Board's role in developing and overseeing the implementation of strategy

An excellent article by Tony Featherstone in the March edition of Company Director on the Board's role in developing and overseeing the implementation of strategy, including 12 top tips.


1. Understand the link between organisation size and strategyA fast-growth emerging technology venture, for example, might still be engaged in customer discovery and searching for its business model and strategy. The board might need a hands-on role in strategy creation and implementation, and strategy could resemble more a hypothesis than a concrete plan. In a large organisation, such as a bank, strategy typically is well-defined and more stable, and there is clearer distinction between the role of board and management in its formation.

2. Align board composition with strategy Are directors sufficiently versed in complex organisation strategy? Do their collective skills and experience align with strategy, and is the board capable of joining the dots within and across industries and markets to identify emerging strategic risks and opportunities?

3. Help directors
Those who govern an organisation in an unfamiliar industry must rapidly build their sector knowledge. The board should ensure it receives appropriate, timely information from the executive team on industry conditions, and does its own environmental scanning to look beyond information supplied by management. Nothing beats directors being well read on general business and industry issues, but ensure material that challenges your views – rather than only reinforces them – is included in your regular information set. Also, attend key industry events where possible.

4. Develop a process of strategic engagement
Boards that seek deeper engagement in organisation strategy should design a clear process to enable better collaboration between executive teams and management on this issue. For example, the board might develop an annual two-day strategy off-site meeting, a strategy discussion session before every second board meeting, a timetable of strategy presentations from key executives, and so on.

5. Set boundaries between board and management
There is an obvious temptation for directors, especially those who were recently full-time executives, to dive too deeply into management and blur lines between the board and executive team. Understand that the role of boards, at least in larger organisations, is not to create strategy from the bottom up, but to test, shape and influence it through robust discussions with the executive team.

6. Set broad strategic parameters
Good boards have a clear understanding of the organisation’s risk appetite and the types of returns investors seek. They deeply understand the mission, vision and values, which in theory should influence strategy creation and implementation. The aim is to give the executive team an intended destination in a certain timeframe, and help them devise the best route to get there, without getting in the way.

7. Isolate and probe assumptions
A key risk is focusing on the headline strategy and overlooking underlying assumptions, or taking information behind the strategy at face value. Can the CEO defend the assumptions and what happens if they are wrong? How reliable is the information underpinning the assumptions? What factors could cause key assumptions to be stronger or weaker than the base-case scenario? Good directors challenge assumptions constructively, and good CEOs welcome the reality check.

8. Go big and go long
Once strategy is agreed, the board should focus on a manageable number of big-picture threats and opportunities, and have a sufficiently long enough horizon. For example, a strategic priority might be how the organisation will capitalise on strong forecast growth in Asian middle-class consumers in the coming decade. Or how an ageing population will affect demand for housing construction. Test that these are the right questions, and whether they need to change from time to time.

9. Delegate and dive deep
The board might allocate a key strategic issue to a director or form a taskforce, seek executive input on the trend, or external advice, and discuss the information during or before a board meeting. This process helps boards and executive teams better engage in short-term and long-term thinking, and constant refinement of the big picture keeps strategy fresh and evolving.

10. Align everything
The board has a critical role in ensuring the organisation is capable of delivering the agreed strategy. Does it have the right culture, people, systems and incentives to execute the strategy? Is there a culture of innovation? Is the organisation sufficiently nimble to change strategy quickly if needed? How well is strategy understood throughout the organisation? Can strategy be explained simply so that its core thrust can be comprehended by anybody?

11. Develop strong processes for strategic milestones
Does the board have a clear process for approving capital allocation for critical projects? How does it decide if a merger or acquisition is a suitable investment? What are the board’s comfort levels on key balance-sheet metrics and is there a process to approve more debt or equity capital being raised? High-performing boards think through these issues well in advance and have clear processes to help guide difficult decisions in fast-moving, pressured situations.

12. Communicate
Some boards believe the best communication of strategy is performance. That is, if earnings are growing and the share price rising, strategy must be working. A better approach is the board clearly explaining long-term strategy to key stakeholders, with management explaining shorter-term performance, operational and strategic issues. Enlightened boards might even consider publishing a policy on the process of strategic governance to help stakeholders understand the board’s role in strategy and whether it is fulfilling it.