Boards of directors are collegiate bodies that represent and protect the interests of corporate shareholders, although in Latin America there are confusing and very diverse perceptions about their functions and importance.
While they perform some constructive and well-directed functions, they reflect a vision that is limited in scope and depth. In most of the companies observed, during the normal course of operations, directors performed three traditional functions: reporting on environmental conditions, advising and counseling the general manager, and evaluating the company's performance.
We propose some functions related to corporate strategy, which are not currently performed, but which most directors, privately, recognize the importance and need to adopt immediately.
In many directives, corporate objectives, strategies and policies are not established. These decisions are made de facto by the chief executive of the company. The typical manager hardly has the time and expertise to participate in the formation of corporate strategy.
Generally, the board approves the strategic decisions made in advance by management. Acceptance is often based on incomplete, partial information rather than on a careful analysis of the environment, the competition and the company itself.
An efficient and responsible board should be involved in the conception of the strategy. It should also review it periodically to determine its validity and use it as a frame of reference for other important decisions.
The strategic planning process presupposes that general management will make one or more presentations on the company's strategy and its various elements. In addition, the directors should receive information relevant to the environment, competitors, consumers, suppliers, substitute products, available resources and relevant financial ratios. Once the presentations have been made and the information analyzed, full, frank and objective discussions on the possible strategy and its implications for the company should be encouraged. In this way, management would encourage and facilitate the board's participation in defining strategic issues, seeking solutions and identifying correlative risks.
In connection with the formation of the strategy, the board of directors shall evaluate and approve the following decisions:
In relation to the execution of the strategy, the board of directors also has specific functions that must be shared with senior management. The board's role is to evaluate and approve the following decisions:
In companies in developed countries, the formation of strategic planning committees has been used successfully. The committee is made up of a few directors, the general manager and some other key executives. By concentrating on strategic plans, the selected directors have the opportunity to gain a deeper understanding of the subject matter. In this way, a more effective planning process is achieved.
Excerpt from the article "Boards of Directors: Advisors and guardians of today's company", written by José Nicolás Marín and Eduardo Luis Montiel, Full Professors at INCAE.
