The job of a fiduciary board is ultimately to ensure value creation, long-term success and growth of the enterprise. While the work encompasses many things and can vary by a host of factors, including industry, size, business, geographical footprint and business model, it ultimately comes down to two central questions: What can hurt us and what can help us grow? In other words, oversight of risk and strategy.
The risk part of that equation gets a lot of airtime: cybersecurity, financial and regulatory considerations, competition and geopolitical shifts. The oversight of strategy is in many ways the flip side of the same coin. Each of those risks could potentially be leveraged as a strength if the company wants to put focus there, and one of the major risks to any business is not living up to the assumptions that underpin the strategic plan.
The board’s role in overseeing strategy has shifted measurably over the past several years, according to KPMG’s survey of nearly 600 private company directors. Survey respondents included independent directors; founders and other executives; investment firm partners, employees, and operating advisors; family members; and ESOP trustees. In 2020, nearly three-quarters of respondents identified strategy and agenda-setting as among the areas most in need of improvement. By the 2023 survey, 70% of respondents said their board had become more effective at overseeing strategy and performance over the previous few years. And when asked “Where do you believe an independent director can add the most value to the business?” advising on strategy was one of the top answers (75% of respondents), second only to “advising/counseling/serving as a sounding board for the CEO and/or other executives” (77%).
Irene Chang Britt oversaw strategy as an executive for large consumer package goods companies and now serves as a board member across both public and private companies, including Victoria’s Secret, IDEXX, First Watch Restaurants, Partake and Just Meeting Rooms, and on the advisory board of PE-backed Peloton Capital Management. She points to a more dynamic and ongoing approach to strategy. “I have a lot of strategy in my management background, so I have a very specific view on this: Strategy to me is not a static thing. It is a living, breathing conversation. Management is responsible for developing the strategy and the board is responsible for reviewing, improving and, ultimately, approving the strategy, but within that framework is an entire 365-day-a-year conversation around key questions like, ‘Are we headed in the right direction? Do we have the right ambition? Are we doing the right things to get to that ambition? And are we doing the right measurements of those things toward that?’ I don’t think it used to be this way at the beginning of my career, but the market is so dynamic these days. Consumers are dynamic. You really have to define your ambition as a company and then decide what vehicles will get you there, and you may have to adjust. So, instead of the once-a-year, three-year or five-year financial look, it really has to be a conversation about are we doing the right things in the right proportion all the time?”
The old approach usually involved the management team putting together the strategic plan and presenting it to the board, who would kick the tires and then, barring some critical miscalculation, approve it. The shift in thinking on how — and how often — the board engages in conversations around strategy means more involvement before the strategy is fully formed, says Jay Brodsky, an independent director on the board of Twin Valley Management, a fourth-generation, family-run telecom and IT services firm based in Kansas. “It’s not our role to create the strategy. We count on management to do that. But the place where I think we can really add the most value is in helping to shape the strategy well before it’s finalized. I do this by asking the questions and driving the conversation before anything gets put to paper, so that it actually matches where I think the organization should be going. So, it’s not just me attacking something that’s been written. Instead, it’s helping to drive the strategic direction.”
Engaging in strategy as an ongoing conversation is critical, but it also must be done in a way that respects and reflects the oversight view of the board. This can be a tricky balance, but it ultimately comes to helping to pressure-test management thinking as strategy is being shaped, executed and tweaked.
“The board and management have to align on where they want the company to go,” says Mary Smith, who serves on the boards of PTC Therapeutics, HAI Group and Greenfield. “What does it look like in one year, three years or five years? Then the question is how do they get there? That’s where the strategy comes in about whether you’re going to do an M&A deal or you’re going to develop a new product. And the board and management should agree at a high level about certain parameters that will be in the strategy for the next few years. The discussion should be candid and focused on long term value rather than just reviewing management slides. And directors should ask probing questions that test the core assumptions, challenge the groupthink and stress-test the company against future disruptions and risks.”
If the process of developing strategy has shifted toward an ongoing conversation between the board and management, so too has the board’s role in overseeing its execution. Management is responsible for implementing the strategy, but monitoring its progress and overall effectiveness is a critical part of the board’s fiduciary duty. One of the most significant risks facing any business is that its strategy simply doesn’t work. When strategy falters, the consequences can ripple across the enterprise, affecting revenue, competitive position and the ability to attract and retain talent. According to Smith, “You should have ongoing discussions, sometimes at every board meeting, to set metrics and align around timing for each phase of the strategy. What does success look like? What happens if something happens that is adverse to the strategy? Because, of course, there are going to be things that happen that no one accounted for. So, the discussions should be ongoing: Where are we? What’s the timing? How are we doing on our metrics? Is it turning out the way that we planned, or do we need to tweak it or pivot? The board should continuously ask, ‘Are we on track in implementing this plan? Are the metrics being met? Does the plan still make sense for the future growth of the company?’”
“If you’ve gone to the effort of asking things like, ‘How are we going to know when this is working?’ then you’ve got something to monitor,” says Brodsky. Then you can say, ‘Well, here is a set of leading indicators that say that this thing is on the right track.’ And then we can ask questions about those leading indicators. We don’t have to wait and say, ‘How did this turn out financially?’ We can instead be monitoring attributes that can pop up earlier and maybe tell us that our thesis is just wrong. So, instead of having to throw the whole strategy out, we could help steer it in a slightly different direction at an earlier stage.”
The board’s role in strategy oversight is trickiest when there is a difference of opinion between the board, leadership and key investors. The board has an obligation to bring those issues to the fore, but having that conversation in a way that keeps the board at the right altitude takes finesse. “I had a board where the investor owned a 95% stake by the time I became chair, but the founder was still CEO,” says Britt. “It was a great-running company, with wonderful returns and good growth. When I talked to the investors, they said, ‘It’s just such a huge market.’ So, I started having conversations with the founder/CEO about, if you had no constraints, let’s start working on the ‘how high is up’ alternative. He said, ‘We are already growing at a market-leading pace, but sure, let’s look at it.’ He started looking at it and went, ‘Oh my God, all we need is this little bit extra in capital, and we can grow about five times faster than we’re currently growing.’ We did it, and we had huge success. It was just a question. It wasn’t a simple question, but a series of small pushes.”
Even still, there are times when the strategy is not going to plan and there is a need to course-correct. There is no one-size-fits-all way to approach it, but the board will be informed by the company type and ownership structure.
“We’ve all been in those situations,” says Britt, “and you hope when you put forward a strategy, even if you’re not miles apart, but meters apart, that at least you then agree to a set of KPIs, because boards and management have been further apart on really agreeing on the strategy. But, in the end, you have to put something down. And, if you have decent KPIs, if you have decent metrics, then you can measure and, if things aren’t going well, then you have to drive accountability. And, in the end, the board has levers to pull if things aren’t going well. It depends on the courage of the board: You have the lever to pull of changing out the CEO.”
Changing the CEO should be a last resort, but it may be necessary if the strategy is going off the rails in a way that suggests the current leader lacks the skill set or vision to take the company where it needs to go. Helping to course-correct can be trickier and more nuanced in family- or founder-run companies with a consolidated ownership structure. The board must maintain its fiduciary role, but navigating that responsibility may look a little different.
“I read once that one of the biggest challenges of sitting on a family board as an independent director is that you have to keep reminding yourself you’re a fiduciary and you’re not a guest,” says Brodsky. “[On my board] there are three of us who are independent directors and three family members, and the family members have been around for a while and they’re going to be around for a lot longer than the rest of us. But for the independents to truly deliver value, we have to remind ourselves why we’ve been asked to join this board and what our role is.”
Brodsky continues, saying “It’s a little different when you’re sitting across the table from an owner or three owners to express what you believe needs to happen, tell that story and convince everyone that your ideas are worth considering. The goal at Twin Valley is to get the business to the fifth generation. It helps that the mission is really super clear. In a public company, sure, we write the mission statement and everyone can point at it, and it’s been pressure-tested by a consulting company, who maybe helped write it. But does anyone really believe those words? Sometimes, you don’t know. Inside a family company, we talk about Joe and Mildred and what they were hoping to achieve. You get a really powerful feel for how this family wants to relate to their community, and you know that you’re all aligned on that. Then it becomes, ‘How are we going to achieve that? Is the strategy we laid out still relevant? Is it going to help us meet that mission statement? Do we need to tweak it, change our approach or is it really just a question of tactics?’ All those pieces play into it, but I think it really does start with the mission. The clarity there really helps a lot, especially in family businesses.”
Ultimately, effective strategy oversight means the board engaging early enough to help shape the management’s thinking; asking questions that pressure-test assumptions, scope and ambition; and agreeing on the indicators that will assess whether a given direction is working as planned. When circumstances change or results fall short, directors must have the courage to raise difficult questions and drive accountability while remaining grounded in the company’s mission and long-term goals. Done well, strategy oversight is both a partnership and an ongoing discipline that helps the enterprise innovate, adapt, grow and create enduring value.