The Role of the Board in Corporate Strategy

Letter from the Co-Chairs

The first edition of this report appeared in 2000, before the bankruptcies of Enron and WorldCom and subsequent reforms such as Sarbanes-Oxley (SOX) and new listing requirements for public companies. Nonetheless, six years later, the corporation’s strategy is even more important in determining its success.  

For more than five years, corporate boards have been concentrating largely on implementing the reforms of the post-SOX era. Internal control, auditor and audit committee independence, effective committees for oversight of audit, compensation, and governance, these are all worthy causes. But as several directors noted in a recent roundtable on Section 404 of SOX, directors need also to concentrate on strategy. 

Indeed, it could very well be argued that Enron and WorldCom failed in part because of poor performance brought about by bad strategy. To be sure, the companies had bad systems—compensation structures and internal controls that may have inspired and enabled fraud. And such systems should be changed to incorporate today’s best practices. But let us not forget strategy.  

In a letter to Congress dated May 3, 2002, the NACD board recommended 10 governance practices, including this one: 

Boards should be constructively engaged with management to ensure the appropriate development, execution, monitoring, and modification of their companies’ strategies. The nature and extent of the board’s involvement in strategy will depend on the particular circumstances of the company and the industry or industries in which it is operating.  

Boards can and must play a useful role in strategy. This 2006 edition of the NACD’s Blue Ribbon Commission Report can help them do so.  

Warren L. Batts

Robert B. Stobaugh

July 2006