Strategy setters vs. strategy vetters: boards are not satisfied with the role they are currently playing in strategy development. Here is what they want and need to get more engaged in the process.

• Author: Mankins, Michael C.
• Position: STRATEGY

AFTER MORE THAN FIVE YEARS of near-complete focus on issues of governance and compliance, boards are once again turning their attention to strategy. Today's business world requires it. Competitors are more aggressive, customers are more demanding, and investors are less patient. When it's working, strategy can create competitive advantage and drive superior performance. When it's not working, nothing else really matters. While everyone agrees that the board is responsible in some way for strategy, many board members are struggling with how best to play this all-important role.

In the fall of 2006, my firm, Marakon Associates, collaborated with the Economist Intelligence Unit to survey board members from 163 companies worldwide with revenues and market capitalizations of $1 billion or more. We wanted to better understand the board's role in strategy. Specifically, we wanted to know how board members are typically engaged in strategy development and implementation, how they would like to be engaged, and how effective they think boards are at shaping the future direction and performance of the companies they help govern.

While the companies surveyed compete in different geographic markets and in disparate industries, the directors we surveyed were remarkably consistent in their view of how effectively they felt boards are engaged in strategy. Indeed, our findings support what many directors have long suspected--namely, that they devote too little time to strategy in board meetings, that the time they do spend is not always focused on the right issues, and that the way strategy dialogues are structured and conducted makes them ineffective, even inconsequential. Specifically, here's what we discovered:

Mismanaged Time. At many companies, the way meeting agendas are set and managed does not afford sufficient time to engage the board effectively in important strategy debates. As various surveys have reported, the total time the average director devotes to board matters has increased significantly over the past five years, now exceeding 200 hours per year. However, our research suggests that the total time devoted to strategy hasn't increased much at all. In fact, the typical board spends roughly ten hours together each month in board meetings--and, in that time, it devotes less than two hours to strategic issues. The bulk of the board's time is devoted to reviewing operating performance, monitoring compliance, keeping abreast of regulatory matters, and other issues. These are all important, of course, but agendas focused on these items frequently leave too little time for what matters most: strategy.

Mistaken Priorities. The way priorities are set does not always focus the board (or management) on the most important strategic issues. To start, two hours is not a lot of time for the board to help management think through the most challenging strategic issues facing the company. Moreover, in my experience, these two hours are seldom well spent. Strategy discussions tend to be diffuse and unstructured. Very few companies--fewer than 5%, according to our research--have a rigorous and disciplined process for focusing top management's time on the most important strategic issues. As a result, it is not uncommon for as much as 80% of the board's time to be devoted to issues that account for less than 20% of a company's long-term value.

Ineffective Dialogues. The way strategy dialogues are conducted at most...