What is the Board’s Role in Strategy and Strategy Execution? Post 2 of 3

This post is a continuation of notes from a fantastic panel discussion, “Growth Strategy—the Board’s Role,” run by the Institute of Corporate Directors.

On stage, board members represented major public- and private-sector organizations such as BCE, Bell Canada, Scotiabank, Loblaw, Shoppers Drug Mart, St. Michael’s Hospital, Sun Life Financial, Canadian Pacific Railway, Princess Margaret Cancer Foundation, and Imperial Oil. Bios are provided in Post 1. My own comments are indicated in italics.

Question 2: How should the board be engaged in strategy?

Facilitator Ken Smith led in with the observation that the traditional process is for management to present a fait accompli—the board is given the Strategic Plan, allowed to ask a few questions, and then expected to stamp their approval. He noted that boards are not always given much opportunity to weigh in.

Mr. O’Neill was clear: “Strategy should be a part of every conversation.” He further noted that the director doing the onboarding should include briefings on the business and the industry such that directors are informed enough to comment appropriately. He also suggested that the strategy review process should have a cadence such that board members receive information and have time to “soak and deliberate” on it.

He further suggested a series of three meetings where, in the first, management shares “what they are thinking,” while the second is dedicated to risk assessment, mitigation, and discussion and the third is dedicated to making the decision.

Stephen Bear shared his perspective, starting with a re-calibration—he noted that “we used to do 3-5-10-year plans, but now it is more of a process, a journey, than a deterministic point in time.” He concurred on the need to educate the board on the industry and noted the importance of also looking at adjacent industries. He advocated that boards must think about and discuss “Where do we fit in that?” and “What are the risks and challenges?”

He suggested that there are two types of strategic decisions that boards should discern between—both important, but different:

• Broad decisions, such as “where do we fit in the market,” and
• Smaller ones, such as “which acquisition should we make?”

He noted one caveat: “Not all board members are born equal,” (i.e., each brings different expertise). He advocated that boards should “leverage your best assets” appropriately. I took this to mean that not all board members have deep expertise in strategic planning and that members should look to each other to determine who can bring the most forward on this topic.

I appreciated the candid question (particularly the contextual tee-up that boards might be expected to rubber stamp strategy) and the momentum of the answers. I would have liked to see each of the speakers take their thinking another step, and I wondered if Stephen Bear would go so far as to suggest that every board should have a member whose expertise was as deep in strategy as a Chartered Accountant’s is in finance; however, time did not permit.

Question 3: How are directors prepared to play an effective role?

Ms. Hoeg stressed that “one must educate oneself” on the organization, the industry, and the proposed strategy. She emphasized that directors really must discern whether management is doing the “right things” and whether the organization is sticking to its core capabilities. I became hopeful hearing her following remarks:

• “Boards are clamoring for more and more attention on strategy” and
• “Management is being pressured to manage the operational parts more tightly to allow more board time to be spend on strategy.”
• “Strategy must be a living, breathing document to ensure that it is the right one.”

Mr. O’Neill also shared that training for directors at Scotiabank is at the board’s request. Such training sets a baseline for the directors’ knowledge bases and every iteration deepens the insight. “Once you have been through a couple of cycles, you can dive deeper.”

Stephen Bear dropped in the following deeply incisive remark: “You are educated as well as management wants you to be. It’s your role to determine if that’s enough.” He noted that it can create some discomfort to pose questions such as, “Is management telling us enough?” and “Do they know enough?”

This was followed by a zinger from Mr. Smith: “Risk oversight is good unless they [board members] believe their role is risk minimization.”

I was relieved to hear that boards get some onboarding (no pun intended) and that they can seek additional general and specific training; however, I had assumed this. I was glad to hear (from Ms. Hoeg) that board members are “clamoring” for more engagement—that seems fitting. 

Question 4: What have you seen around boards balancing growth and risk?

Mr. Bear led this off with two assertions:

• “One cannot grow without some risk. There is a need for a good discussion on the appetite for risk.” He added: “With misalignment, so many questions, debate, and demand for analytics can happen that you can miss the opportunity.”
• “It’s important to be very aware of two types of risk: commission and omission.” As an example of commission, Bear noted that in the late 1990s, in an acquisition bid, Bass pressured the board to a “deal/no deal.” The board agreed, but government regulation tied the deal up. “It cost $1B to get out of that.” The point is that the board “committed” that problem. On omission, he noted: “It is important to have processes in place to see the unseen,” particularly in adjacent markets. He also commented that it is very difficult for a successful business that is “pumping out profit” to change even when they see it coming. He referenced Kodak and Blockbuster as examples of failure to act.

Bear further noted that, in a recent McKinsey survey, only 16% of boards felt they have a deep understanding of dynamics in their market and articulated the obvious question: “Is this enough?”

Ms. Hoeg weighed in next, noting that some organizations, such as Sun Life (where she sits on the board), are in the business of risk: “They understand how to drive profit from that.”

Thomas O’Neill picked it up with a reference to “stealth risk” and the need to be aware of unpredictability. He noted, “Who would have thought in 1985 that Toyota would be become the biggest car manufacturer in the world and GM would go bankrupt?” He referenced several recent acquisitions: Bell’s of Astral Media; Loblaw’s of Shoppers. He also referenced BASEL III and the impact this will have.

I heard a consensus that organizations are under pressure, some internally driven by proactive strategy and much externally driven, to accommodate varying degrees of risk. I did not hear much around how boards are coping with this.

Question 5: What is the right timeframe to be thinking about planning? What’s the board’s role for setting appropriate timeframes?

Mr. O’Neill carried the ball here: He noted that the cycles for different industries are different and therefore the answer needs to be calibrated to reflect that. He noted that, in retail, the supply chain cycle drives a lot of the strategic issue, but in oil sands development, like Nexen’s Long Lake, the cycle is entirely different. I lit up when he said, “The board is responsible for ensuring that the strategy can be executed.” He went on to discuss short-term activism (and the pressure to deliver continuously, improving results quarter-over-quarter without respect to the longer-term growth strategy). He advocated against setting quarterly expectations and, instead, recommended giving analysts the data and letting them figure it out.

Ms. Hoeg picked up the issue of “short termism,” noting that strategy must be “put in context” and “one has to get that the strategy is as right as possible and that it will have to flex.” She referenced the example of brand management from her past experience, noting that brands have cycles and as one is declining there must be others in development for mid- and long-term growth. She also referenced the Canadian Pacific Railway (CPR) saga, noting that this case is an example of the importance of being in touch with shareholders. (For a bit of background, see “Ackman vows to make CP Railway ‘one of the best’ in the world”.)

I didn’t really hear an answer to the question; however, the comments were interesting. Of course, the references to Long Lake and CPR really left me wanting to hear more, much more.

The next question turned, logically, to scenario planning and its role. For this, Mr. Smith turned, obviously, to Stephen Bear to tap his deep experience at McKinsey. More on that in the next, and last, post in this series. Don’t want to miss it? You can subscribe top left.

In the next post, I will share the panel’s responses to the remaining six questions. Don’t want to miss it? You can subscribe top left.

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Related Posts:

• What is the Board’s role in Strategy and Strategy Execution? Post 1 of 3
• What is the Board’s role in Strategy and Strategy Execution? Post 3 of 3
• Is Strategy Execution the new black?
• Breakthroughs in strategy

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