Strategy, First and Foremost.

• Author: Rock, Robert H.
• Position: LETTER FROM THE CHAIRMAN

At the start of a recent board meeting, a colleague asked me, "What are we doing here?" Seeing that I was a bit puzzled, she followed up, "Are these agenda items really matters for the board?" She went on to explain that we should be focusing more on strategy than on "all this other stuff" that has taken over the board agenda.

The board's primary focus should be on corporate policy, CEO succession, executive pay for performance, risk management and strategy assessment. While the first four necessitate occasional, in-depth board deliberations--given rapid developments in technologies, markets, competition and geopolitics --strategy assessment should be a regular agenda topic.

In 1972, I graduated from Harvard College and crossed the Charles River to enter an MBA/doctoral program at Harvard Business School. Professor Kenneth R. Andrews had just published his seminal work, The Concept of Corporate Strategy. For the last 50 years, Andrews' framework has provided the underlying precepts of strategy formulation.

Strategy formulation is difficult work. As Yogi Berra observed, "It's tough to make predictions, especially about the future." At the end of 2021, few foresaw all four major upheavals that afflict us today, namely the sudden spike in inflation, the worldwide economic downturn, the global consequences of Russia's invasion of Ukraine and the persistent effects of COVID. The experts, including the Fed, think tank pundits, political leaders and corporate chieftains, all got it wrong.

Strategy formulation is the responsibility of management. Though often off-loaded to consultants, such as Bain, BCG and McKinsey, who lead teams of corporate executives to analyze data and develop SWOT analyses, strategy formulation is fundamentally the province of management. They should take ownership of it and seek the board's review, assessment and approval. Management's execution of the approved strategy then becomes the basis for incentive compensation.

The line between corporate oversight and management prerogative needs to be clear: The responsibility for strategy formulation resides with management; the responsibility for strategy...