Center for
Issue #52
January 2024
Professor Jordi canals
How Should Boards Think About Strategy?
Many companies have taken strides in their strategy processes in recent years. A considerable number have adopted the basic tools of strategic planning, although not always very effectively. There is still room for improvement in strategy, particularly to avoid the mistake of projecting the past into the future. But, generally speaking, boards of directors have become more forward looking in their efforts to help CEOs and senior management teams achieve short-term performance and create long-term value.
Unfortunately, recent upheavals in the global economy have frustrated these efforts. Covid-19, trade wars, the emergence of generative AI, the rise of China, the invasion of Ukraine, the complex energy transition, decarbonization efforts, the war in the Middle East, growing inflation and interest rates are challenging traditional strategies and business models. All these events are having an adverse impact on companies’ profitability and financial positions. Amid this turbulence, boards should step up to help companies rethink strategy.
There are two principles that boards of directors and CEOs should consider when rethinking strategy. The first is that strategy is not the same as strategic planning. The latter can help pin down how specific goals defined by the board – in alignment with shareholders’ expectations – may be met. This involves the board taking the lead in defining specific goals for the company through open dialogue with investors and other key stakeholders, and in collaboration with the CEO. Goals don’t come down from heaven. The firm’s purpose should guide and influence the board to define them. Goals are also shaped by investors’ expectations, other companies’ goals and the firm’s own history and recent trajectory and capabilities.
The second principle is that once goals are defined and agreed upon, strategy should be conceived and executed to achieve them. Strategy can be defined as the consistent set of policies and central decisions that the board should make that explain how a company will face critical challenges, meet its goals and achieve its purpose as an institution. Strategy encompasses goals, while considering the challenges the firm faces in reaching them. Goals should emerge as the outcome of the interaction between the board and its shareholders, while referencing well-chosen benchmarks. This requires a deep understanding of the industry, competitors and wider global context.
A complete strategy should take into account the firm’s business model and specifically explain how the firm plans to achieve its goals. 
A business model should consist of four essential pillars. The first is a well-defined customer value proposition, which expresses how the firm’s products, services or solutions plan to meet customers’ needs and expectations, and how the firm wishes to serve them. A clear condition for a good customer proposition is that it should be unique in some dimensions, and different from what other firms are trying to do. Otherwise, the firm will not be able to cultivate satisfied customers. A firm without satisfied customers is doomed to fail.
The second pillar is the firm’s value chain – a coherent set of activities that may be executed internally or partially sub-contracted. The value chain is an integrated system of the firm’s different activities (such as purchasing, logistics, manufacturing, sales, technology) through which the firm plans to serve customers in an effective way. This system should be appropriate and sustainable, not only in terms of environmental impact. It should help create value sustainably, with resilience and flexibility in order to face current global challenges. For instance, it is urgent that boards consider how current geopolitical tensions, decarbonization efforts and the rapid rise of AI are challenging the performance of many firms. These developments are raising new questions about companies’ strategies and business models. If the board doesn’t help the company rethink its strategy and business model in this complex and uncertain context, economic performance will deteriorate, customers may leave, employee engagement will decline, and the company and its business model will become obsolete.
A consistent and efficient business model should also narrow down the types of customers the company wants to target, in terms of some characteristics -e.g., age, income, life style or interests-, and in terms of markets and geographies. It should also define some criteria on the level of business diversification that gives way to corporate strategy -the strategy of a firm with different businesses-. This selection of segments of customers to be served by the firm should be coherent with the value proposition chosen and the business model.
The three previous pillars of a business model lead to the fourth one: the specific capabilities that make the company unique to serve its customers in an effective way, create economic value and develop an organization for the long term. These capabilities give rise to specific competitive advantages: lower costs, superior quality, special services or access to customers. The latter attribute enables companies to enjoy a higher premium price.
Thus, the board’s challenges in strategy go beyond strategic planning. Moreover, mere strategic planning without the foundations just described can lead companies off course. In contrast, boards that define goals and work with senior management to carefully examine the strategy and business model will help deploy the capabilities that will sustain firms in the long term. 
This process clarifies the aims of a company and how its strategy and business model will help achieve specific goals. In this respect, this work is deeper and more complex than formulating a strategic plan. It is also the first step for creating a strategic plan that can truly be useful for the firm, shareholders and other stakeholders.
Geopolitical turmoil and the technology revolution are driving boards not only to recalibrate their goals and budgets, and rewrite some of their strategic plans. These forces are compelling them to rethink strategy so their firms can survive, meet their goals and fulfil their purpose.
Corporate Governance Trends and News.

The FCA continues to move forward with new rules to encourage companies to list in the UK. On December 20, 2023, the FCA published a consultation paper proposing major reforms to the UK listing regime. Among other proposals, the reform aims to change the current prescriptive listing regime to a more flexible disclosure-based approach that may remove some protection currently afforded to investors.
Read more here 
According to the latest FTI Consulting’s Activism Vulnerability Report, small cap companies seem to be attracting more interest from activist investors, reaching levels not seen since the last quarter of 2020.
Read more here 
The Conference Board has issued an interesting report that reviews the 2023 proxy season and highlights the challenges expected for the upcoming season. ESG will continue to be one of the dominant topics in 2024.
Read more here 
Proxy advisors and large investors have started to issue their proxy voting policy guidelines for the 2024 annual shareholder meetings, in which they provide a comprehensive review of the voting policies that reflect their governance concerns.
Read more here 
and here
Russell Reynolds and PwC have issued their Corporate Governance Trends Report for 2024, in which they predict further scrutiny of the board and CEO, a more complex risk landscape that may pressure boards to reassess the firm's strategy, and the evolution of the ESG agenda.
Read more here 
and here 
Other reports and comments on corporate governance trends for 2024 can be found here.
IESE's Recent Research.

Dai, J., Ormazabal, G., Peñalva, F., Raney, R.  (2023). Imposing Sustainability Disclosure on Investors: Does it Lead to Portfolio Decarbonization? European Corporate Governance Institute.
Read here
Antón, M., Ederer, F., Giné, M., Schmalz, M. (2023). Common Ownership, Competition, and Top Management Incentives. Journal of Political Economy.
Read here
Cohen, S., Kadach, I., Ormazabal, G. (2023). Institutional Investors, Climate Disclosure, and Carbon Emissions. Journal of Accounting and Economics, 81.
Read here
Bonetti, P., Ormazabal, G.  (2023). Boosting Foreign Investment: The Role of certification of corporate governance. Journal of Accounting Research, 61(1), 95-140.
Read here
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