Board of Directors – corporate strategy in the Boardroom

A company is the product of a vision, usually the founder’s. He starts the company with a mind picture of how the business should turn out. Strategy is the method that the founder or his successors implement to achieve the vision.

In most companies the CEO and the executive team formulate strategy. They develop it in long-term discussions or at brainstorming sessions. Or they hire outside consultants to advise on strategy. From this process they assemble a strategic plan. The CEO presents this plan to the Board of Directors once a year at a Board meeting. The CEO represents that the plan is his own, and he recommends that the Board should support it. The Directors discuss the plan, make minor changes, and the Board adopts it by voting for it. The Board usually has little time to debate the plan, and no information about alternative strategies. The Board’s input is negligible.

This process seems to work for most companies. A CEO with a clear understanding of the company’s vision and a strong belief about the right course of action is likely to propose a credible strategy that will be accepted by the company’s staff and customers, and therefore implemented .

Shareholders are unaware of the company’s internal strategy process, but they know that the Board of Directors approved the strategy. Shareholders may hold the Board responsible for the company’s strategy, particularly when things are not working out well. The Directors voted for the strategy, didn’t they?

Regulators and stakeholders also want to hold the Board accountable for strategy. UK accounting regulations require Boards to publish a Strategic Report for this purpose.

Pointers for Directors on strategy: