The Evolving Role of Boards in Business Strategy

In today's rapidly changing business environment, the role of the board in shaping and guiding strategy has become more critical than ever. As companies face increasing pressures from shareholders, regulators, and the market, boards must navigate a complex landscape to ensure long-term success. This article, based on a discussion at Egon Zehnder’s Directors Development Program, explores the evolving role of boards in business strategy, drawing insights from industry experts and seasoned board members.

Traditionally, boards have been viewed as overseers of management, ensuring that the company adheres to its strategic goals. However, as Ireena Vittal, board member of Diageo Plc, Asian Paints Ltd, Maruti Suzuki India and Godrej Consumer Products and Rahul Rana, a Partner at Egon Zehnder, discuss, the board's role today is much more nuanced.

Vittal offered several key ways the board can help management with strategy without micromanaging or stepping into management territory:

• Offer perspective: Good board members are objective, and they are not lost in the weeds of daily performance or quarterly delivery and have an eye toward long-term value creation. They understand the business, but they are not wedded to a particular approach.
• Interpret the external: Board directors must help translate the external expectations from shareholders, regulators, and other stakeholders to management, ensuring those expectations are being addressed with the business strategy.
• Be a thought partner to the CEO: Help the CEO think about the future, identify risks and opportunities, and prioritize strategic initiatives. The board's role is to support the CEO in navigating the complexities of the business environment while ensuring the company's long-term health.

Rana highlighted the important role boards play in evaluating how well management is delivering against the strategic plan and addressing emerging risks. “Boards help management come up with strategic choices, debate them, align on them, and then ultimately ensure that the shareholders’ perspective is reflected in the strategy,” he explained.

Several factors can impede effective engagement between board members and management. One of the primary issues is the mandate set by the Chair and CEO. If the CEO does not expect the board to debate strategy, discussions can become defensive rather than collaborative. Building trust and credibility with the CEO and management is crucial for effective strategic discussions and helping the CEO to see the board as an asset to their strategy building and not a hurdle to get over.

"The personal credibility we build with management is so important because the CEO and management are responsible for business performance," Vittal said. "The board acts as the coach on the sidelines, and without trust and credibility, even the most brilliant idea won’t land well.”

Another impediment is if a board doesn’t operate like a true team, making onboarding and board dynamics important pieces of board effectiveness. New board members must be well-versed in the company’s values, leadership team, strategy, and current challenges. Robust onboarding can help new board members contribute meaningfully to strategic discussions earlier on.

One of the most important elements highlighted in the discussion was transparency—both between management and the board and among board members. Management must be open and honest with the board, sharing both good and bad news. This transparency allows for proper deliberation and informed decision-making, ultimately benefiting the organization.

Another is a good working relationship with the CEO. Understanding the CEO's perspective and priorities helps board members provide valuable insights and support. Rather than assuming the CEO hasn’t examined all angles of the strategy, board members should seek to understand the CEO's rationale and work collaboratively to address strategic issues without inserting their opinions too much along the way.

It is also important to recognize that each board member will have a different relationship with the CEO, and these variations should be utilized appropriately.

“On one of my boards, when we had a tough message to deliver, a board member with a strong trust-based relationship, which happened to be me in that case, would deliver the message because it was better received,” Vittal shared. “Especially in tough situations, it's essential to consider the roles different people play on the board: who is the bad cop, who is the good cop, who is tough on performance, and who is tough on strategic intent.”

As the pace of business change accelerates, boards must continuously adapt their role to respond effectively. This includes periodic reviews of the strategy, making course corrections, and being custodians of the company's long-term health. Boards must remain agile and responsive to the evolving business landscape.

To address those changes, continuous learning and development are vital for board members. Boards should engage in ongoing education, invite subject matter experts to speak and participate in external learning opportunities. This continuous learning helps boards stay informed about industry trends and best practices.

Alignment and collaboration among board members are crucial for effective governance. Boards should have regular meetings that don’t include management to discuss and resolve any misalignments that are occurring.

When it comes to engaging with management, board members must balance their role in challenging management with providing support. "In addition to governing and approving, the board's role also includes guiding and being a source of wisdom,” explains Rana. “It's not about choosing one aspect over the others but balancing all these responsibilities effectively."