The impact of compliance legislation, most notably Sarbanes-Oxley (2002) is two-fold: one, boards now spend more time dealing with compliance issues and less time discussing strategy; and second, many potentially good thinkers avoid going on boards because of the perceived exposure to liability claims.
This means there are fewer top executives from other companies sitting on boards, depleting the number of people around the table with real industry experience.
Instead of academics, not-for-profit managers and retirees, boards need at least three out of 12 directors to have direct experience and knowledge of their core business, industry and competitive environment. The board needs to 'debate, test and approve' the strategy and leave the management to develop it further.
There are three steps boards can take to bring strategy back to where it belongs. First, ensure it is debated regularly even if this means making it a subset of the regular work of existing committees.
Second, give the CEO a greater say in appointing people to the board, in cooperation with the chair of the nomination committee. Finally, stop relying on show-and-tell annual retreats to debate strategy. Instead, CEOs should keep it on the agenda at all times, at least every second board meeting, to assess policy in the light of the latest conditions and thinking.
Source: Strategy should start in the boardroom
Dennis Carey and Michael Patsalos-Fox
FT, Monday 21 August 2006
Review by Morice Mendoza