No doubt, the role of corporate boards has shifted significantly. Traditionally seen as supervisory bodies that focused on governance and compliance, boards now play an integral part in shaping the strategic direction of companies. This evolution is driven by the increasing complexity of industries, fast-moving market disruptions, and heightened stakeholder expectations. 

While it’s clear that boards should participate in strategic planning, the degree of this involvement is still debated. Should boards merely offer guidance, or should they actively co-create strategies alongside management? The best answer is what most consultants normally give: It depends!

Why boards should be involved?  At its core, a board’s fiduciary duty is to act in the best interests of shareholders, which necessitates direct involvement in strategy. A McKinsey study revealed that companies with boards actively participating in strategic planning achieved 1.9 times higher shareholder returns than otherwise. Boards must ensure that the company’s long-term goals are sustainable and aligned with strategy. Boards of companies like Tata and Infosys are deeply involved in steering the strategic direction. For instance, Infosys has consistently engaged its board in key decisions related to digital transformation.

Board directors come with extensive experience across various industries, and their external perspectives can challenge management's assumptions and offer insights into emerging trends. This is important when disruptive tech changes industry dynamics and consumer preferences. Bharti Airtel is a case in point. where board involvement has been crucial in managing market disruptions created by the Jio launch. The board helped reshape the strategy, which led to massive investments in network infra and a shift to digital services.

Boards are also essential in guiding companies through crises or significant market shifts. Their strategic oversight helps management mitigate risks and devise plans to weather turbulent times. There are many examples during the COVID and the 2008 financial crisis that hit the world. Maruti Suzuki board was closely involved during the pandemic in helping the company move from manufacturing cars to ventilators, thereby addressing a national health emergency while also managing financial risks associated with declining vehicle sales.

While board participation in strategy is essential, how deeply they should be involved depends on the company’s circumstances, the industry, and the capability of its management team. Broadly, there can be three levels of involvement:

First is oversight and approval. Here, boards primarily review and approve strategic plans. They ensure realistic goals, risk assessment, and alignment with long-term objectives. In stable industries, which are increasingly declining, this level of involvement might suffice. A PwC study found that 70% of boards spend time reviewing strategic plans, albeit annual. This is not adequate for firms facing rapid change.

The second is kind of an advisory role. Here, boards not only approve the strategy but also provide input during its formulation – Offering feedback on various strategic options and contributing expertise. Hindustan Unilever has a board that plays an advisory role in major strategic decisions like new market entry and brand acquisitions, helping the company maintain its leadership.

The third level is the co-creation of strategy.  In certain scenarios, especially during times of disruption or transformation, boards take on a more active role in co-creating strategy with management. ICICI Bank faced a challenging period in the early 2010s due to non-performing assets (NPAs). The board was heavily involved in co-creating a recovery plan with management, leading to significant changes in their lending practices and a renewed focus on retail banking, ultimately stabilising the performance.

Striking the right balance

While it’s clear that boards should be involved in strategy, striking the right balance between oversight and over-involvement is key. Boards that become overly involved in day-to-day operations can hinder executive decision-making and innovation.

To strike this balance, boards should focus on:

• Setting clear strategic boundaries: Ensure that the strategy aligns with the company’s mission and long-term vision while staying adaptable to market changes.
• Challenging assumptions: Engage in constructive dialogue and question management’s assumptions to ensure robust and data-driven strategies.
• Imbibing open communication: A culture where management feels comfortable sharing strategic challenges with the board ensures a more collaborative and open approach to better governance.

In today’s transient advantages economy, boards can no longer afford to be passive overseers. They must actively participate in the strategy-setting process, offering insights, providing oversight, and holding management accountable for execution. However, boards must also avoid overstepping and allow management to retain the autonomy necessary to drive the company forward. Ultimately, the involvement of boards in strategy is not a one-size-fits-all approach but should be tailored to the needs of the company, the industry, and the broader market. 

A strategically engaged board is no longer a luxury – it’s a necessity to seize tomorrow’s opportunities. Regarding corporate strategy, boards are no longer just the backseat drivers – they’re the GPS, the map, and occasionally, the pit crew!