What is the role of the board in relation to strategy

What is the role of a board in relation to strategy, Board Benchmarking Main image

Written by Yusuf Abdoollah, Partner/Board and Risk Advisory Services, BDO Mauritius and Eastern Africa – as part of Board Benchmarking’s latest report ‘Benchmarking board performance: 500 board reviews later‘.

On some of the boards where we conduct evaluation, the prevailing view is that strategy is their job, and they insist on having board strategy retreats during which they set their organisation’s strategy.

On some other boards, the prevailing view is the extreme opposite: their job is to wait for management to come forward with its strategy and to either approve it or not.

The above two views are somewhat extreme, and neither is likely to work.

The right approach is normally an iterative process in which the CEO leads the process and ensures that the board is appropriately engaged at key points along the way. And if the CEO doesn’t engage the board at those key points, then the board should take the appropriate action to ensure that it is engaged.

This iterative process can be done in three simple steps:

First step

At the start of the process, the CEO should seek the board’s input on the main challenges that the board thinks the strategy should address. Most disconnects that we have witnessed between boards and CEOs are because of the CEO’s strategy attempting to address problems other than the ones that board thinks are most critical.

During this first step the CEO should also seek to understand the broad parameters that the board would like the strategy to achieve. Too often CEOs and executive teams do all the hard work in developing their strategy only to find that the board had different ideas as to what the strategy should achieve.

A constructive conversation about the key challenges and the broad parameters that the board wants achieved at the start will help ensure alignment.

Second step

The CEO should come back to the board with high level strategic options to deal with the main challenges and deliver on the broad parameters set by the board. Here, the CEO isn’t asking for ratification of a particular approach, but rather seeking advice and feedback on the potential solutions which resonate more, what concerns remain outstanding, how possibilities could be modified, etc.

These discussions between the board and CEO and/or executive team will agree on steps that will be needed to achieve the high-level strategic options, any additional resources required and ensure that the thinking behind the options presented is both rigorous and realistic.

The CEO should seek to understand the broad parameters that the board would like the strategy to achieve.

The third and final step

Entails the CEO and executive team preparing the desired strategy and presenting it to the board for approval. The preceding two steps will have paved the way for board buy-in and approval.

In our experience, a CEO should be in charge with the board providing oversight, input and sage advice. Often, the appointment of an external consultant can be of great assistance in the strategy formulation process and helps to make the connection between the board and the executive team.

70% agree or strongly agree ‘the board sets the broad parameters for Management to prepare the organisation’s strategic plan (e.g. for new investments, borrowings, risk and return)’

Going through the steps set out above will ensure that the board, CEO and executive team forge alignment and a deeper commitment to the successful execution of the strategy.

If you want to ensure your board and executive team have undertaken all the right steps in preparing for, developing and having your strategy signed off and executed try our Strategy Effectiveness Survey.

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