Strategic Management: Formulation and Implementation

Board Of Directors

The business which exists in corporate form has a board of directors, elected by stockholders and given ultimate authority and responsibility. Boards typically elect a chairperson who is responsible for overseeing board business, and they form standing committees which meet regularly to conduct their business. A strategy committee is a board committee that works with CEO to develop strategic management process.

It is common practice for organizations to have boards of directors consisting of both outsiders and insiders. One approach used to reconcile the differing roles of outside directors and inside strategic decision makers is agency theory.

Agency theory defines as a nexus of contractual relationships among various stakeholders, including shareholders, managers, employees, and customers, each motivated by self-interest. In this view, a firm exists to exploit the potential advantages of cooperative behavior among stakeholders, and strengthening the link between the company and its environments.

Board of directors it plays an important role in the strategic management process. A strategy committee commonly audits various components of an organization's strategic management process in order to make it more effective and efficient. For example, the board can demand reexamination of the company's mission, its long-term goals, its corporate strategy, and its approach to the competition.

To quote Kenneth Andrews, "A responsible and effective board should require of its management a unique and durable corporate strategy, review it periodically for its validity, use its as the reference point for all other board decisions,""

The boards guides the affairs of corporation and protects stockholder interests.

A growing literature suggests that boards can make a difference in the way the firms is managed.

Each of the four cells in the matrix can be labelled according to type: caretaker, statutory, proactive, and participative boards.

Variations in these qualities affect company performance in different ways:

  1. The caretaker board is characterized by a low level of power in both the board and in the CEO. This type of board does not contribute significantly to effective company performance.
  2. The statutory board differs from the caretaker board in that a powerful CEO is the central figure in organization decision making. The CEO does not consider the board as a true partner in shaping the strategic posture of the company.
  3. The proactive board commands powers that surpass those of its CEO. These boards are a true instrument of corporate governance.
  4. The participative board is characterized by discussion, debate, and disagreement. Leadership is shared among management, board members, and outside directors, who constitute a majority. In this case, negotiation and compromise are essential for effective governance.

Recently, the role of the directors has been growing in importance because of increasingly vocals stockholders.

In essence, the board functions as the brain and soul of the organization and as the guardian of shareholders interests, its pervasive influence in many aspects of organizational life is believed to enrich the firm.

Strategic decisions are evaluated by the board of directors, but are the responsibility of top management, supported by corporate planning staffs, that perform analyses and manage the planning processes.