Other considerations such as gender, age, diversity, and a mix of personality types aside, the primary function of the board is strategy oversight.
Board members should be selected so that their combined expertise and experience enables them to make informed decisions on all eight of the basic strategy categories found in every business and nonprofit.
Unfortunately, the popular notion that strategy is all about value creation or competitive advantage or some such other vague academic concept prevents boards from seeing and monitoring strategy in their organization as an intricate system of choices of action.
Current Board Member Selection Criteria: Vague at Best
The criteria for board member selection seem either driven by the issue of the moment facing the company or to be so broad as to be almost meaningless.
PWC’s 2013 Annual Corporate Directors Survey lists the three most sought after “skills” in new directors as being industry, financial, and operational expertise.
Industry experience by itself is not a skill and is a meaningless requirement unless coupled with specific strategy expertise, such as managing growth, or marketing, sales, IT, R&D, or Manufacturing, production or service delivery.
Financial expertise clearly relates to experience with the financial management strategy. The nagging concern then becomes that many boards have too much financial expertise and as a result focus too much on financial matters while not focusing enough on the other seven strategy categories.
Finally, PWC lists “operational” expertise; another term that is meaningless. What is operational? Is it in manufacturing? Risk? H.R.? Finance? Technology? R&D? Growth? Operational, by its nature, suggests "strategy implementation". But what kind of strategy implementation expertise is needed?
A quick survey of board member selection considerations posted online is not any more encouraging in terms of identifying what skills are needed. A typical site might say that ethnic and gender diversity are among the additional attributes that may be considered along with diversity, age, international background and experience, and specialized expertise. These are broad criteria, to say the least. How do they help with the assessment of what board strategy skills are missing from the present composition of the board?
Strategy-Based Board Member Selection Criteria
We think there should be specific criteria on the strategy expertise that should be represented on the board.
This is not a new idea. The SEC long ago introduced the qualifications necessary to be considered an “audit committee financial expert”. Not only does the SEC set out explicit qualifications, it sets out the minimum specific experience that a person must have in order to demonstrate they have these qualifications.
But first, have a look at the 8 strategy categories shown in the 8 boxes.
"But they aren't strategies!" is usually the next common retort we hear.
Once again, we beg to differ. For us, strategy is a choice of action and our research finds there are 8 choices of action (strategies) common to every company, for-profit or nonprofit.
Henri Fayol identified six of them on page 1 of the first book written on strategy, General and Industrial Management. Peter Drucker identified the growth and business definition/mandate strategies in The Practice of Management, 1954.
The concept of "strategy" as a value proposition or means to achieve competitive advantage, that first appears in the early 1960's and is made popular by Dr. Michael Porter in the 1980's, is a very rigid definition that prevents directors from seeing and monitoring strategy as a dynamic system of interrelated choices of action.
It is also problematic because, with its focus on marketing and competitive advantage, it suggests strategy for nonprofits is different than for for-profits. We think the strategy system is the same, with the differences occurring in names of the strategies. The nonprofit world uses "mandate" while for-profits use "business definition". Many nonprofits don't engage in marketing. They prefer the term "communications".
Take a look at a typical board agenda. Odds are at least three or maybe four of the eight "strategies" are being covered in every board meeting. Finances, H.R., Risk, and Marketing/Sales are the usual suspects. Service delivery, a.k.a manufacturing or production, depending on the nature of the business, might also be a regular topic.
Take a look at management titles in any big company. You will find a "chief" for most if not all of the 8 strategy categories. Look at the titles of committees of boards. You'll find they cover most of the eight. This is because the 8 strategies are the basis for all organization design.
Another typical pushback against strategy-based selection criteria might be that management can provide the board with experts on specific strategy when requested. And, if necessary, the board can retain its own experts to advise it on given matters.
That's all true. But at the end of the day, board members still have to come to a decision using the information and advice they have been given. At that point, someone on the board recognized as being knowledgeable on a particular strategy can become a significant resource to board members. We see this all the time with decisions on financial issues because it seems that if there is one strategy skill set to be found on a board, it will be in finance.
So take the test. Using the strategy wheel graphic and scoring each strategy from 0 (the strategy expertise not represented on your board) to 10 (strategy expertise well represented on your board), find out what strategy skill sets your board may be missing.
For more on boards and strategy, see Board Oversight: It's All About Strategy