Strategists on the Board

Introduction

To understand strategy, we need to know more about the strategists. To better understand boards, we need to know more about the behaviour of those who sit on boards. This paper brings together the subjects of boards and strategy by examining the contribution to strategy by chairmen and non-executive directors in large UK publicly quoted companies. Given the part-time responsibilities of many chairmen and all non-executive directors, the collective label of 'part-time board members' is used to refer to individuals performing these roles.

The 1990's has witnessed a surge of interest in boards of directors. Much of the interest, at least in the UK context, has been a reaction to governance irregularities and mismanagement in some UK companies. More is known now about board structure, board composition and director compensation than it was at the beginning of the decade. There is greater knowledge about who sits in UK boardrooms, whom they sit alongside, how much they are paid and how they are selected (Conyon 1994, 1995). However, less is known about what board members do. Behaviour in UK boardrooms is not nearly as transparent as the structure and composition of UK boards.

Prescriptive writing about boards and directors continues to afford part-time board members a role in strategy (Demb and Neubauer 1992; Institute of Directors 1995). Work in the managerial hegemony tradition suggests that part-time board members are barely involved in strategy (Mace 1971; Lorsch and MacIver 1989). This paper asks how, if at all, do part-time board members influence strategy in UK plc's?

The first half of the paper identifies choice, change and control as key aspects of firms' strategic conduct. In the second half of the paper, empirical interest turns to examining how part-time board members engage with these processes. Attention is given to the actions of part-time board members vis-a-vis executive directors, both inside and outside the boardroom. Data from interviews with 108 board members are used to construct a framework (Figure 1) which conceptualizes part-time board members' involvement in strategy as: 'taking strategic decisions', 'shaping strategic decisions' and 'shaping the content, context and conduct of strategy'. Each of the three levels of part-time board member involvement in strategy described in Figure 1 engage part-time board members in processes of choice, change and control in differing ways. Behaviour by part-time board members conveyed by the model challenge findings of previous research that part-time board members simply ratify decisions made by executives (Pahl and Winkler 1974; Lorsch and MacIver 1989). Rather, the framework reveals that part-time board members are able to shape both the ideas that form the content of firms' strategies and the methodologies and processes by which those ideas evolve. In so doing, part-time board members are capable of exerting control over management and influencing processes of strategic choice and change.

Not all part-time board members are equally involved in strategy. Empirical data show that the involvement of part-time board members in strategy is conditioned by factors such as public debate and policy making about corporate governance, the history and performance of a company, the conduct and process of a board and informal relations between board members. These factors are discussed in the paper in a manner intended both to explain the findings of this study and to motivate more processually and contextually attuned theorizing about the behaviour of boards and directors.

Literature Review

Boards and Directors in the UK

The legal framework which shapes board structure and conduct in the United Kingdom (UK) offers a light touch. The legal structure of corporate behaviour in the UK rests on the simple principle that the (owners) shareholders appoint agents (directors) to run the business and the directors report annually to shareholders on their stewardship. There are approximately 2000 Public Limited Companies (PLCs) quoted on the UK Stock Exchange in which managers are accountable to directors and directors are accountable to shareholders. Companies registered after 1 November 1929 are legally required to have at least two directors. No distinction is made between classes of directors; for instance, between executive (full-time or inside) directors and non-executive (outside or part-time) directors. There is no requirement in UK law for companies to have a board of directors. However, directors do tend to meet in committees familiar to us as 'boards of directors' (Charkham 1994).

Out of practice rather than law, four main roles have evolved on boards of directors: chairman; chief executive officer; executive director and non-executive director. The chairman role is pivotal in the UK board context with or without the additional responsibilities of Chief Executive Officer. As a minimal requirement, chairmen are responsible for the composition and conduct of the board. Over 80 percent of the largest 1,000 UK Plc's now separate the role of chairman and chief executive officer, and the majority of chairmen perform the role on a part-time basis. During the 1980's and 1990's the numbers of non-executive directors on UK boards has increased (Conyon 1994) suggesting that, at least numerically, non-executive directors now play an increasingly important role in UK plc's. Non-executive directors can be current or retired chief executives or executive directors of PLC's, and a minority have political, military, academic or civil service backgrounds. The role of non-executive director is also part time. Chief executives usually carry the lead executive authority in the company and chair the executive team, which itself consists of executive directors and senior managers. Not all executive team members necessarily sit on the board as an executive director. The finance director would invariably do so, but the Personnel Director, for example, would not usually do so. In practice, all directors are appointed by the board and elected by the shareholders.