Board Directors and Strategy Development

It is a well-known and excepted fact that boards play a critical role in approving the strategic plans of the organizations they serve.  However, not enough time is spent around the board room table considering strategy development and strategic alternatives. Considering the increasing complexity of our world, and taking into account the compression of time, it is my view that directors must be involved in the precursor of strategic planning: the strategic thinking.

What role do boards have in developing the strategies that ultimately get prepared into a strategic plan? In my experience, board directors are an incredible resource, and an incredibly underutilized resource, in the strategy development process.  Management teams spend incredible amounts of time, energy, and resources developing strategic plans, often without benefitting from company directors in the elaboration of strategic alternatives.

When it comes to developing strategy in extremely complex environments, optionality is everything. One of the contributions directors can bring to the company – aside from governance and fiduciary responsibility- is in looking around the corners at what is coming, and identifying strategic alternatives, from which strategic direction can be decided. Discussions directors can add value to include generating ideas to seize emerging opportunities, to offset emerging risk, and to verify the validity of strategic assumptions. In order to generate tremendous values, these discussions must be the precursor to discussions on the specifics of any plan.

Typically, board directors spend strategy retreats, looking at and discussing a compilation of strategic initiatives at the management team has already developed to a certain degree of completion. Discussions then, ensue about the initiatives themselves. In the best of cases, the strategic initiatives are developed in line with the companies, clear, mission and vision, and the action plans are developed coherently with the organizations values. That is in the best of cases.

The weak link in this approach, is that it precludes the involvement of the directors in the discussion of the strategic optionality. At any given moment in time, an organization faces alternatives with respect to its tactics, but also with respect to the strategic choices that it has the possibility to make. Too often, the strategic choices are truncated before they get to the board of directors, and the subject of discussion is tactical.

For example, in discussing a a potential acquisition as a pathway to growth, it is possible that several strategic assumptions have already been made: that acquisition is the best way or a company to grow, that the company can handle growth, that the company is operating as efficiently as possible, that an acquisition is better than a partnership of some kind…

Now, management certainly consider strategic alternatives in the development of the strategic plan that it eventually puts forth before the board. However, the breadth and depth of experience of the board members might contribute to the identification and development of additional strategic options, risks, and opportunities, that may not be visible to the management team. This is especially true with a management team that has been working together for a long while, or one in which the dominant culture is already entrenched by the longest-serving members of the team.

As a Director, I have seen many instances of fully built strategic plans coming to the board for discussion, which ends up being about the tactics. Very seldom do I see a board engage in discussions about the strategic alternatives – except in times of crisis, or when the organization is at a crossroads, say, facing an unsolicited offer to purchase. 

And yet, the tactics of the organization’s approach is arguably where directors can contribute the least value, nor is it a director’s role to be involved in the operational decisions. The leadership team spends 3000 hours per year or more embedded in the business. The board directors, at one-tenth of that, are not experts in the running of that business, nor should they be. Yet too often those are the discussions they are engaged in, even when it comes to strategic planning.

In contrast, discussing strategic alternatives regularly around the boardroom table can help the leaders break through inertia to pull ahead of their competitors, or unlock strategic moves that redefine the playing field. Here’s why:

1. Board directors bring the longest-term perspective on the company’s health.

Board members are collectively responsible for ensuring the perennity of the company. This lens gives directors an opportunity to look beyond the operational and market concerns of the current moment to the strategic alternatives that could shape the future of the company.

This long-term perspective must naturally be fed by continuing education on the part of the director: attendance at forward-thinking director-level conferences, learning about emerging trends through appropriate courses and peer-led webinars, reading and staying connected to what matters to other directors through publications such as this one. 

• Board directors are diverse in their professional experience and personal background.

This allows each member to contribute in a different way to the reflections on corporate strategy. True diversity of a board unlocks strategic questions and identifies options that may not have been considered by the leadership team, whose background and focus is necessarily different than that of directors. 

Board directors can – and should – present strategic questions for consideration that reflect their expertise as well as a view from outside the company’s own ecosystem. These perspectives have the potential to unlock truly bold ideas for the leadership team who are entrenched in the successful operations of the company. Strategic moves which have been successful in other industries and ecosystems brought about by the board directors, as part of a truly complete discussion about strategic options are essential to a company’s growth. 

Obviously, a board that is made up entirely of industry insiders, or of friends of friends, or of retired c-suite execs, or of people who are not representative of the work force, client base and stakeholder diaspora, cannot reap the full benefits of diversity in generating strategic alternatives for the company.

In that case, directors must find ways to complement their current capacity to think strategically (and, in parallel, possibly revisit the board composition). One board of directors I have worked with recognized this shortcoming – the lack of professional diversity – in itself, considering that all of its members are industry insiders. A decision was made to add two non-industry members to the board of directors to help broaden the conversations. Diversity is critical to unlocking the full value of a true strategy development exercise. 

• It is an important part of directors’ fiduciary duty.

In fact, fiduciary duty cannot be exercised fully in the absence of discussions about strategic alternatives to strategic issues and opportunities. Looking around the corners at what might be coming is the precursor to strategic planning. Identifying scenarios and discussing various approaches the complex, ambiguous trends in emergence, and deciding what to course to pursue and which to pass, which to ignore and which to seize, is an essential part of fiduciary duty. Then, once strategic alternatives are discussed and choices are made, the leadership team can get on with developing a strategic plan for review and approval.

The question remains: How can directors contribute to the strategic thinking process?

Three ways that have worked well for the many boards I have worked with are outlined below:

1. Request that the launch of the strategic planning process start with the Board.

Directors must have the opportunity to pose their strategic questions to the leadership team, so that they, in turn, can address and develop strategic alternatives for discussion and debate in the board room. The questions must be high-level questions in order for the conversation to be truly strategic. For example, asking, ‘Should we consider a merger with XYZ,’ is not as high-level as ‘What are the avenues for our company’s growth in line with its vision?” The discussion would then ensue about alternatives such as merger, acquisition, partnership, organic growth, market expansion…which is much more strategic than the consideration of merging with a particular company.

2. Look outside the box.

The value of the diversity of the directors has been elaborated in the previous section. Directors must bring that diversity to bear in the strategy discussions. A director’s questions and comments must leverage their experience in other industries or as a member of an underrepresented group, for example.

3. Take a structured approach, so as to leave no stone unturned.

Directors can take a structured approach to ensure that key elements are part of the strategic considerations of the company’s strategic plan. When I guide discussions with a board of directors, I help them “look around the corners” by proposing six external areas of disruption to their business (and business models), as well as eight variables of their internal business environment. These are depicted as shown below. Aside from exposure outside the industry and providing perspectives from personal background, continuing education is key to ensuring that there is a collective intelligence around the board table relative to each of these areas.

This articlae was first published in Directors & Boards, November 2023 Online Edition. You will find the original print article here.

If you are interested in further reading on the role of the board of directors in strategy development, the following articles may be of interest:

From McKinsey & Company: Changing the Nature of Board Engagement . From Harvard Business Review: The Board’s role in Strategy