Corporate governance

Each month, the managing partner of Governance Creed, Jan Bladen, takes us through one of the top 10 reasons good boards fail and how to improve your chances of survival

Why good boards fail: part 8

PRINCIPLE 8: POOR DIRECTION / STRATEGY

The oversight of the development and implementation of a corporation’s effective and sound business strategy is another core component of a board’s responsibilities. Many board members have commented that the only pragmatic manner for them to satisfy their corporate strategy responsibilities is to be actively engaged in governing the strategy process, without becoming operational.

I have actively witnessed one organisation in the financial services sector include the development of its strategy, business plan and budget in a yearly six-month cycle, starting with a short (10 pages) ‘Corporate Strategic Focus Document’ coupled with an ‘Economic and Risk Overview Document’.

These re-focused the board and executive on the corporate vision, current strategy (what is working and what isn’t), forecasted economic conditions in key markets and the risks currently facing the organisation. The final output of the process was a continuously adaptive business strategy, drilling down to divisional business plans and budgets, ratified by the board in November for implementation in January. Regardless of the process, a well-developed corporate strategy should play to the organisation’s strengths, mitigate risks and increase the final chances of success.

While there are many reasons why strategic plans fail, one the most common reasons is the inability of the executive to translate strategy into implementation.

A report entitled Why Good Strategies Fail: Lessons for the C-Suite published by The Economist Intelligence Unit in 2013, states: “The best-laid strategies of any organisation are useless without proper implementation.

“In a survey conducted in March 2013, of which the majority of respondents were C-Suite executives, 61 per cent of respondents acknowledge that their firms often struggle to bridge the gap between strategy formulation and its day-to-day implementation.”

We can therefore conclude that while boards need to ensure that their strategies are sound, they also need to ensure that they are implementable by their executive team.

Boards can also display an unwillingness to adapt by remaining committed to a strategy that may have historically worked well. As markets change and evolve rapidly, this unwillingness to adapt can also be lethal.

Polaroid Corporation refused to move into digital imaging until after this resistance to change had severely affected the company. By the time Polaroid finally accepted that it needed to adapt it was too late, and the corporation finally declared bankruptcy in 2001.

Boards need to ensure that their st rategies are sound and ensure that they are implementable by their executive team

Jan B laden is managing partner of Governance Creed, and qualified as the first accredited board director of the Mud ar a Institute of Directors( I oD) in Dubai. An independent board member on several boards, B laden was formerly the lead and senior executive advisor to the board at A bu D ha bi Global Market( AD GM ), and the founding chief operating officer of the Dubai Financial Services Au th or ity(DF SA ). Governance Creed is a niche advisory firm special sing in governance framework design, board performance, strategy development processes and corporate risk op timi sat ion.