Role of the Board in Strategy
In recent years, major corporate scandals have meant that company boards have had to turn their attention to internal issues and the need to comply with new governance rules. Companies which are listed in the US, for example, have had to come to terms with the stringent requirements of the Sarbanes-Oxley Act, while in Europe listed companies have had to deal with the transition to international financial reporting standards. It is little wonder, therefore, that strategic issues have sometimes taken a back seat.
Nevertheless, there are signs that the pendulum is swinging back into balance and that directors are refocusing their attention on strategy. Furthermore, we have already seen how the increasing pace of change and the increasing importance of intangible assets on the organisation’s market value have made it so crucial for directors to determine, drive and take accountability for the key strategic drivers of future value.
Boards have a crucial role to play in strategy. However, this is easier said than done. There are three key reasons why boards struggle to make effective contributions to their organisation’s strategic development.
1 Lack of time and crowded agendas
‘The most common concern I hear is: ‘We don’t spend enough time considering and dealing with company strategy’. Obviously, this is related to a second worry: ‘We are spending too much time focused on issues related to complying with new laws and rules’.’ (Lorsch, 2005).
2 Too much information
Greater complexity of business combined with information overload can make it difficult for non-executive directors to get a deep understanding of the organisation and engage in constructive debate with management.
‘… well-intentioned directors find that they have insufficient time and knowledge to perform their jobs well. A director’s lack of knowledge is complicated by another problem – the quality of information they receive from management. Oddly, it is not that they receive too little, but that they receive too much, which is often poorly organised and does not illuminate the most significant issues’. (ibid).
3 Lack of robust processes at board level for dealing with strategy
Boards may have annual strategy sessions or ‘awaydays’ but they do not tend to have ongoing processes for dealing with strategy.
By providing a continuous process with standard progress reporting with which directors become familiar, the CIMA Strategic Scorecard™ can address all three issues and thus makes for a more effective board.
The scorecard approach forms a key element of what has been termed the enterprise governance framework.