The IESE Center of Corporate Governance recently released the results of its 2024 Boards of Directors’ Survey[1]. The survey covers four critical functions of  boards of directors and their levels of effectiveness: corporate purpose, board dynamics, CEO succession and the transition process, and corporate strategy. In the April 2024 issue of this newsletter, Professor Gaizka Ormazabal discussed a number of interesting results of the survey. In this edition, I will deal with data related to two key board functions: CEO succession planning and corporate strategy.

CEO succession planning. The first observation is that board directors consider CEO succession planning a top priority for their boards. Nevertheless, only 44.2% of surveyed directors report that their boards discuss this issue at least once a year. In addition, only 40% of directors report that their boards have a formal succession plan. These findings suggest that many boards of directors fail to take a proactive attitude toward CEO succession. Two important reasons for these results seem to be: 1) a lack of immediacy regarding CEO succession planning and 2) the relatively little experience that most board directors have in leading CEO succession processes.

A second observation relates to the competencies required of the CEO from the viewpoint of the board directors. A positive outcome of the survey for corporate leadership is that board directors seem to consider that both hard skills (analytical capacity, accurate problem  diagnosis,  strategy formulation and management skills) and soft skills (including people’s motivation and engagement, communication and delivery) are relevant. In most industries, a good balance among the two are indispensable and board directors seem to confirm this view.

Corporate strategy. Board directors agree that technology disruption and increasing competition from emerging countries present the most relevant strategy challenges for their firms. They also assert that their corporate strategy is well defined and seems to be well understood by the firm’s employees and other constituencies. However, less than 50% of the directors surveyed consider that their firms have a strategy and business model that is unique and different from other companies. This result may be the root of future problems for these companies. For a strategy to be lasting and sustainable, it needs core pillars and a distinctive business model. If a firm tries to compete with the same model that other firms use, then competition tends to focus on price, margins shrink and financial performance declines. 

Another concern: only 55% of the companies surveyed explicitly discuss corporate strategy at least once every quarter. Given the rapid change taking place in many critical areas – such as new competitors, disruptive technology, AI, climate transition or geopolitical risk – discussions about strategy and strategic challenges seem to be scarce. Certainly, the current intensity of disruptions means that boards should regularly consider the  impact that many radical changes are probably having or will have on their strategy and business model. Moreover, boards should frequently reassess how the firm can offer customers a unique customer value proposition that will continue to make the company relevant for its customers. These results suggest that boards of directors have room for improvement in helping companies refine and develop their strategies and business models.

On a more positive note, board directors report that the level of collaboration among the board, the CEO and the senior management team is high. This underscores boards’ involvement in strategy and their advisory role to the management team. It also highlights the fact that many boards are helping the management team define and refine corporate strategy. This is always a positive quality for boards. Moreover, in times of uncertainty it becomes essential, as it brings in more perspectives for strategic thinking. Board directors with the appropriate capabilities will have experience with other strategic challenges and the ability to scrutinize the firm’s problems from a fresh perspective.

In sum, the survey results reflect increasing engagement and the readiness of board directors to help their companies tackle relevant strategic challenges. At the same time, data from the survey suggests that in some areas, such as CEO transition process and corporate strategy, boards of directors can and should add more value to their companies. 

[1] See Y. Sakasai, G. Ormazabal and J. Canals (2024): How can boards improve their effectiveness? 2024 survey on boards of directors. IESE Publishing.

Download 2024 IESE Survey on Boards of Directors Report here.