The risk intelligent board.

What is the most important function of the board? Many board members and board watchers would contend it is overseeing the development of corporate strategy. Indeed, no other activity--except possibly the selection of the chief executive--exerts such a potentially profound impact on the long-term fortunes of the company.

Case in point: We are acquainted with the CEO of a large financial publisher consisting of a parent company and several divisions. When he was hired several years back, he took over a solid company that had enjoyed many successive quarters in the black. He could have just ridden out the wave for a few more years and, chances are, his board and shareholders would have been just fine with that.

But this CEO knew that standing pat was risky in itself. He evaluated the long-term growth potential of the company and determined that many of its divisions were mature and incapable of sustaining double digit growth rates. He also knew that a growth slowdown would influence analysts' assessments of cash flows, impact ratings, and, ultimately, affect shareholder value. Thus, he made the radical decision to sell off his mature-but-still-profitable divisions and search for new businesses that were complementary but had greater growth potential.

Of course, the CEO had to convince the board of the wisdom of the strategy, which proved a hard sell. Like many, this board was a conservative group whose view of risk was limited to the protection of existing assets, not intelligent risk--taking for reward. Ultimately, the CEO presented a persuasive case and the board agreed to the move.

Both the board and the executive took some heat...