Lead Director Network, August 2015
Members of the Lead Director Network (LDN) convened in New York on June 30 to discuss the development and oversight of corporate strategy. This ViewPoints addresses the ways board directors work alongside management to ensure that a company makes the right strategic choices. In a separate session, members debriefed the 2015 proxy season with King & Spalding partners Cal Smith and Jeff Stein.
The meeting focused on three aspects of the board’s role in corporate strategy:
Balancing long- and short-termism in the strategy debate
Faced with the pressure to simultaneously deliver strong quarterly results and create long-term value, boards must balance these competing interests to help make the right decisions for the future of the company. McKinsey & Company defines strategy as “an integrated set of actions designed to create a sustainable advantage over competitors.”3 As boards play a more prominent role in shaping strategy, they have the potential to advocate for longer-term strategic choices. Boards bring considerable outside experience to companies and are able to help management consider a broader range of options when setting strategy. The prevalence of shareholder activism is just one force of many encouraging greater board involvement in developing strategy.
Pursuing the best strategic options through collaboration
Lead directors say that boards are most effective at developing strategy when directors form a partnership with management that is based upon mutual trust. This means working together throughout the year to share information so all parties are able to identify important topics, consider strategic risks, and answer hard questions. Many lead directors also find beneficial an annual strategy event where leaders – free from day-to-day distractions – can take a deeper look at the drivers of the business and directors can gain a better perspective about longer-term issues by spending more time with managers. Lead directors see their own role as developing the agenda for the offsite with management and using executive sessions without management present to elicit feedback and further questions on the strategy.
Enabling the company to execute its strategy
Directors play a critical role after a strategy has been agreed. This includes monitoring the right metrics, asking the right questions, and, sometimes, making the right decisions about when to abandon a strategy that is not meeting expectations or when to replace a senior leader who is not able to execute the agreed strategy.