forward to the publication of your doctoral research. thanks

judi

10/5/2014 12:30:48

Somewhat in parallel, I have been asked to speak on "Is customer centricity on the board agenda". I would be very interested in your opinions - both the reality and the ideal

10/5/2014 13:05:27

Hello Judi. Can you please expand a little on your topic, to ensure I've got the correct understanding. Thank you !

Judi

10/5/2014 13:56:31

Dear Peter,
I have been invited on a panel to discuss the "Customer Culture Imperative" for organizations. As a partner at Heidrick and Struggles leading the board practice, I have been asked to contribute a perspective from the top (Boards). My initial thoughts are that as building a customer centric culture is central to strategy, the imperative lies on the strategy continuum you describe above - therefore (and supported by my observations) some boards will have little representation of their consumers or capability to bring consumer insight to the boards, through to those who have marketing committees with the explicit responsibility to bring consumer insights to the board to constructively contribute to/drive a customer centric strategy. Some chairs ask me to specifically recruit consumer experts to the board, e.g. those with direct FMCG marketing/leadership roles - even for B2B and commodity businesses. I also have B2C businesses who say that marketing/consumer experience should sit with management and therefore that experience is not needed on the board. I find the latter an "interesting" position that reinforces a board that may suddently find themselves still selling buggy whips, completely out of touch with their changing market if they don't have some in their ranks who walk the supermarket ailes or are e.g. excited users of the new technology. All this speaks to the heart of the value of diversity (broadly defined) on the board - some gender, some geographic, some consumer, some industry, some legal, lots of financial, some IT experience, etc - not to provide specific expertise, but to provide meaningful challenge to management. I would be very interested in your thoughts. warm wishes Judi

10/5/2014 14:15:57

Hello Judi. You've raised several quite interesting points, of diversity, of knowledge of customer/market, and of engagement in the strategy process. I have several examples that may be of interest to you, and wonder whether a conversation may be more appropriate than a lengthy exchange here? Please excuse me, but are you based in the Sydney office? If so, I will be in Sydney on Thu15/Fri16 May. If you have time, then perhaps we could meet? I suggest we pursue via email, my address is peter@petercrow.com.

10/5/2014 13:56:41

10/5/2014 13:57:24

Caroline Oliver link

11/5/2014 07:56:55

Another option is that the board sets the Ends (see John Carver's concept) but allows the CEO to set the strategy to achieve the Ends within clear Executive Limitations. Thus the board sets and monitors strategic direction but allows for plenty of executive agility when it comes to choice of meansl

11/5/2014 08:42:21

Thank you Caroline! Your comment raises a good point, tacitly at least: where does setting the purpose/goal/ends of the organisation start and stop relative to strategy? Is it part of strategy or separate? If it is separate, then the ends concept positions the board's involvement at the second or maybe third option on the list. Whereas if setting the ends is an integral part of strategy development, the the board has a much higher level of involvement. The 'scope' of strategy (ie: What is strategy?) was a question that generated much discussion at the Company Director's Course that I facilitated last week. Building a common lexicon is crucial :)

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NACD Commission on strategy: An increased role for the board?

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