Rethinking the board’s role in strategy, risk and culture

Viewed in Russell Reynolds Associates

There seems a singular common denominator running through most business analysis and commentary these days: Business is changing rapidly and hugely, and it will never again be the same. 

For the most part, it is the global pandemic, which now has taken over four million lives, that is cited as the inspiration for these changes—but that is only partly true. Some of these changes have been underway for a few years now and have been expedited by the pandemic but did not originate from it.

Increased risk confronts the boards

Russell Reynolds Associates, which built its esteemed reputation as one of the world’s largest and most effective executive recruitment firms and has since evolved into more of a full-service management consulting firm, argues in this July 1 report that one such change is the pressures now mounting on corporate boards to confront a growing number of challenges in today’s corporations. Increased risk is one such challenge confronting today’s boards.  

Are corporate boards prepared for this enhanced risk? They largely are not, Russell Reynolds argues. Some, in fact, “have found themselves woefully unprepared for what lies ahead,” the firm contends.

Bringing together risk and strategy functions

Part of the resolution to this challenge lies in board structures, which today often find their strategic goals headed in one way that is at odds and contradicted by the board’s risk agenda. Unifying these functions may represent the solution. “In bringing together strategy and risk functions,” the firm contends, “the board should have a risk governance framework that includes identifying business and strategic risks.”

Aligning performance, governance and culture

Boards also face possible conflicts as they wrestle with mounting demands in both strategy and culture, both of which also run the risk of being at odds. These are functions that are largely driven by a board’s nominating and governance, audit, and compensation committees. Boards also face a challenge of how to measure and assess their respective corporate cultures, which tend to be more difficult to measure objectively compared to other more easily measured areas of a company’s performance.

Board internal conflicts foster counterproductive interventionism

Faced with these challenges of internal conflicts within board functions, boards themselves also face an associated major challenge: As the stakes associated with their role increase, excessive intervention in a company’s operations may be tempting.

But an overextension of a board in a company’s operations can prove hugely counterproductive.

Balancing laisser-faire and responsibility

One constant is that, even facing new challenges with great stakes, boards must function as they have historically with a reasonable balance the two extremes of overextending their engagement on one hand, or, on the other, failing to meet the fiduciary and other growing demands for which they have been and continue to be responsible.

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