Independent Non Executive Directors’ role in strategy

How does the board oversee strategy, and what is the role of an Independent Non Executive Director (INED)? Whilst on the topic, it begs the question who is responsible for strategy? Most governance frameworks land the responsibility of strategy on the Chief Executive Officer (CEO). The board of the organisation must approve the strategy and oversee the execution of such strategy, albeit with timely improvements to keep the strategy live. 

As the Cadbury Report said, an INED ‘should bring an independent judgment to bear on issues of strategy, performance and resources including key appointments and standards of conduct’. Given below are critical challenges that an INED may face in contributing creatively and constructively to oversee the strategy of a corporate.

Time is one of the biggest obstacles for an INED in its oversight role. A board may meet six to eight times a year, with an agenda that is packed with ongoing battles, compliance issues and financial reporting matters. This leaves very little time for deliberation on strategy, its execution, and very importantly, its validity.

Another decisive factor of efficient and effective contribution by an INED to strategy is whether information for evaluation is put forth in a manner that enables such contribution. For example, if the board spends half the time allocated for oversight of strategy on deliberating on the credibility of information, or understanding the information presented, the task of overseeing becomes even challenging.

The board composition also plays a significant role in the oversight of the strategy. Whilst the CEO and executive directors will very much be involved in the execution of the strategy, the INEDs contribution is of paramount importance, as it brings independence, fresh thinking, and the right amount of scepticism. The guidance from the INED makes the strategy complete. For this to be so, the INEDs on the board must have the right composition, asking the right questions.

The UK Corporate Governance Code states that the role of Non-executive Directors is to constructively challenge and help develop proposals on strategy. This may mean that INEDs are required to both challenge executives and hold them to account, whilst using the INEDs skills and experience to set the strategy. Depending on the complexity of the organisation, the board may also need to consider the need for a board sub-committee on strategy. It is very common for companies to have the senior management headed by the CEO to execute the strategy. 

However, we have seen the dangers of complacency that has resulted in the down fall of many corporates worldwide. Therefore, strategy needs to be invigorated in a timely manner for a company to succeed. So what better person than an INED to provide that fresh thinking, in an independent manner for the long term sustenance of the entity.

The Sri Lanka Institute of Directors INED Forum has organised a discussion on 6 August on the strategy conversation in the boardroom and the role of the INED. The interactive session will commence with an introduction to the topic by EY Partner Hiranthi Fonseka followed by a panel discussion with panellists Bogala Graphite Chairman Vijaya Malalasekera, Hemas Holdings Director Murtaza Esufally and Seylan Bank INED Anushka Wijesinha, and moderator SLID Senior Vice Chairman/Cargills Bank INED Faizal Salieh. For more information visit the SLID website or call Mala on 2575295 to register.