۱- A challenge for the board

۲- Why boards fail to set and vet strategy

۳- Framework for directors to understand strategy

۴- Three questions for directors to vet strategy

۵- The board’s strategy vetting process

۶- Final summary

References

Abstract

One of directors’ key fiduciary duties is to set the firm’s direction and then vet the strategy proposed by the CEO. Despite this, McKinsey reports that the majority of directors feel they do not understand their firm’s strategy, and even if they do understand it, they do not feel they have the desired impact on their firm’s strategy. This article argues that this shortfall stems from a failure to cross the chasm between CEOs and directors. We propose a framework to bridge this gap and assist board members to better understand and vet their firm’s strategy.

A challenge for the board

One significant challenge for board members is to vet their firms’ strategies adequately (National Association of Corporate Directors, 2014). This challenge stems from the fact that directors lack either meaningful opportunities to participate in the strategy process or information to make a significant impact. This article reviews the reasons boards often fail to vet their firms’ strategies effectively and then proposes a set of steps for CEOs and board members to follow. The proposed strategy setting and vetting process involves boards critically reviewing the CEOs’ answers to three strategy questions: (1) Where is the firm today? (2) Where does the firm want to go? (3) How can the firm get there? Using our proposed 5Ps framework to actively work through these questions with CEOs ensures that directors effectively perform due diligence on their firms’ strategy. Helping directors’ bridge the process and informational chasm improves the quality of their firms’ strategies (De Kluyver, 2013; Nadler, 2004) and firm performance (Zhu, Wang, & Bart, 2016). In addition, increasing director engagement in the strategy process enhances director buy-in and their satisfaction as board members (Bhagat & Kehoe, 2014; Nadler, 2004). While the proposed strategy setting and vetting steps involve additional effort from CEOs, it also benefits CEOs as increased directors’ buy-in and satisfaction also increases CEO tenures (Felton & Fritz, 2005; Kerr & Werther, 2008).