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Corporate Governance

Financial Services


Corporate Governance

Board oversight of corporate strategy

Perhaps the most succinct and comprehensive definition of strategy was offered by a member of the Lead Director Network: “Strategy is answering the question, 'How are we going to beat the competition sustainably?'”

While board directors acknowledge differences in the particulars of a board’s role in strategy, they generally agree on the fundamentals:

  • Oversight of strategy is one of the board's most critical duties 
  • Directors' full expertise should be brought to bear in delivering this oversight
  • Strategic oversight should be ongoing, not episodic, activity

With companies entering new markets, deepening existing ties to global markets, and competing with new or expanding firms, corporate strategy is increasingly focused internationally, where businesses see new growth opportunities and new risks.

Boards must understand the international risks and opportunities that are at the heart of corporate strategy. To fulfill that need, boards seek to attract, retain, and develop a group of skilled and diverse directors who are conversant in global markets and issues.

Explore this issue:

  • Digital transformation and strategy

    Laurence Buchanan of EY and Paul Willmott of McKinsey joined EACLN and ACLN members to discuss the risks and opportunities of digital transformation.The guests noted that digital efforts should address the core business while also exploring new ideas for creating value. And while the freedom to explore and innovate is important, these efforts should not be segregated from the overall organization–new ideas scale better when they harness the resources available to large incumbents. Companies must also be prepared to cannibalize their core business, if necessary, and they should use partnerships as well as acquisitions to supplement their capabilities.

  • Board oversight of major transactions and cybersecurity incident response

    Lead directors discussed the board’s involvement in major transactions, and identified several key components of effective oversight, including early board engagement on significant deals; a culture of openness and candor between the board and management; balancing strategy, changing conditions, and organizational capacity, paying particular attention to “mergers of equals," and being willing to walk away from a transaction. In a separate session, members were joined by King & Spalding partner Phyllis Sumner for a discussion of the board’s oversight of cybersecurity incident response. Ms. Sumner emphasized the need for the board to approach cybersecurity as an enterprise risk management issue, assessing not only the cybersecurity risks and threats the company faces but also its cyber security strategy, plan, system infrastructure, culture, talent, training, and budget. 

  • The workforce of the future

    ACLN and EACLN members discussed workforce issues with George Brooks and Jeff Akin of EY’s People Advisory Services. They explored the technological and demographic trends shaping the evolution of the workforce, and they noted that companies will need to go beyond the traditional HR function and integrate resources from other functions to respond effectively. Audit chairs also noted that workforce issues are rising higher on the agenda of some boards, which is prompting assessments of boards’ approaches to these issues. 

  • The board’s role in overseeing innovation

    Lead directors discussed how boards can help management navigate the opportunities and risks of innovation. They agreed that boards can encourage and guide innovations of strategic importance. Boards can also weigh in on the culture of innovation and the processes that produce incremental progress as well as transformative change. To play these roles effectively, the wisdom of directors with broad business experience remains important, even as boards seek expert insight from within and outside the company.

  • Incorporating share buybacks in board-driven strategy

    Lead directors discussed current pressures to buy back shares but underscored their determination to avoid buybacks that might jeopardize long-term growth.  To manage pressures for buybacks, companies must broaden the search for investment opportunities, communicate the company strategy effectively, and adjust compensation programs to avoid a bias for buybacks.  

  • Returning capital to shareholders

    A substantial group of large public companies are allocating a growing share of their income and cash flow to buying their own stock on the open market. ACLN members said that buybacks are popular for companies with cash on hand because of the low cost of capital, the perception that share prices are undervalued, and the dilution caused by equity compensation plans. They noted, however, that buybacks are not a priority when compared with reasonable opportunities for profitable growth.

  • Digitalization, disruptive innovation and the board

    EACLN and ACLN members discussed the impact of disruptive technologies with Laurence Buchanan, Partner and head of Digital EMEIA Advisory at EY, and Paul Willmott, Director at McKinsey. Highlighting the unprecedented speed and scale of technological change, they discussed strategic imperatives such as focusing on the customer and finding the right balance between new ventures and established revenue streams. They also discussed the board’s role and capabilities in overseeing digital transformation.

  • Board oversight of corporate culture

    Audit chairs from North America and Europe discussed the importance of culture to corporate strategy and the board's role in making sure a strong culture permeates the organization. Hiring, firing, and compensating the CEO and senior management are the main tools boards have to change corporate culture. Other tools of use include a dashboard populated with cultural indicators from across the company and having either internal audit or a separate culture team monitor culture.  

  • Improving corporate culture, processes, and reputation

    Our latest issue of VantagePoints consolidates perspectives from meetings this past winter of over 80 audit committee chairs across North America. Within this issue, we address corporate culture and compliance, with a focus on the challenge directors face in assessing culture from their seats in the boardroom; new analytics tools that are changing companies' perceptions not only of their markets and customers, but also of their own operating and reporting systems; and finally, corporate tax as a matter of reputational concern, including ways to take charge of the narrative so as to tell the company's true tax story. 

  • Strategy, risk appetite and the board

    Boards oversee strategy development in various ways, but crises drive increased engagement. Audit chairs said that effective oversight includes the use of dedicated strategy days and outside experts. They identified key topics of discussion, such as competitors and disruptive technologies. Audit chairs also explored the concept of risk appetite and its links to strategy.

  • The board's role in strategy oversight

    Canadian audit chairs examined the board's crucial role in strategy oversight and observed that great strategies require focus, vision, and leadership. Some members said the best strategies arise from collaboration between the board and management: "Management had developed a great strategy, one we were excited about. The plan was great, but the board thought it was moving too slowly. When we discussed this with management, we were able to accelerate the plan and our success."

  • Strengthening the board-management dialogue on risk and strategy

    Bank directors are actively engaging with management to develop bank-specific approaches to improve risk governance and the link to strategy based on answers to fundamental questions about their firms' long-term direction, appropriate risk capacity, and resiliency under stress.

  • Engaging with strategy after the financial crisis

    Lead Director Network (LDN) members discussed how they engage with strategy in a post-crisis, globalized business environment. The focus of their renewed strategic review is often international, where the excitement concerning impressive growth opportunities is tempered by distinctive risks. Ambassador Susan Schwab, the 15th United States Trade Representative, joined the meeting as a guest.

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