Steer strategy; dodge daily drama…
What is the board’s role in setting enterprise strategy? If you Google this phrase, you come across a massive 875,000,000 hits, which would seem to tell everything you would want to know about a board’s strategic role. But, following up on these links, you will soon notice something all have in common: They tell you that the board is an important player in strategy development. That boards work with the management team in various degrees to shape the company strategy. That the board strives to ensure alignment between strategy and long-term company mission. And, then, more on how important the board role in strategy is. We have even found bulleted checklists of the board’s role just as we have stated above.
The reality of a board’s involvement in strategy falls short of these grand descriptions. Board members, the distinguished professionals and experts in their fields, are by no means underqualified. They bring valuable external perspectives, insights and oversight. But, when it comes to day-to-day operational strategy or deep-dive execution plans, their role is inherently limited. Here’s why: strategy quickly turns into tactics.
Imagine a typical corporate strategic plan. It starts with big-picture elements like core values, competitive advantages, and long-term objectives. These are all crucial elements for steering a company in the right direction. But, soon after, the strategy discussion transitions into highly specific, granular details. The company needs to hit certain revenue targets, launch new products, break into new markets, and so forth. Concrete KPIs (key performance indicators) are identified, and budgets and timelines are mapped out. In more progressive companies with knowledgeable executive
leadership, frameworks like the balanced scorecards will be at play to roll out the strategy into operational goals.
At lower levels, ‘strategy’ is no longer about lofty ideals but becomes a detailed, tactical roadmap. This level of planning requires in-depth knowledge of the company’s operations, the industry, and market trends – all things that are part of the management team’s daily grind. But, here’s the catch: board members, who may only engage with the company for a few hours a month or quarter, often lack the time to immerse themselves in this kind of detail.
The true contribution of a board to strategy is at the high level. They provide a ‘36,000-ft view’ of the business, offering guidance, insight, and oversight without getting bogged down in the minutiae. Their responsibility is to ensure that management is on the right track, that strategic initiatives are aligned with the long-term vision of the company, and that risks are being managed appropriately. They focus on governance, broader policy, and serve as a sounding board for the CEO and executive team.
In a survey conducted by PwC, 65 per cent of the board members felt that their strategic involvement was more about approving than actively shaping company strategy. They may weigh in on whether a company should expand into a new market, approve capital allocation decisions or assess the risks of an acquisition. But the nuts and bolts of how those things are done – the tactics – are almost always left to the management team.
If this sounds like an odd set-up for just what a board is supposed to do when it comes to strategy, you’re correct. This sort of filler consultants and academics deliver when they wish to sound profound without actually getting into anything actionable (and then be hired to help you actually accomplish something). This is a common approach when it comes to corporate governance – the role of the board lends itself to high-altitude clichés.
Perhaps, the biggest unspoken truth about boards and strategy is that their role, while vital, is ultimately limited. They provide oversight, insight and external validation, but they are not, and should not be, the drivers of tactical decision-making. That is the realm of management. Boards may review KPIs, approve budgets, and even weigh in on key risks, but they will never have the same depth of involvement as those who are in the business every day.
In the end, the most effective boards strike a balance between offering high-level guidance and trusting management to handle the details. After all, strategy is as much about execution as it is about vision, and both roles are critical for long-term success.