Some of the most influential companies in the United States are going about board-level recruitment the wrong way, their strategy is enough to threaten their medium to long-term success.
This is the headline conclusion featured in the latest industry report from The Conference Board, a global business research non-profit headquartered in New York City and with regional offices worldwide.
The Conference Board’s 15-page document acknowledges a significant disconnect between expertise and strategy. Essentially, boards are eager to get more expertise within their ranks (particularly in areas like tech and environmental, social and corporate governance, or ESG). Still, they fail to ensure they can adapt this experience to business strategy.
This was “worrisome”, the report warned, because such a disconnect would inevitably mean that despite investment in experience, it would rarely contribute to a competitive advantage, if ever.
“The decline in directors with business strategy experience should raise a yellow, if not red, flag for boards, management, and investors,” the report said.
“Boards should not sacrifice business strategy experience to achieve functional expertise.”
The report’s findings come from a survey of S&P 500 and Russell 3000 companies – a cross-section of the most prominent and influential companies in American business.
The results showed that the number of directors with strategy experience within these companies was falling.
For the S&P 500, it fell from 69.7% to 67.5% over the three years to 2021. For the Russell 3000, 67.7% to 62.9% over the same period.
Alongside an increase in expertise in niche areas, the report said that “boards may be attracting directors with knowledge in specific areas (e.g. cybersecurity) who do not have broad business strategy experience.”
What’s the context?
The evolving trend over the past decade has been to diversify boards away from the traditional template – dominated by older males, whose experience portfolio does not vary widely and whose viewpoints broadly align with each other. Now, corporate responsibility is changing, and companies are eager to bring on board new talent to address this.
ESG is a shining example. It is associated with values that continue to gain importance in social and political spheres worldwide, so its prominence is not fading. Whether companies view it as a genuine goal or simply a box-ticking exercise, the result is the same: they need new expertise to ensure they adapt the way the world expects them to.
How does this all relate to strategy?
The problem for companies is that all the leader expertise in the world is redundant if those leaders cannot strategise properly. At least that’s the way The Conference Board sees it.
“While boards understandably want to add functional experience in technology, cybersecurity, human capital, climate, and other areas, directors will bring meaningful value only if they can make the connection between these functional areas and business strategy,” it warned.
The report is likely aiming at a persistent culture within company boards. It’s criticising those who think ‘we had an expertise gap on our board, we brought someone new in; our work is done.’ It’s a good start, and the intentions are there, but the desired goals simply won’t come to fruition.
Strategy remains at the top of the checklist for any business hungry for success. Taking The Conference Board’s narrative, the answer to this problem is either one of two options:
- Go the extra mile to ensure a newcomer with specialised experience also has a track record in strategy
- Ensure that all newcomers receive proper strategy training to use their skills to the maximum.
Read the full report here