Strategic oversight: the top 10 questions boards should ask about their process

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.

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?

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?

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.

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.

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.

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.

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?

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.