A lot of directors don’t know their company’s strategy

Here’s a note from Elliot Schreiber about a few recent board surveys:

The law in most jurisdictions of the world require (including Delaware business law) that directors must act in the long-term interest of the organization, making the best decisions possible with the best information available at the time, and approving the organization’s strategy and “risk appetite”.

However, a McKinsey survey found that only 34% of directors understand the company’s strategy and only 22% claim they are aware of how their firms create value.

Further, as Tim Leech has noted, directors do not understand the risks to the company if the company is still using legacy risk registers (aka heat maps) rather than opportunity risks. A recent PwC survey found that while most directors claim their company is integrating ESG into strategy, only 25% have an understanding of the risks involved.

What should boards do?

1. While directors want to support and trust the CEO, they should not simply delegate the strategy to the CEO and “rubber stamp” it. There should and could be a beneficial partnership between the board, CEO and management in the development of the strategy. Directors have a special role to play in helping the organization to navigate the future, and their input should be sought on strategy and risk in the future (about 3-years).
2. There is no strategy without risk and no risk without a strategy. They must inform one another. Assess them together.
3. To optimize strategic opportunity risk assessment, the board should ask the CEO to create a cross-functional strategy, stakeholder value and risk group. The group would be responsible for continuously assessing how opportunities and risks would be perceived by the company’s stakeholders, giving the board and CEO a better understanding of what they might be facing given the volatility in the eco-system all organizations are part of.