Issue #31                                                                                       November 2021
The role of boards of directors in corporate strategy
by Professor Jordi Canals

From the 1950s through the 1990s, the role of corporate strategy seemed to fall to CEOs and their management teams. In this era of managerial capitalism, boards of directors served as advisory boards, offering counsel to powerful CEOs, who were in charge of making most top decisions. 

This approach began to change in the late 1990s, when a new generation of boards of directors emerged, especially in the EU following the release of the Cadbury Report in the United Kingdom in 1992. This new model promoted a majority of external, independent board members and specific emphases on compliance, CEO monitoring and performance oversight. Under this model, board members’ main task was controlling the growing power of CEOs. It offered tangible benefits in some areas – today, compliance is a central task of the board – yet failed in others. A particular area of boards’ failure is corporate strategy.

The recent 2021 IESE-ECGI Corporate Governance Conference explored the role of boards of directors in shaping corporate strategy through a unique perspective by combining the findings of highly relevant academic research with the frontline insights of CEOs and board directors. In this way, the undisputable role of academia is complemented by CEO and board perspectives.

In presentations and discussions, a number of principles clearly emerged over the two-day event. The first is that the board should own corporate strategy and help the senior management team promote its progress and debate its main assumptions and outcomes. Boards should leave strategic thinking to the CEO but be prepared to deliberate it. This new perspective highlights board members’ important role in shaping strategy. The board’s role in owning, advancing and supporting corporate strategy is growing, sparked by institutional investors, which increasingly expect boards to assume a more active role in this domain, and activist investors demanding for dramatic strategic changes.

In the realm of corporate strategy, collaboration between the board of directors and the CEO and senior management team is essential. The board’s focus in monitoring management is incomplete. Agency theory shaped this view by assuming that a firm’s management team had a different agenda than shareholders. Governing and managing a company is a collaborative effort that boards and CEOs should do together, while respecting the specific duties and competencies of each role.

Companies need to adapt and transform in today’s context of disruption, marked by digital transformation, climate change, net-zero emissions, major geopolitical shifts and the resultant upheaval in global trade and investment. Boards and CEOs should make sure that their main shareholders and key stakeholders understand the imperative for change and support the transformation processes. While slow and painful, these processes are indispensable for the firm’s long-term survival. Against this backdrop, fluid communication between the board and shareholders on corporate strategy and transformation has become more vital than ever.

These notions were widely shared both by scholars and CEOs during the conference. They seem to express a newly emerging consensus on the role of boards of directors and strategy. This notion underscores the board’s role in supporting and developing the firm for the long term, and reflecting on what it should look like in the next five to ten years. One of the board’s central functions in corporate governance is working closely with the CEO on the firm’s strategic challenges.

​​​​​Jordi Canals
IESE Center for Corporate Governance

IESE-ECGI Corporate Governance Conference 

"Boards of Directors and Corporate Strategy in a High-Uncertainty Context"
Hybrid, October 4-5, 2021 

Corporate strategy is considered a core driver of the firm’s long-term orientation. Corporate governance suggests that boards of directors have the duty to govern the firm and develop it sustainably for the long term. This implies boards are supposed to discuss the firm’s strategy and make relevant decisions on corporate strategy.

In dealing with strategy, boards face a slew of challenges. Board directors need to understand the company's business and make complex strategic decisions an increasingly uncertain context on a range of issues, from digital transformation and decarbonization, to corporate restructuring.

The IESE-ECGI Corporate Governance Conference 2021, held last October 2021, shed light on these issues by bringing together leading scholars from the areas of corporate strategy, corporate finance and organizational economics, as well as CEOs and chair persons from top-tier companies.

The roster of speakers included Renée Adams, University of Oxford; Jay Barney, University of Utah; Marco Becht, Université libre de Bruxelles and ECGI; Jordi Canals, IESE Business School; Bengt Holmström, MIT. Nobel Laureate in Economics; Ioannis Ioannou, London Business School;
Sophie L'Hélias, Chair of LeaderXXchange and co-Founder of ICGN; Juvencio Maeztu, Deputy CEO and CFO of Ingka (IKEA); Tobias Martinez, CEO of Cellnex Telecom; Francisco Reynés, Chairman Naturgy; Risto Siilasmaa, Investor and former Chairman of Nokia;  Jean-Pascal Tricoire, Chair and CEO of Schneider Electric; Margarethe F. Wiersema, University of California, Irvine. 

Conference papers and presentations

Margarethe F. Wiersema, University of California, Irvine
•    Download paper 1
•    Download paper 2
•    Download presentation slides
Gaizka Ormazabal, IESE Business School and ECGI
•    Download discussion slides
Ioannis Ioannou, London Business School
•    Download paper
•    Download presentation slides
Fabrizio Ferraro, IESE Business School
•    Download discussion slides

Jay B. Barney, University of Utah
•    Download presentation slides
Joan Enric Ricart, IESE Business School
•    Download discussion slides

*The next edition of the newsletter will provide recordings of conference sessions, as well as a conference report.

Corporate Governance News

COP26: What is the Glasgow climate conference and why is it important?
From October 31 to November 12, world leaders are gathering in Glasgow for the United Nations COP26 summit, expected to mark a turning point in the global fight against climate change… read more ​
U.S. SEC takes aim at executive pay
On September 29, the U.S. Securities and Exchange Commission (SEC) proposed an amendment that would require investment funds to disclose their proxy voting and “say-on-pay” proxy votes for institutional investment managers, with the aim of bringing greater transparency on executive compensation. Moreover, clawbacks –an important accountability tool– is shaping up to be a key component of SECs’ agenda… read more
BlackRock Gives Big Investors Ability to Vote on Shareholder Proposals
Starting in 2022, BlackRock says its large investors can vote on everything, from who sits on boards and executive pay to company disclosures on greenhouse gas emissions. The change allows those BlackRock clients to lay claim to voting power on around $2 trillion in investments tied to index-tracking assets BlackRock manages in institutional accounts. This represents about 40% of the roughly $4.8 trillion of indexed equities managed by BlackRock… read more ​​​​​
CalPERS, Carlyle lead global push on ESG reporting
On September 30, a group of global private-equity firms and pensions funds that manages over $4 trillion in assets announced that they had reached an agreement to standardize reporting on environmental, social and corporate governance (ESG) performance of portfolio companies… read more ​​​​​
A court battle raises the question – how far will Japan swallow poison pills?
In Japan, the fate of future hostile takeover bids could rest on an upcoming court ruling, which will decide whether the country's top maker of newspaper printing presses can move forward with a poison pill against an unwelcome shareholder… read more ​​​​​
YouTube, Snap and TikTok executives take their turn answering to Washington
U.S. politicians have hammered Facebook for weeks on the damaging effects of its platform, particularly on young users. In a recent Senate panel, lawmakers’ concerns on data privacy, negative impacts and transparency extended to other social networking platforms. In the wake of revelations about Facebook’s adverse practices, social media companies need to show what steps they are taking to ensure the safety and privacy of young users… read more ​​​​​
Release strategy from the grip of a corporate priesthood
Based on his comments during the 2021 IESE-ECGI Corporate Governance Conference, Financial Times Editor Andrew Hill is entertaining the idea of opening strategic planning to staff and other stakeholders besides the CEO and the board. According to sources that he consulted, this shift would offer clear benefits – if boards were willing to take the leap… read more (subscriber content​​​
Activist investor to transform General Motors
General Motors announced plans in January to offer only electric vehicles by 2035, a move that inspired the activist investment firm Engine No. 1 to take a stake in the company… read more ​​​​​
U.S. lawmaker blames Boeing leaders for culture that led to crashes
The senior U.S. House Democrat in charge of the massive investigation on the Boeing 737 MAX crashes blamed Boeing senior leaders for fostering an organization-wide culture of concealment, which ultimately led to two fatal 737 MAX crashes and the deaths of 346 innocent people… read more ​​​​​
Is the great resignation spurring entrepreneurship?
Nearly 4.3 million Americans quit their jobs in August, the highest number on record since the government began collecting data 20 years ago. The quit rate coincides with a dramatic surge in applications for new businesses –mostly for sole-proprietor ventures– since the onset of the COVID-19 pandemic. 

In an interview with Wharton Business Daily on SiriusXM, Prof. Jacqueline Kirtley said some people quit for very pragmatic reasons, such as concerns over personal safety or lack of child care. In other cases, employees quit because the pandemic made them rethink their life’s purpose and career goals
read more ​​​​​

In Case You're Interested...

The Net Positive Manifesto: Is the world better off because your company is in it?

In their recently published book, former Unilever CEO Paul Polman and consultant and author Andrew Winston describe their vision of a “net positive” company –one that grows by helping the world flourish. Drawing on examples from Unilever and other leading companies, they outline four critical paths businesses can take to prosper today and win in the future. These include operating in service of multiple stakeholders, which in turn benefits shareholders; taking full ownership of all company impacts; embracing deep partnerships, even with critics; and tackling systemic challenges by rethinking advocacy and governmental relationships… read more ​​​

Is stakeholder capitalism really viable?

“The Promise of Stakeholder Capitalism: Illusory or Real?” was the topic of discussion of an October 5 webinar moderated by Financial Times U.S. Editor-at-Large Gillian Tett. The session featured the opposing views of Harvard Law School Prof. Lucian Bebchuk, who believes corporate leaders’ structural incentives make stakeholder capitalism unrealistic, and London Business School Prof. Alex Edmans, who argued that, when done right, stakeholder capitalism can deliver substantial benefits for shareholders and society… read more ​​​​​

PwC’s 2021 Annual Corporate Directors Survey

PwC’s newly released “The Director’s New Playbook: Taking on Change” annual corporate survey summarizes the views of board directors on U.S. listed firms on their role in ESG dimensions and strategy, areas where they are making important progress and others where additional oversight is needed. The six areas of improvement include: (1) invest more time and resources in board ESG oversight; (2) connect ESG to company strategy; (3) prioritize talent management oversight and the future of work; (4) address board diversity through refreshment; (5) double down on board assessments; and (6) re-examine board priorities… read more ​​​​​

2021 Annual Corporate Governance Review

Georgeson, a global provider of strategic shareholder engagement and proxy solicitation services, recently published its Annual Corporate Governance Review. Among its findings, the review underscores how investors’ growing focus on environmental, social and governance (ESG) risks and opportunities is evidenced in their voting patterns in the annual meetings of S&P 500 firms… read more ​​​​​

10 things your corporate culture needs to get right

Corporate culture is a core driver of both employee retention and turnover. The MIT SMR/Glassdoor Culture 500, an annual index and research project that analyzes culture in leading organizations using more than 1.4 million employee reviews, as well as new research that scientifically measures corporate culture, offer insights on the elements that matter most to employees. These are especially as firms navigate a new reality of increasingly remote and hybrid work… read more ​​​​​

IESE's Recent Research on Corporate Governance 

“How top managers use the entrepreneurial gap to drive strategic change”

Journal article (September 2021)

Authors: Robert Simons and Antonio Dávila 
Journal: Accounting and Control
Read more

“The Big Three and corporate carbon emissions around the world”

Journal article (May 2021)

Authors: José Azar, Miguel Duro, Igor Kadach, Gaizka Ormazabal
Journal: Journal of Financial Economics
Read more

“The Impact of Logic (In)Compatibility: Green Investing, State Policy, and Corporate Environmental Performance”

Journal article (May 2021)

Authors: Yan Shipeng, John Almandoz, Fabrizio Ferraro
Journal: Administrative Science Quarterly
Read more

“Boosting international investment: The role of expert assessments of corporate governance”

Working paper (June 2021)

“Resilience of the financial system to natural disasters”

Study and Monograph (May 2021)

Authors: Patrick Bolton, Harrison Hong, Marci Kacperczyk, and Xavier Vives
Read more

“The international airline group rights issue ”

Case-study (June 2021)

Author: Nuno Fernandes
Read more

“Ingka in 2020. Corporate Governance, Purpose and Transformation”

Case-study (January 2021)

Authors: Masclans, R., Canals, J.
Read more

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