By James Beck
As the workload for boards has increased, there has been a corresponding tendency towards the creation of a variety of committees to deal with specific issues. Indeed, committees, such as audit, risk and remuneration, are recommended (e.g. for Australian Securities Exchange (ASX) listed entities) or mandated (e.g. for Australian Prudential Regulatory Authority (APRA) regulated entities).
Increasingly, boards are also establishing strategy committees to help them fulfil their responsibility for strategy. There are a number of reasons for this. Not all directors will be as familiar as others with the general industry environment in which the organisation operates or with the specifics of the particular business. Similarly, the depth of knowledge, skills and general abilities of individual directors can have a significant impact on the ability of the board to contribute to the strategic processes of an organisation.
Another factor is the willingness and capability of the board to be kept fully informed in areas essential to making a significant contribution to strategy formulation. Rather, they may wish to concentrate on the strategy review process during board meetings.
However, since strategy is at the heart of organisational success and failure, leading practice guidance on corporate governance rarely, if ever, recommends the formation of a strategy committee. This is because strategy is the responsibility of the whole board and assigning responsibility to a committee might lessen the involvement of those directors not on the strategy committee.
If the board does not feel it has enough time to focus on strategy during regular board meetings, it should look to its current processes beginning with the meeting agenda to give the board the appropriate focus. The biggest obstacle to covering all of the items on the meeting agenda is that many boards tend to get bogged down in discussion of operational or compliance issues and run out of time to discuss important strategic matters. Therefore there are good reasons to change the traditional order of agenda items or even delete certain items if this means addressing important priorities first. After all, most meetings follow a formula through habit, not because there is any legal or other requirement to do so. I recommend, for example, scheduling discussion of strategic issues much earlier in the program, if there is a major decision to be made.1 (An example of a strategic agenda can be found here.)
Other suggestions for focusing the whole board on strategy include:
- All board papers for decision should explain how the proposal is linked to the current strategic plan and any strategic implications. (See an in our board paper template here.)
- Having an agenda item on forthcoming strategic decisions keeps directors engaged in the strategic planning process and forewarns them of the decisions to come.
- Focused strategy reviews can be built into the board’s agenda at periodic times throughout the year. These reviews could cover a specific topic area such as human resources or ITC and could be presented by the CEO’s direct reports.
- Holding two annual strategy retreats rather than one. The first is a forum to review progress against the previous year’s strategic plan, to highlight short-term and possible long-term changes and to identify strategic possibilities for further development. The second is a forum to actually develop and agree the strategy going forward. The first workshop will be a key input to the second and will generally precede the second by four to six months.
- Bringing external industry experts into board meetings from time to time to discuss topics of interest related to strategy can stimulate ideas and strategic thinking by directors.
That is not to say that a strategy committee cannot be appropriate in some circumstances. For example, as an ad hoc committee for a special project to monitor implementation or helping management identify critical strategic issues facing the organisation. If a strategy committee is to work and not diminish the role of the full board, it must have a terms of reference that tightly controls its activities so it does not lessen the role of the board as a whole.
The checklist below can ensure that any committee the board establishes is aiding rather than undermining the board’s role:
- Is the committee composed of people who have expertise in the particular area?
- Does the committee have a defined purpose?
- Have clear objectives been set?
- Is the board clear as to the product the committee will generate (e.g. advice, written recommendations/decisions)?
- What is the time frame for completion of the task?
- Has the amount of money and staff time needed to support the committee been calculated and agreed?
- Does the board have in place measures to determine whether or not the committee has completed its task successfully?
While boards are legally responsible for strategy, there are no legal prescriptions as to how they should fulfil this role. The onus is on each board to consciously choose the nature and extent of its strategic involvement in light of its contextual conditions.2
Every board must undertake a discussion of what is the most appropriate role it can play in adding value in the strategy process. Whether this includes a strategy committee is a decision each board must make depending on its needs and circumstances. However, as discussed, there are ways a board can improve its focus on strategy to better fulfil this critical role of the board.
- On the meeting agenda and other board processes, see G. Kiel, G. Nicholson, J.A. Tunny, & J. Beck, 2012, Directors at Work: A Practical Guide for Boards, Sydney: Thomson Reuters.
- K.P. Hendry, G.C. Kiel & G. Nicholson, 2010, ‘How boards strategise: A strategy as practice view’, Long Range Planning, vol. 43, no. 1, pp. 33-56, at p 49.