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Strategic oversight: the top 10 questions boards should ask about their process
Overview
The business strategy drives everything the company does: from the products and services it sells to where it operates and how it deploys limited capital and resources. In effect, it determines the company’s success or failure. Management’s job, of course, is to set company strategy, but board oversight is critical. Strategy can pose a significant oversight challenge for boards. What is the right way to evaluate whether the strategy is working? How can boards know when they need to make a change? Following a robust process can help indicate when things are on track, and when boards need to push for change.
There is no “one size fits all” approach to evaluating and executing on a strategic plan. Different processes and different approaches work well for different companies. But no matter the approach, the board’s role in strategy oversight is a core responsibility. How the board executes that role can contribute to the success of the overall strategic plan by helping management address obstacles, find opportunities, out-think competitors, bypass disruptors and fine tune its direction.
10 questions boards should ask about their process
- 1. Do we have the right board composition to oversee strategy?
- 2. Are we actively weighing in and approving the strategy?
- 3. Are we getting the right information to oversee strategy?
- 4. Do we have the right leadership, operational plan and talent strategy to succeed?
- 5. Are we measuring progress and knowing when to pivot?
- 6. Do we effectively balance the short term and long term?
- 7. Do we have the right frequency of strategy discussions?
- 8. Are we embedding sustainability into strategy?
- 9. Do executive compensation plans and performance targets align with strategy?
- 10. Are we telling our story to stakeholders?
1. Do we have the right board composition to oversee strategy?
Effective strategy oversight requires the right people — and the right mix of people — at the table. In fact, 74% of directors agree that having a diverse board actually improves strategy and risk oversight. This highlights the importance of directors actively sharing their particular skills, experiences and perspectives to shape the company’s strategy.
2. Are we actively weighing in and approving the strategy?
Boards approve the strategic direction of the company after weighing in and agreeing on management’s vision and priorities, confirming that the plan aligns with the corporate values and drives long-term value. While the strategic plan focuses on the company’s long-term vision and goals, short-term and mid-term strategic plans are developed to keep on track and facilitate incremental progress towards the long-term objectives.
3. Are we getting the right information to oversee strategy?
The information the board receives from management determines how the strategy review will go. For starters, the board should assess the types of information it gets from management. What’s missing? Is the board getting information on major market trends, emerging technologies and customer feedback?
4. Do we have the right leadership, operational plan and talent strategy to succeed?
The effectiveness of a business strategy heavily relies on its execution. The board will want to discuss with management how it will operationalize and execute the strategy. Who will spearhead the tactical plans? Do we have the right leadership team with the appropriate skills? How will we measure success? What are the key milestones to achieve?
5. Are we measuring progress and knowing when to pivot?
One important step that sometimes gets overlooked is determining how often to check in to see if the strategy is working — and when to pivot if it’s not.
6. Do we effectively balance the short term and long term?
Determining the appropriate time horizon is key when it comes to strategy oversight. Companies face all kinds of pressure to be successful — now. Investors look for them to meet or beat quarterly earnings forecasts. Activist investors target companies that seem to be underperforming or those that they believe lack a clear strategy.
7. Do we have the right frequency of strategy discussions?
Board agendas are jammed. Full boards meet an average of about eight times per year and we often hear that they don’t have enough time to cover all of the things they want or need to discuss. Still, strategy needs to be a high priority. More than half of directors (60%) say that strategic/disruptive risks pose a significant oversight challenge to the board.
8. Are we embedding sustainability into strategy?
At its core, sustainability (sometimes referred to as ESG) is about companies recognizing the need to address pressing significant risks that can impact the company’s long-term value creation. These risks can include the preservation of natural resources, climate change, labor rights, product safety, diversity and inclusion, and many other topics. And, when addressing these sustainable risks, companies may also find opportunities to drive innovation, optimize resource efficiency and identify a competitive advantage. And, for these reasons, sustainability is inextricably linked to corporate strategy.
9. Do executive compensation plans and performance targets align with strategy?
It’s important for the board to align executive compensation, including performance targets and incentive plan goals, to strategy. How do the compensation plan goals and performance targets line up with or interpret that strategy? Are they at odds in any way? Do any of the plans encourage any of the “wrong” behaviors?
10. Are we telling our story to stakeholders?
The final element for robust director oversight of strategy is being able to effectively communicate what the company’s strategy is. That doesn’t mean divulging all the details of how the company plans to execute. But it does mean laying out a broad plan of the company’s goals and what actions it will take to achieve them. Doing this can help the company’s relationship with investors.
Conclusion
The pace of change in business is faster than ever before. Now is a good time for boards to take a fresh look at their processes for overseeing strategy. Tweaking the process can help shine a light on neglected pieces of the strategy puzzle and enhance the board’s oversight.
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Managing Director, Governance Insights Center, Florham Park, PwC US
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