Are boards of directors focused on strategy?

by Jamie Flinchbaugh on 07-11-17

Theoretically, each higher-level of management should be increasingly long-term focused. That certainly includes the role of the board, who with their role on shareholder value and governance, must ensure that the short-term doesn’t crowd out the long-term.

CGMA summarized two surveys assessing boards and the barriers to strategic oversight. Their two two reasons include not enough time in meetings for strategy discussions (44%) and difficulty¬†testing the validity of assumptions underlying the strategy (43%). Other barriers are inadequate performance metrics to assess progress (32%), insufficient information about strategy (30%), insufficient understanding of the industry or business environment’s effect on strategy (29%), and pressure to focus board attention almost exclusively on short-term performance metrics (29%).

Personally, whether they didn’t ask the question or boards are afraid to give voice to the barrier, I believe that the short-term pressures of both traders and activist investors have often redefined “shareholder value” as a short-term goal. This has made things harder, but is hardly new. The quote in the articles refers to an old joke about CEOs measuring time in quarters. A former mentor to many of us in MIT’s LFM/LGO program, former Stanley Tools CEO Don Davis, used to describe his tenure as running Stanley for 88 quarters (see his book here).

Boards have far too much on their plates these days. Just paying attention to cyber-security issues could be 150% of their available capacity. However, just like any time demand outstrips supply, you need to design your system of work to accomplish your goals. In this case, this means both allocation and methods of work.

The suggestion in the article, which I think more boards should and are adopting, is less time presenting materials that can be reviewed in advance. Although reading time for boards has increased over time according to National Association of Corporate Directors surveys, members will be reviewing the board book anyway, so don’t consume time presenting what they have already read. Let them ask questions and focus on areas of concern or input.

A suggestion not included in the article is the sequence of the board agenda. Many agendas cover the routine stuff first, and then at the end get into the meaty topics. However, it is very easy to end up in a 30 minute tangent about a particular customer issue or a personnel decision, leaving less time than planned for the substance of a strategic topic. Instead, more often, cover those strategic topics first. You will always be able to manage the time remaining to cover the routine, and less likely to end up on less-valuable tangents.

If boards of directors get easily sucked into the short-term, imagine the pressures on management to do so. Make sure your board stays true to strategic thinking.