Written by Lawrence Zammit, 14 May 2014
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There is little doubt in people’s minds that the Board of Directors is responsible for setting the strategy for the organisation they serve. However this statement can very well be like one taken from a management textbook; without much reference as to what happens in real life.
In many organisations, the directors look to the Chief Executive Officer to design a strategy which they then discuss and approve or disapprove. All too often the exact word to use is “rubberstamp”. Directors keep their conscience quiet by convincing themselves that they believe that strategy should be developed bottom up.
Among the various snags that there are with this argument, I would like to mention three. First and foremost, irrespective as to who designed the strategy, directors are always responsible for it in the first person. So rubberstamping a strategic document is actually doing a disservice to oneself.
One can no longer keep the practice of listening to one presentation after another on strategy delivered in a most polished way by management – a practice that has been described in the Harvard Business Review as “death by slide”.
Second, it cannot be taken for granted that the CEO who presents the strategy would have opted for a bottom up approach when designing it. Strong CEO’s would rather give business strategy their own imprint than allow someone else’s imprint on it.
In any case, the Board of Directors can still adopt a bottom up approach by actively listening to what all of senior management and the employees would have to say. However at the end, it is the Directors that must decide.
Business strategy is the tool by which directors fulfil their responsibilities of protecting stakeholders’ rights, creating shareholder value, cultivating the appropriate corporate culture, management oversight, etc.
It therefore must take a longer term view, which executive management may be very unwilling to take, especially if their remuneration packages are dependent on the achievement of results that are short term in perspective. For a company to have a meaningful business strategy, the Board of Directors must take charge of it.
This requires directors to adopt a more pro-active approach. They can no longer spend their time sitting in the boardroom, spending an endless amount of hours discussing past results. They must understand the business which the organisation they serve is operating in.
Possibly they would need to engage in discussions with stakeholders to understand the growth prospects of the business, where to apply additional resources, where to apply less resources, where growth will come from.
Admittedly the Directors need to let the CEO and management to do their job. However it is very difficult for the Board of Directors to implement best practice corporate governance principles if it remains aloof of the strategy that their organisation is adopting.