The director's role in strategy development.

• Author: STEINBERG, RICHARD M.

Despite inherent difficulties presented by board/management dynamics, many boards do a great job in ensuring a successful strategy. What do effective boards do?

WHILE CEOs RECOGNIZE that developing "the right" strategy is extremely difficult, and consistently rank strategy as one of their top issues, a poll of directors show board contribution to strategic planning is lacking. Indeed, it is the area most needing improvement. Effective boards play a critical role in the development process, by both ensuring a sound strategic planning process and scrutinizing the plan itself with the rigor required to determine whether it deserves endorsement.

A wide range of views exists among directors on what's the right extent of board involvement in strategy development. One director describes his view: "If the board isn't comfortable with the strategy that management has set, it should tell management to rethink it, and come back with something better. But, the board shouldn't be involved in developing the strategy."

Headlines are filled with stories of well-known, respected companies that imploded due to strategic failures. How could well-intentioned, seasoned executives create strategies that became, ultimately, competitive disadvantages? And how could directors have approved them?

Looking at past practice, a large part of the answer can be found in dysfunctional management/board dynamics. Board members point to CEO/chairs who:

* Set a highly controlled agenda for strategy discussions, creating an environment making it difficult for independent directors to raise concerns about critical strategic issues.

* Became intractably committed to one strategy to the exclusion of other possibilities, and were impatient with directors not sharing total commitment to the chosen path.

* Were reluctant to acknowledge past mistakes, hanging onto a poor strategy, with resulting stagnation at the company.

On the other hand, directors have contributed to a failed process, being hesitant to aggressively and constructively challenge management-developed strategy. In many cases this was because directors were not sufficiently prepared, or felt they might be violating established norms of boardroom debate, fearing they would find themselves isolated and perhaps ultimately replaced. Some directors' reluctance was due at least in part to the reality that management had better, more in-depth understanding of the industry and company, with significant time and resources not immediately available to the board. It has been noted, interestingly, that this very proximity to the business can prevent management from seeing critical factors and seriously considering important alternatives.

What works

Despite inherent difficulties presented by board/management dynamics, many boards do a great job in ensuring a successful strategy. What do effective boards do?

They strike a balance based on a clear distinction between the role of the board and that of management, where the board provides oversight and strategic insights, while avoiding "micromanaging" or dramatically slowing the strategic decisionmaking process. Among the key roles that a board plays in the strategy development process are:

* Reviewing options, challenging them, adding additional perspective and agreeing on appropriate measures for success.

* Reviewing the strategy development process to ensure it is sufficiently robust to consider the appropriate range of alternatives and to assess them properly.

* Examining plans and processes for strategy implementation.

* Monitoring implementation through agreed metrics and providing operational and tactical...