Addressing the question of how involved boards should be in organizational strategy, with a test of CEO and board effectiveness.
Opinions differ, with some boards insisting that strategy is their domain, while others expect the CEO or senior management team to present complete strategies for their approval. The answer lies not at either of these two extreme ends of the argument, but at the intersection: A good CEO leads strategy, but does so under guidance from and in collaboration with the board.
If the board believes it must take responsibility for organizational strategy, then the CEO is not doing his or her job. After all, if a group that comes together on an annual basis has a better grasp of where the company should go than the person at its helm, it needs a better leader. Such a situation also calls board effectiveness into question, given the board’s role in appointing a CEO. Likewise, if the CEO agrees to hand strategic direction over to the board, that CEO is actually functioning as a COO – again suggesting the need for a more competent chief executive.
As Roger L. Martin, director of the Martin Prosperity Institute, opines in Harvard Business Review, the right approach to boards and strategy is “an iterative process in which the CEO is in charge, because it is the CEO’s job to formulate strategy, but the CEO wisely gets the maximum amount of advice from the board”. Herein lies another test of board effectiveness: A board that does not bring useful strategic insights to the chief executive is inadequate and should be re-assessed.
Martin outlines a process consisting of three steps: The first is for the CEO and board, working in concert, to identify the specific challenges that the strategy will need to address. Disconnects often arise when the CEO develops a strategy to address issues which the board does not consider priorities. This approach can enhance the strategy and set the stage for alignment between the CEO and board.
Secondly, once the challenges are agreed upon, the CEO should independently deliver multiple strategic angles. The CEO is not seeking the board’s approval at this point – only its input. Occurring about midway into the process, this often overlooked step can give the CEO significant thrust in arriving at a strategy recommendation. And again, it can greatly increase the odds of the CEO and board aligning on strategy.
The final step entails the CEO presenting their preferred strategy to the board. This may seem to follow the model in which the CEO takes over strategy; however this is not the case within the context of the two preceding steps. If these have been followed, the process culminates in the CEO presenting a strategy that addresses an agreed-upon set of challenges and reflects the board’s recommendations. If it doesn’t, then the CEO has failed. “A CEO clearly in charge with a board helping to provide sage advice is the perfect combination for boards and strategy,” Martin asserts.