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Boardroom Focus: Bringing Insight to Oversight

How to use the board of directors to build a more resilient enterprise.

Fortnightly Magazine - June 2005

are made to the board as a whole, thereby limiting the opportunity for probing interaction. Meanwhile, risk is being addressed in either the audit committee or the finance committee, usually in traditional terms of financial risks and compliance. Linkages between strategic deliberation and risk assessment are purely serendipitous.

Structured Dialogue

This typical separation of risk discussion from strategy discussion brings us to the third element that is indispensable to constructive board engagement: structured dialogue. Board meetings tend to be highly choreographed events. This is what permits boards to get through all the business that's required during the short time available. But for that reason they are awkward venues for the kind of unhurried conversation that is needed to understand corporate strategy and corporate risk. Some board members with whom we have spoken say that to pose a probing question in such a meeting is regarded almost as a discourtesy.

Three devices readily are available to break out of this constricted framework. All of them are in common use. By deploying them in a coordinated way, the board and management can reposition the dialogue on strategy and risk to permit constructive engagement.

Retreats. On an annual or semi-annual basis, the board and management need to meet together with a focused agenda. This should be limited to strategic direction, strategic performance, and risk. Such meetings, of course, require their own discipline and structure, but of a different kind from that employed at normal quarterly meetings. In retreats, the structure aims to draw out discussion, and to pose issues in non-confrontational ways that permit thoughtful exploration. Ideally, these sessions are framed not as "approval" meetings, where management presents a final plan and argues for board consent, but rather as deliberative meetings, where management presents genuine alternatives and straw-man recommendations.

Committee architecture. Board committees exist primarily to provide venues for more detailed and more expert discussion than is possible at the general board level. To provide the linkage needed between strategy development and strategic risk assessment, those two areas belong in the same committee. What that committee is named-audit, finance, governance, whatever-is a matter of company preference. What is important is that each subject is discussed in full knowledge of the other, by a group that is responsible for both.

Key performance and risk indicators. Clear objectives, clear strategies, and clear risk assessments can be tracked through a handful of high-level tracking indicators. (If it's not reasonably apparent what those indicators are, it's likely that the strategy needs further refinement.) The board and management should agree on those indicators, should design a dashboard that gives frequent, succinct updates on those indicators, and should provide a protocol for diagnosing and discussing unfavorable variations in those indicators. Strategic moments-those occasions when existing assumptions are shaken by events and new thinking is required-don't necessarily conform to an annual planning cycle. Board and management need to agree on what a strategic moment looks like, ensure that they have the indicators to recognize it, and provide themselves the occasion for exploring and responding in a timely manner to its implications.

In