Today’s organizations find themselves in an increasingly competitive and challenging market which forces them to face challenges that require greater attention and occur at a faster pace. This may vary among industries operating in a regulated market (for example, utilities) which will likely have a slower pace compared to those in a highly competitive industry (for example, technology, pharmaceuticals, etc.). However, each of them should periodically review their current strategy and define the appropriate adjustments based not only on their industry (traditional drivers) but also on advances in other areas (state-of-the-art drivers) that at first might seem beyond the scope of their business. This fact is increasingly being re-evaluated due to the interconnectedness between drivers, a notable example being Artificial Intelligence (AI). A couple of years ago, it attracted the attention of some and now it’s rare for an organization not to think or work on it.
So, if this seems so clear why do some organizations, including their boards of directors, continue to dedicate more time to their agendas to transactional or operational issues and not dedicate part of their time to analyzing the macro environment and across all industries (forces, trends, etc.) and their industry-specific environment?
According to the 2022–2023 NACD Public Company Governance Survey, 96% of boards dedicate at least one meeting per year entirely to discussing and reviewing their corporate strategy, and 66% review it in two or more sessions per year.
There are multiple causes for this behavior including: the temporary “calm” that current organizational outcomes may offer, a corporate culture averse to change, and/or a lack of strategic vision among at the upper levels.
Current Organizational Outcomes
Some boards of directors enter a “calm mode” when they see that current indicators are going well, and the agenda do not let some space to address other issues. This can occur when the board of directors:
- Allows the agenda to become saturated with operational, regulatory, and financial topics, leaving little time to address more strategic issues (board dynamics).
- Fails to direct the agenda of its meetings (delegation of the agenda to management) and allows management to direct it and define its content (How Managers’ Everyday Decisions Create—or Destroy—Your Company’s Strategy, 2007 – Harvard Business Review).
- Does not challenge management to explore new opportunities nor propose them based on their knowledge of the environment (board dynamics and composition criteria)
Change-averse Culture
Some organizations, including their boards of directors, feel “comfortable” or demonstrate excessive complacency with the status quo; that is, they have become accustomed to the current way of seeing and doing things as in Corporate Governance: Principles, Policies, and Practices, Tricker, B. (2015), 3rd ed., Oxford University Press.
This can usually occur when the board of directors:
- Is very close to the CEO and/or has a composition with little participation from independent members (composition criteria)
- Has members with very low turnover (rotation policy or criteria)
- Is not exposed, either individually or as a group, to spaces where it can access up-to-date information and having a bigger picture (training plans, updates, etc.)
Lack of Strategic Vision
It is not uncommon for some management teams and their boards of directors to focus more on operational issues and traditional fiduciary duties, neglecting a more holistic and strategic vision focused on the future sustainability of their organization.
This may be due to:
- A lack of clarity between the roles of the board of directors (oversight) and the administration (management) – Roles and responsibilities
- A particular interest of board members (due to technical expertise or training) in these types of issues (composition criteria)
- Excessive attention to urgent or operational issues that leave no time for the strategic role of the Board of Directors (What is the Board’s Role in Setting Strategy – 2018, Harvard Business Review)
- Absence of members who promote attributes within the organization such as strategic thinking, planning, etc. (Boardroom skills – Do You Have What It Takes to Join a Board?, Corporate Governance Institute)
As can be seen, boards of directors play a key role in the planning and development of strategic conversations and should not be limited only to their fiduciary and regulatory duties. Their composition, dynamics, and processes must be in line with the reality of their environment, and they must keep in mind that one of their most significant contributions is to foster a culture within the organization that revolves around strategy, and for it to be reviewed, discussed, and adjusted as frequently as required according to the organization’s unique characteristics, as it ensures its permanence (sustainability) over time.
How can we support you?
Our portfolio led by consultants with experience on multiple boards in the region and from different industries includes advisory and consulting services in strategy and boards of directors, highlighting:
- Personalized support and advice
- Management and facilitation of strategy and benchmarking workshops
- Advice on composition criteria (capabilities matrix, training, and experience)
- Support in defining agendas and training plans for directors
- Independent evaluation of its members
- Independent evaluation of the board of directors (as a group) addressing dimensions such as dynamics, processes, structure, etc.
