Strategic Governance: how to assess board effectiveness in guiding strategy execution

Sascha Schmidt () and Matthias Brauer

Corporate Governance: An International Review, 2006, vol. 14, issue 1, 13-22

Abstract: Subsequent to a host of corporate corruption scandals, boards of directors are facing amplified pressure from investors, creditors and shareholders in a bid to ensure effective corporate governance of their investments. In previous research and public debate, the effectiveness of corporate governance structures has come under close scrutiny. However, boards’ effectiveness in fulfilling their strategic role by guiding strategy execution mostly has been left unaddressed. Due to the high degree of secrecy and sensitivity of strategy issues, boards’ effectiveness in guiding strategy execution is much more difficult to assess externally compared to structural governance issues. Against the backdrop of these difficulties and based upon insights from strategy process research, we suggest taking “strategy consistency” between a firm's resource allocation and its announced strategy as a proxy for boards’ effectiveness in guiding strategy execution. In doing so, the paper contributes to extant research by going beyond structural governance issues and paying direct attention to strategic governance issues. Specifically, the paper develops a new approach and set of standard measures to assess boards’ effectiveness in strategy execution.

Date: 2006
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