The Board of Directors 517and quality position of these products, the targeted customers and markets
(local, regional, national, international), the company’s distribution channels
(direct sales, dealers, distributors), marketing policies (advertising, sales pro-
motion), manufacturing policies (in-house production, plant locations, outside
sourcing), financial policies (balance among borrowing, equity financing, re-
tained earnings), and others.
The board usually does not have the knowledge necessary to initiate a
strategy or to decide among alternative strategies. It must rely on management
to take the initiative, make the necessary analyses, and bring its recommenda-
tions to the board. What the board can and should do is described by Kenneth
R. Andrews in The Concept of Corporate Strategy.^1 He writes, as a summary,
A responsible and effective board should require of its management a unique
and durable corporate strategy, review it periodically for its validity, use it as
the reference point for all other board decisions, and share with management
the risks associated with its adoption.While it is unrealistic to expect directors to formulate strategies, they
should satisfy themselves that management has a sound process for developing
them. The strategy is probably acceptable if:
- It is based on careful analysis by people who are in the best position to
evaluate it, rather than on an inspiration accepted without study. - The reasoning seems sensible.
- No significant information has been omitted from the analysis.
- The results expected from the strategy are clearly set forth so that actual
accomplishment can be compared with them.
Strategy Meetings
As a basis for considering strategic plans, many companies arrange a meeting at
which directors, together with senior managers, spend one, two, or three days
discussing where the company should be headed. In order to minimize distrac-
tions and provide an opportunity for informal discussion and ref lection, these
meetings are often held at a retreat that is distant from the corporate offices.
While company practices differ widely, it is not uncommon for meetings de-
voted primarily to strategic issues to be held every year or two.
The primary purpose of a strategy meeting is for management to explain
current and planned strategies and the rationales for them. The explanations
provide useful information to the directors. The quality of the rationale for the
strategies indicates the competence of senior management and the managers of
the divisions concerned. Thus, the strategies provide additional insight about
the abilities of the CEO and the participants who may be CEO candidates.
Once adopted, a corporate strategy must be adhered to. Management
brings to the board for decision and approval many matters that may impact a
company’s strategy—major capital expenditures, acquisitions, divestitures, and