4 The Strategic Role of The Board: Search in This Book

Boards at Work: How Directors View their Roles and Responsibilities
Philip Stiles and Bernard Taylor
https://doi.org/10.1093/acprof:oso/9780199258161.001.0001
Published online: 01 January 2010 Published in print: 03 October 2002 Online ISBN: 9780191718342
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CHAPTER
4 The Strategic Role of the Board 

Philip Stiles, Bernard Taylor
https://doi.org/10.1093/acprof:oso/9780199258161.003.0004 Pages 31–59

Published: October 2002
Abstract
The board's involvement in corporate strategy is often taken as the de ning characteristic of its role in
an organisation. This chapter focuses on the strategic role of the boards of directors and argues that,
while the board is not involved in strategy formulation, it determines the strategic context within
which the rm operates. The board sets the context of strategy by establishing and actively reviewing
the corporate de nition (the ‘what business are we in’ question), through its gatekeeping function
(actively assessing and reviewing strategic proposals, and often changing proposals through comment
and advice), via con dence-building (encouraging managers with good track record in their strategic
aims), and via selection of directors (the outcomes of which send strong signals to the rest of the
organisation concerning the type of person who succeeds and the standards others have to attain).
Keywords: boards of directors, strategic role, corporate strategy, corporate definition, gatekeeping,
confidence-building, selection
Subject: Corporate Governance
Collection: Oxford Scholarship Online
Greater pressure for corporate accountability in the light of increased shareholder activism and public
scrutiny has prompted an examination of the boards role in strategic decision-making (Judge and Zeithaml
1992). Policy initiatives have urged boards to become more involved, and major institutional shareholder
groups have also issued guidelines that have encouraged boards to challenge the strategic leadership
provided by management (ISC 1991). Further, the boards involvement in the strategic decisionmaking
process has been called the best defence against hostile takeover bids (Weiden-baum 1985). Though there is
some evidence that boards are becoming more involved (The Economist 1994), the overwhelming
impression, certainly from the business press, is one of board passivity and reluctance to introduce
contestability into the boardroom.
The view that boards fail to realize their potential in the strategic decision-making process receives
theoretical backing from the managerialist tradition. The work of Mace (1971) and Lorsch and Maclver
(1989) found that boards were often willing to become involved in the strategic process, but were either
constrained from doing so, or else were availed of the opportunity only in times of crisis. However, in much
of the literature, the nature of involvement remains undi erentiated. The two basic questions, ‘what does
strategy-making mean’, and ‘what constitutes involvement in strategy’ usually remain unaddressed: it is
assumed that ‘Strategy’ and ‘involvement’ are perspicuous concepts, but this is far from being the case. The
purpose of this chapter is to examine the nature of boards’ perception of strategy, and involvement therein,
and to discuss the enablers and constraints to the board playing a more active role in organizational
decision-making. In brief, the main arguments are as follows.
The board’s role in large organizations is not to formulate strategy, but rather to set the context of strategy.
It does this in a number of ways: through setting and actively reviewing the corporate de nition—the ‘what

business are we in’ question; through the gatekeeping function—actively assessing and reviewing strategic
proposals, and often changing proposals through comment and advice; through con dence-building—
encouraging managers with good track records in their strategic aims; and through the selection of
directors—the outcomes of which send strong signals to the rest of the organization concerning the type of
person who succeeds and the standards others have to attain.
These roles are important in shaping the domain of discretion for managers, and are crucial strategic
mechanisms for the company, for at least three reasons. First, the board is the ultimate arbiter of what
constitutes the focus of the company. Secondly, through selective screening and con dence-building, the
capacity for innovation and entrepreneurship can be regulated and motivated. Thirdly, through constant
p. 32 examination of the business de nition and corporate strategy, the commitment to certain strategies or
business sectors may be questioned and so boards may be instrumental in breaking organizational habits
and forcing change.
The evidence of this research, therefore, is that, contra the managerialist theory, the board does play a
valuable role in the strategic process within an organization. Supporting evidence from the control role of
the board and from its institutional role (see Chapters 5 and 6) will show the board’s potential for strategic
activity through the use of feedforward systems of control—diagnosing situations that can bring about
change—and through boundary-spanning activity, which can bring new information and bring changes in
strategic direction.
This chapter is structured as follows. First, a brief overview of relevant theory will be examined and then
various models of strategy will be discussed. This will be followed by the major ndings of the research: the
boards role in setting the strategic context and its involvement in the strategic content. The chapter is
concluded by a discussion and implications for theory.
Theoretical debates
The strategic role of the board is often used as the de ning characteristic of board endeavour, the role that
separates the work of the board from that of management (Tricker 1984; Lorsch and Maclver 1989; Hilmer
1994; Hilmer and Tricker 1994). Though the Companies Act does not set out speci c roles for directors, the
board’s duciary duty is usually taken to include responsibility for the monitoring and assessment of
strategic proposals. Tricker (1984) states that direction involves the formulation of strategy, the acquisition
and allocation of resources, and the setting of policies. The Institute of Directors’ Guidelines for Directors
(IOD 1995) also states that the board takes responsibility for determining the company’s strategic objectives
and strategic policies.
The role of the board in strategy is usually taken to include identifying what business the company is in,
developing a vision and mission, assessing threats and opportunities, strengths and weaknesses, and
selecting and implementing a choice of strategies (Tricker 1984; Pearce and Zahra 1991; Hilmer 1993a). The
strategic role of the board has been clearly identi ed as a major factor in strengthening a company’s
competitive position and in ensuring the alignment of company purpose with shareholders’ interests
(Mintzberg 1983; Parkinson 1993). Andrews (1980) has argued that boards should actively determine the
future direction of the company, labelling this a key part of the leadership role of the board. He says:
‘E ective board participation in strategic processes could make an important long-term di erence in a
company’s performance’ (1980: 31). The board’s strategic role is also said to encompass acquiring resources
(Pfe er 1972, 1973) and taking decisions on strategic change that enable the organization to achieve t with
environmental change (Mintzberg 1978; Pearce and Zahra 1991; Goodstein et al. 1994). Goodstein et al.
(1994) argue that heightened periods of environmental turbulence or declines in company performance

provide boards of directors with the potential for full mobilization and the initiation of strategic change.
p. 33 Agency theory (see Eisenhardt 1989a for a full review), resource-dependence theory (Pfe er 1972, 1973;
Pfe er and Salancik 1978; Provan 1980) and stewardship theory (Donaldson 1995) agree on the usefulness
of boards contributing to the strategic discussions within a company (see Chapter 2 for details). Agency
theory, as Zahra and Pearce (1989: 302) state: ‘places a premium on a board’s strategic contribution,
speci cally the board’s involvement in and contribution to the articulation of the rm’s mission, the
development of the rm’s strategy and the setting of guidelines for implementation and e ective control of
the chosen strategy’.
Stewardship theory views the strategic role of the board as contributing to the board’s stewardship of the
company, while resource-dependence theory argues that, by increasing the size and diversity of the board,
the links between the organization and its environment and the securing of critical resources (including
prestige and legitimacy) will be strengthened (Pfe er and Salancik 1978; Pearce and Zahra 1991; Goodstein
et al. 1994) and this boundary-spanning activity can bring new strategic information.
Empirical support for the strategic role of the board comes from Demb and Neubauer’s (1992) study of
seventy-one directors, which revealed that over three-quarters of those interviewed saw the board’s main
task as setting strategy and overall direction. However, the nature and type of involvement were not
examined in this study (O’Neal and Thomas 1995). Tricker’s series of studies in UK companies (1984)
supported the view that boards are involved in the strategic process, though again the exact nature of the
board’s role is not speci ed. The Conference Board of America (1993, 1996) found boards giving a
signi cant proportion of meeting time to strategic issues, though these studies based on surveys failed to
di erentiate the nature of ‘involvement: Judge and Zeithaml (1992), following interviews with 114 board
members from four US industry sectors, found that board size, levels of diversi cation, and insider
representation were negatively related to board involvement, and organizational age was positively related
to it. Board involvement positively related to nancial performance, after controlling for industry and size
e ects. For Tashakori and Boulton (1985), board involvement in strategy is positively correlated with
information availability, board performance evaluation, and a majority of outside directors.
Hill’s (1995) study of forty-two UK directors in eleven companies con rmed that strategic direction is what
directors see as their main purpose, with non-executive directors seeing a wide role for themselves,
including bringing breadth of vision, scanning the environment, and acting as a sounding board for the
chief executive. The issue of the forcefulness and ability of non-executives to make a signi cant
contribution was a key theme of Pettigrew and McNulty’s (1995) study of twenty UK non-executives. They
characterize some board cultures as minimalist, others as maximalist, depending on the part-time
members’ will and skill, and also the presence of contextual factors, such as crisis conditions or changing
board dynamics. A similar story was depicted in Ferlie, Ashburner, and Fitzgerald’s (1994) research into
eleven NHS boards, where three levels of board involvement were identi ed—rubber stamping, probing and
questioning of strategic options, and active involvement in deciding between options, including shaping the
vision. Factors in uencing progression through levels include the experience, expertise, and con dence of
the non-executive director, and whether the executives want non-executives to make the transition.
p. 34 There are numerous dissenting voices in the debate over the boards strategic contribution, notably Mace
(1971), who found that boards were not involved in strategic planning and that the basic objectives,
corporate strategies, and broad policies of the company are not in fact established by the board in most large
and medium-sized companies: ‘For example, a management proposal for approval of an annual capital
budget, involving $10m to $50m or more, will take roughly thirty minutes of a board meeting of one and a
half hours. And it would be a rare board member who would do anything except go along with management’
(1971:31). Mace did discover, however, that, in crisis situations, boards became heavily involved in the
decision-making process within the organization. Lorsch and Maclver’s study (1989) of eighty directors and

four case companies also supported the managerialist view. Norburn and Grinyer’s research into twenty-
one British boards found large-scale disagreement in the establishment of corporate direction: The entire
picture of objective setting is one of confusion and is in marked contrast to the recommendations of the
academic and consultancy world’ (1974: 38).
Pahl and Winkler (1974), who conducted research in nineteen companies using a variety of qualitative
techniques, found that boards collectively do not decide or discuss anything, with most proposals ‘going
through on the nod,’ and concluded that the board is a legitimating institution rather than a decision-
making one. Rosenstein (1987) examined four US corporations and stated that the board is ‘not a proper
locus for making or originating strategy’, though he did say that a major role is to monitor and dismiss the
chief executive. Henke’s survey of 234 US manufacturing rms showed that almost every board in uenced
the decisions of numerous strategy-related issues, though surprisingly ‘the majority of boards do not
recognize that they are involved in the strategy decision-making’ (1986: 93).
This last point illustrates some of the di culties in researching this area. Debates over what constitutes
‘strategy’ are a staple of the strategic management literature, and, while single de nitions have proved
elusive, a number of theoretical schools have developed that have become in uential. In the next section, we
shall examine some of the most important.
Models of strategy
A powerful underlying conception of strategy has been that strategy is the result or formal planning—an
analytic process that establishes long-term objectives, a process usually initiated by top management and
undertaken by sta strategists (Chandler 1962; Anso 1965). Though this view of strategy has had
enormous in uence among businesses, particularly in the 1970s and 1980s (Hendry et al. 1993), descriptive
analysis of the complexity of the strategy process within organizations led to this view being challenged
(Mintzberg and Waters 1985; Noda and Bower 1996). A number of conceptual and empirical problems were
raised. Planning for optimal solutions is highly problematic, given environmental uncertainty (Cyert and
March 1963) and the bounded rationality of managers (Simon 1976). Ethnographic studies demonstrated
p. 35 that clear objectives are often not set (Pettigrew 1985) and that political activity often constrains the
choice of organizational goals (Hickson et al. 1971). Organizations usually have multiple constituencies, each
with varying degrees of power, whose objectives can often con ict with the goals of the organization (Tsui
1990). The role of managers at lower levels in the strategy process, providing a bottom-up contribution to
organizational goals, is also important (Bower 1970; Burgelman 1983, 1991; Mintzberg 1983). Finally, the
strategic planning model gave no account of how strategies might be e ectively implemented (Hendry et al
1993).
The recognition of these concerns has brought a clear focus in strategy research on the process of strategy,
and a move away from prescription towards a descriptive understanding of the complexity of strategy
formation and implementation. Mintzberg’s series of studies (Mintzberg 1973, 1978; Mintzberg and Waters
1985) has researched the process of strategy formulation based on the de nition of strategy as ‘a pattern in
a stream of decisions’ Strategy, in this view, is emergent rather than planned, and involves multiple levels
within the organization (Burgelman 1983, 1991; Noda and Bower 1996). Though scholars in this tradition
are critical of the strategic planning model and regard it as seriously limited, nevertheless there is
recognition that no strategies will be perfectly emergent, and some planning element will remain: Tt is
di cult to imagine action in the total absence of intention—in some pocket of the organisation if not from
the leadership itself’ (Mintzberg and Waters 1985: 2). Deliberate and emergent strategies, then, ‘form the
poles of a continuum along which we would expect real-world strategies to fall’ (Mintzberg and Waters
1985: 3).

Though some companies may lack an articulated corporate level strategy, it would be rare for any
organization to have no rough strategic direction. The determination of this corporate-level variable is
usually thought to be undertaken by top corporate executives (Mintzberg and Waters 1985; Noda and Bower
1996). In addition, top-level executives are also responsible for the structural context of the rm, which
includes determining the organizational architecture, performance management, and information svstems
(Burgelman 1983, 1991; Noda and Bower 1996). These top-down processes, however, are not completely
detached from the in uences of managerial activities at lower levels of the corporate hierarchy. From the
eld data, the picture that emerged was one of multiple and interlocking activities throughout the
organization. Managers within the hierarchy interpret and amend broad top-down strategic and structural
direction and, through feedback and the development of strategic initiatives at the front line of
organizational activity, provide a bottom-up strategic process to combine with the broad overlay.
In research on boards of directors, discussions of the strategic role of the board have largely ignored the
emergent nature of strategy and its implications for board involvement. Demb and Neubauer (1992) brie y
mentioned the issue and asserted that, the more an organization is characterized by an emergent strategy-
development process, the less likely it is that the board will be involved; the more uid and fragmented the
decision-making process, the less chance there is for non-executive directors to intervene or to submit
their opinions (1992: 73–82). However, given the importance of the emergent strategy view, further
examination of the board’s role when faced with such conditions would be valuable.
Levels of strategy involvement
p. 36 The concept of involvement in strategy has proved di cult to de ne. A common distinction is based on the
largely accepted view of speci c strategy decisions as being composed of a formation phase and an
evaluation phase (Judge and Zeithaml 1992). In both formulation and evaluation, there are levels of
involvement, which can be represented as continua (Zahra and Pearce 1989; Pettigrew and McNulty 1995).
In formulation, the board’s involvement ranges from working with management to develop strategic
direction to merely ratifying management’s proposals. In evaluation, boards can be classi ed as to whether
they probe management’s evaluations of resource allocations or whether they simply accept the evaluation
top management provides (Judge and Zeithaml 1992). Unpacking this concept is rare in the literature, but it
serves to heighten our awareness of the potential for boards and to base expectations of board endeavour on
a more realistic footing. In general, the literature has drawn a broad distinction between ‘passive’ and
‘active’ boards (see Table 4.1)
Table 4.1. Studies on strategic involvement of the board
Strength of Description Studies

involvement
Passive Statutory Pro-forma (Pahl and Winkler 1974) Minimalist (Pettigrew and McNulty 1995) Statutory (Aram
boards and Cowan 1986) Managerial control (Molz 1985) Ratifying (Wood 1983) Legalistic (Zahra and
Pearce 1989) First-level board (Ferlie et al. 1994)
Review Review and approve (Molz 1985) Review and analysis (Zahra 1990) Second stage board (Ferlie
boards et al. 1994) Third party (Herman 1981)

Active Partnership Collegial (Vance 1983) Shared leadership (Herman 1981) Participative (Wood 1983)
Normative/strategic (Molz 1985) Maximalist (Pettigrew and McNulty 1995) Partnership (Zahra
1990)
In an entirely passive board, the only contribution made by directors is to satisfy the requirements of
company law. The simplest (and limiting) case is where the board is entirely composed of executives and the
board is simply a legal ction. In such cases, the board is identical with the top management team, but it
nevertheless initiates formal board meetings in order to comply with its statutory duties. We shall ignore
these cases for the reason that Parker (1990) gives—namely, that a board without non-executives is not
p. 37 really a board. Where non-executive directors are present, in this type of board they serve only as
rubber-stampers or as ornaments to the organization. To all intents and purposes, this kind of board is an
irrelevance to the functioning of the company (Pahl and Winkler 1974). Directors do not take part in any
signi cant decision-making and recommendations from managers go through on the nod.
An active board is one that does play some role in the functioning of the organization. This involvement is a
matter of degree. At one extreme, the board may act to review and ratify management proposals. At the
other, the board may be a full partner in developing the content of speci c strategies and decisions. The
degree of activity of a board (its place along the continuum) is the result of a number of factors that we shall
describe in Chapter 7. The nding that some boards are ambivalent about adopting a role in the strategic
process is set against the dominant normative strand in the literature, which states that boards should be so
involved.
Setting the strategic context
For this study, prior exposure to the literature and to experiences of other large corporations had brought
some expectation that the strategy process would involve both a top-down and a bottom-up approach to
the development of strategy, with broad strategic frameworks being issued by top management, and
business-unit and divisional management teams making strategies for their own businesses, congruent
with the overarching framework.
p. 38 Table 4.2 shows the frequency scores to the issue, ‘what is the role of the board in your company?’.
Clearly, strategy involvement is an important element of board endeavour. The obvious concern with these
data is that they leave the nature of board involvement indeterminate. For this reason, a ner-grained
analysis of the interview responses to the issue of strategy involvement was undertaken. Sentences that
contained reference to the board’s involvement in strategy were analysed and key verbs or quali ers were
highlighted to ascertain the mode of involvement. This analysis is given in Table 4.3.
Table 4.2. The role of the board
Interview responses Frequency
Involvement in strategy 32
Responsibility for monitoring the health of the firm 20
Hire, appraise, and fire executives 7
Converse with shareholders/stakeholders 6

Ensure corporate renewal 5
Development of the corporate vision 5
Responsibility for ethical framework 4
Ensure corporate survival 3
Determine risk position 3
Lead strategic change 2
Review social responsibilities 2
Act as ambassadors for the firm 2
Understand current and forthcoming legislation 1
TOTAL 92
Note. Multiple responses allowed.

Source: Interviews (n = 51).
Table 4.3. Mode of strategic involvement
Involvement in strategy Frequency
Review 10
Discuss 9
Approve 3
Ratify 3

Decision-taking 2
Monitor 2
Define strategic framework 1
Guide 1
Help formulate 1
TOTAL 32
Source. Interviews (n =32).
The closest a respondent came to stating that the board formulated strategy was with the phrase ‘help
formulate’. The picture that emerges, therefore, is that boards in large companies do not appear to be
directly involved in strategy formulation. But this does not entail the board being an entirely passive
mechanism in the mould of the managerialist theory. From the discussion of the strategy process, and the
role of the board within it, there emerged a clear picture of board activity. In broad terms, the board’s role
has less to do with strategy formulation than with setting the strategic context and acting as gatekeeper for
strategic proposals. This view stands between managerialist views of the board—which state that boards
have little involvement in determining the strategic content of the corporation—and the more optimistic
views of board activity presented by the largely prescriptive literature on boards.
Business definition
The strategy process does not operate in a vacuum; every rm has a set of factors that impinges upon it and
constrains the strategic choices open to it. These factors include the administrative heritage of the business,
the industry sector, the size of the rm, the capabilities of its workforce, the strength of competition, the
level of technology, and so forth. A rm is also constrained by its commitment to former and existing
strategies (Ghemawhat 1991). Within these constraints, rms must focus to gain competitive advantage: the
p. 39 decision as to ‘what business are we in’ is fundamental and it is a question that is asked continually of
rms, particularly in circumstances of change. From the interview data (see frequency scores, Table 4.2),
the setting of the overarching direction of the organization appeared to be a de ning characteristic of the
boards role. For example:
The board sets the corporate direction, the corporate strategy. The business strategies are the
responsibility of the operating units. Directors are responsible for the overall direction of the
company—who else should do it? (executive director)
The rst order strategy, deciding what areas of business to be in, what is the core business, what
should be divested or bought, how resources are to be allocated around the organization, is in the
domain of the board. Speci c strategies to do with subsidiaries or business units have to be
delegated. (chairman)
The board is the tiller of the organization: it is setting the broad direction, steering the right
course. But many things are going on at the same time in the boat, which are the responsibility of
the crew. (non-executive director)
The responsibility for determining corporate strategy at this very broad level is linked to the board’s role in
setting the vision and mission of the organization. As Johnson and Scholes (1988: 8) state, a mission ‘is a

“visionary” view of the overall strategic posture of an organisation and is likely to be a persistent and
resistant in uence on strategic decisions. One executive director said: The mission is why we are in
business. The vision is where we want to be. These are fundamentally the responsibility of the board.’
Boards also set the ethical tone with regard to their monitoring and accountability roles. What is expected of
management, both by way of performance and behaviour, is ultimately the responsibility of directors
(Pettigrew 1992). The board is thus recognized as crucial in the process of developing an ethical framework,
implicit or explicit, for the formulation of strategy and policy, monitoring management and ensuring
accountability (Andrews 1980; Parker 1990; Pettigrew 1992). A common manifestation of this role is the
production of corporate codes of ethics, which are intended to capture succinctly the guiding principles of
the organization. The e cacy of such codes, and the problem of how their values are communicated and
enforced, are important issues.
The board’s role in determining the mission and values of the company was a recurrent theme in
discussions with directors. The role of mission statements in terms of identifying priorities and aligning the
workforce to a common set of goals has been well attested (Campbell and Yeung 1990; Demb and Neubauer
1992). Boards were also viewed as responsible for enshrining the corporate values by the interviewees—for
example, The values of the company must come from the top. The board must set the tone, and they must
live the values; only if they do this will the values come alive’ (executive director).
The mission and values were frequently driven by the chairman. There was a view that a mission or a set of
values could not be written by committee; there had to be a succinct coherent simple view. Of course, once
the chairman had drawn up this list, it would be circulated and agreement on the content would be secured
and, if necessary, changes made.
p. 40 The establishment of a clear framework of corporate direction and values exercises a critical in uence on
the activities of managers by de ning the parameters of strategic decisions. This is akin to Burgelman’s
notion of the concept of strategy; a concept that ‘provides a more or less shared frame of reference for the
strategic actors in the organization, and provides the basis for corporate objective setting in terms of its
business portfolio and resource allocation’ (1983: 1350). The ndings of this part of the research suggest
that it is the board’s responsibility largely to determine this concept of strategy. In a formal way, this is
undertaken largely at the annual review, where progress on strategic plans and budget will be analysed by
the board, and new strategic directions—for example, acquisitions and divestments, alliances activity—will
be explored. For example, ‘An opportunity arose to buy a chain of stores which we felt had potential, but had
a poor brand image. We discussed it at the December board meeting, but the board rejected the idea because
it was felt the acquisition would dilute our image of being a high-quality provider’ (chief executive).
One of the reasons why all major acquisitions have to go to the board is that, apart from the considerable
costs involved that have to be signed o , an acquisition has the potential to change the focus of the business
and in some sense alter the organizational identity and strategy. Discussions about business de nition
occur informally, too. It was common for managers who were entrepreneurial to sound out executives on
particular ideas. If these look promising, an informal discussion will go up the line, with the executives
sounding out non-executives about the feasibility of the proposed plan. One executive director said: ‘We like
to give our non-executives a clear idea of what is in the pipeline. We want no surprises when things come to
the board meeting. Sometimes, at an early stage, a non-executive will say “I don’t think that’s really us”, or
“that’s the sort of thing (a competitor) would do”.’
Maintaining the strategic framework
The board plays a number of roles to ensure that the company’s focus is maintained and that management

does not stray too far from the strategy framework (the degree to which activity outside the strategic
framework is tolerated is discussed later). We shall describe three roles: gatekeeping, con dence-building,
and selecting the chief executive and other directors in general.
Gatekeeping
To determine the parameters of strategic activity within the organization, it is important that there be a
mechanism by which proposals for strategic or operational goals are screened and those that lie outside the
current concept of strategy are eliminated. At the highest level, it is the role of the board to act as this
screening mechanism. This mechanism acts, therefore, to ensure that the concept of strategy outlined by
the board is matched by strategic behaviour at operational levels (Burgelman 1983).
p. 41 An important issue that a ects the potential for non-executive director involvement in strategy is the
information asymmetry between executives and non-executives. The non-executives clearly have less
involvement in the company than do the executives, rendering them at a disadvantage regarding
information about the company, particularly where information is used as grounds for strategic decision-
making. This may make non-executives less e ective or, in the worst case, redundant in the strategy-
making process. Even though many non-executives are executives of other companies (and usually chief
executives at that), and are well used to participating in strategic discussions, they are unlikely to be as
familiar with the business of the company in which they are non-executives than the incumbent executive
management. The executives, then, are in control of the information that a board receives, and this is an
important element of their power. Pahl and Winkler (1974: 108) state that, in all companies that have an
active board, management adopts a manipulative strategy vis a vis the board. The intention, on the part of
management, is to seek generalized approval of proposals and operate without constraints from the board.
This does not entail the managerialist thesis, but tends to imply a rather routinized view of board endeavour
and the lack of substantial disagreement at board meetings.
There is a certain pragmatic logic to this process. Because time at board meetings is relatively brief, and
because the board cannot be expected to listen to every strategic option that has been generated on a single
or several issues (the decision-making process would be dramatically slowed), there is usually some
screening of strategic options before they are presented to the board. The forum where this is most likely to
happen is the executive committee (or chief executive’s committee, or management committee). The great
majority of directors interviewed stated that their organization had this type of committee, and it typically
comprises the chief executive and the executive directors, together with, perhaps, the head of corporate
planning and, depending on the strategic issues coming before the committee, the relevant head of an
operating unit or functional head.
The executive committee is usually a formal committee, with delegated powers assigned to it, giving it the
power to decide certain issues without the necessity of taking them to the board for approval (for example,
an executive committee may be allowed to decide on capital expenditure up to, say, £1 million in a large
company, but a gure higher than this must go to full board for approval). Should a proposed strategic
initiative be considered initially promising, the proposer of the idea (for example, the head of an operating
unit) will undertake to write a proposal for presentation to the executive committee. This will happen, of
course, in the normal planning cycle, but the case of a proposed acquisition makes the procedure a little
clearer. Should the head of an operating unit consider the purchase of another rm a good idea, he or she
will have to present his case in the best possible light. This would entail costings, forecasts, potential
synergies, tangible and intangible bene ts, and so on. He or she may be helped in this by the corporate
planning department. Once such detail has been collected, he or she will make his presentation to the
p. 42 executive committee. At this forum, there will be the normal choices of outright rejection, revision, or
immediate acceptance and referral to the board. Acceptance by the executive committee will mean that the

chief executive and the other executive directors are satis ed with the strategy and are content to approve it
at the full board meeting.
In this way, then, only the strongest strategic proposals survive, and, when they reach the board, the
executives can display a united front for their adoption. This raised a number of questions from the
interview data. The rst concerns a point that was discussed brie y earlier—that many strategic proposals
come from the chief executive him or herself. There were doubts expressed as to the level of criticism to
which these ideas are subjected:
A powerful chief executive is used to getting his way and other executives may be fearful of citing
objections to his plans. This is the real bene t of the non-executive directors, who, if they are
tough enough, will ask the di cult questions. But it is hard to expect the executives to get tough
with the chief executive, because he appoints them, rewards them and potentially res them.
(chairman)
Apart from the reasons cited in the quotation above, there is also the belief of some directors that the chief
executive has a great deal of in uence on the performance of the business, and, if the company is successful,
they may see the chief executive’s touch as sure on all ideas, with a consequent lowering of the critical
faculty by his or her team. The second criticism of the use of the executive committee as a strategic options
lter is that the non-executives do not see the process of strategic discussion and decision that contributed
to the choice of the nal option(s). When the chosen option appears at the board meeting, the non-
executives are presented with virtually a fait accompli, a proposal that has the unanimous backing of the
executives and that is in a highly polished state. One non-executive director said: ‘For most large decisions,
the non-executives really only rubber stamp the decisions made earlier by the executives. We can ask about
timing or cost, but it is di cult to second guess what alternatives were available and the merits of them.’
This criticism, however, was voiced by only three directors. Most said that the strategies that appeared at
the board meeting for discussion and the genesis of those strategies were familiar to all directors/There is a
rule which our board adheres to: there should be no surprises at the board meeting. The directors should be
familiar with what comes before them and they should not be asked to decide upon a large issue without
having knowledge of it well beforehand’ (chairman).
This prior knowledge comes in a variety of forms. One is formal. A device used by a number of boards is to
invite proposers of strategies to make a presentation at the full board meeting, and not just at the executive
committee. If the non-executives are considered to be powerful, this may be a good precautionary move to
allow advice and comment at an early stage and reduce potential embarrassment should the non-executives
reject an executive committee-recommended project out of court. A second method is the informal
approach mentioned earlier, keeping non-executive directors informed of ideas currently in the pipeline
and sounding them out as to their suitability. One non-executive director said:
p. 43
The idea to divest one of our main businesses was developed jointly by the chairman and the chief
executive, I think. They both saw the logic behind it, but it was a huge step, because it would mean
selling o some major brands. But the shape of our business, and a recent major acquisition, made
it the right move. But they asked us all, individually, what we thought of the basic idea. They
spelled out their reasons and took on board some of our comments, I believe. They had already
done their homework and they were con dent of their forecasts. When the nal proposal came to
the board, we were of course all familiar with the contents and we agreed it.
The third form stems from the provision of timely information to the non-executives, usually through the
minutes of the executive committee meeting. Given that non-executive directors have limited access to

information (and the cost of gaining full access and processing all information would be very costly), and
have limited time to discuss all proposals and debate all decisions, the board acts essentially in a gatekeeper
role. This role is governed by normative rules, and each board has certain criteria, usually based on quality,
feasibility, and strategic t, with which nonexecutive directors can ground their judgements on speci c
proposals. To the extent that non-executive directors perform this task well, it focuses the activities of
managers on producing high-quality proposals that are based on sound reasoning and presented in a
rational and clear manner. As Parkinson (1993: 197) claims, the obligation to report to a higher authority
can lead to e ciency gains. Mace (1971: 80), too, concurs:
Presidents and other members of management, in describing the discipline value of boards,
indicated that the requirement of appearing formally before the board of directors consisting of
respected, able people of stature, no matter how friendly, causes the company organisation to do a
better job of thinking through their problem and of being better prepared with solutions,
explanations or rationales.
Mace concludes that boards have an important role to play acting as the organization’s conscience. The
gatekeeping role gured prominently in the eld data. For example:
As part of the business planning cycle, the units put in their strategies and we review them. This is
a very important process, since it is both part of the strategic planning process and also part of our
process of monitoring the performance of management. We can look for synergies across the
various plans and advise on other possible avenues for the units concerned and also check to see
whether, in the targets they have set themselves, they are looking for an easy time. If we feel the
targets they have set are not very demanding, we just hike them up. They must be demanding.
(executive director)
This review is particularly important where the head of the operating unit is not a member of the main
board. Where he or she is represented on the main board, regular presentations will be made to the board on
the unit’s progress and performance against targets, both nancial and strategic.
But there are a number of problems with the gatekeeper role. First, it tends to encourage conformity. New or
radical ideas are likely to be discouraged. Secondly, the gatekeeping role is replicated throughout the
p. 44 organizational hierarchy. A proposal from a business unit will have to meet criteria set by the
management teams at each level. If it reaches executive committee stage, the proposal may have been
through several iterations. Once the proposal has the blessing of the chief executive and his or her team, it is
very di cult for the board to turn it down. Only two directors (of fty-one) in the rst sample could
remember the board turning down a proposal approved by the management team (rather than asking for
amendments). Such an action violates a key unwritten rule in the boardroom: confrontation should never be
made public, but should be resolved in private. The two examples both involved a dominant chief executive
who was urging approval, in one case, for an acquisition, and in the other, for a disposal. In both cases, the
directors reported that the chief executive had put a ‘three-line whip’ on the executive team and attempted
to ‘strong arm’ the board into acceptance.
Nevertheless, the board’s potential for refusing to sanction management’s proposals a ords it strong latent
power (see Herman 1981), and management’s reluctance to face tough questioning or appear foolish under
re in the boardroom ensures that strategic proposals are of a high standard in companies where the non-
executive directors are active and carry weight and respect. This discipline function is explored further in
Chapter 5.
Confidence-building

Though proposals rarely get turned down, it is usually the case that the non-executive directors will
question details of the plans and in some cases ask for further information to be provided or recommend
changes. Though this is hardly the proactive role envisaged by many prescriptive writers on boards,
nevertheless it is very important both as a discipline to strategic decision-making and also as a signal
concerning the standard of proposal that will be tolerated. Because boards that operate in this way are not
merely rubber-stampers, their approval of strategic plans is not automatic. In making judgements on
proposals or resource allocations, the board will be in uenced not only by the strength and logic of the
particular case, but also by (1) the credibility of the proponent of the plan and (2) the track record of
proposals of similar type. At interview, a number of non-executives said that the personality of the person
who raised the proposal was an important variable in determining the worthiness of the plan: ‘If X or Y
suggests a course of action, I know that it will be thoroughly thought out and very soundly reasoned. They
are the type of people who have a very good grasp of detail and do not overlook anything. They have also
been with the business for years and they know what works’ (non-executive director). As for the track
record of previous similar proposals, this naturally gured prominently in the non-executive directors’
evaluative schemes, since this kind of information is readily available, at least in large rms, which are
closely monitored by external agencies, such as the press. One non-executive told of the case of a
diversi cation strategy that came before the board of an organization which, ve years earlier, had moved
away from its core business, with almost disastrous e ects, it took us [the non-executive directors] a lot of
p. 45 convincing that we should go down this road again. We were sure the market wouldn’t like us doing this.
I remember the chief executive had to go away and re ne the proposal and sell it to us again, taking into
account all our doubts,’
The degree to which the board feels con dent in the proposals that come before it will in uence the degree
to which it is likely to take risks (Noda and Bower 1996). The onus, therefore, on lower-level managers who
are attempting to initiative bottom-up strategy is to convince the board of their performance. Again, this
may increase e ciency and serve as a useful discipline for managerial activity (though, of course, some
managers may choose to distort their own performance or hide the possible adverse e ects of an intended
strategy).
There was also evidence concerning the internal selection process of competing strategic proposals
(Burgelman 1983, 1991) that the particular corporate context of each organization would determine to a
considerable extent the choice of plan or decision. In one company, which could be described as a nancial-
control rm (Goold and Campbell 1987), there was a strong desire to ‘stick to the knitting’, and proposals
that adhered to the narrow strategic direction of the business, particularly if they could show short-term
bene ts, would tend to be successful. Alternatively, in a fast-moving consumer goods business, innovation
was being actively sought and the constraints on strategic ideas were relaxed, allowing for the possibility of
generating growth from new (and unexpected) sources.
Through the setting of the strategic parameters, therefore, the board is able to determine the degree of
renewal an organization may undertake. Tolerance of activity outside the existing context of strategy may
produce new resource combinations that may generate competitive advantage for the rm. Insistence on
narrow conformity to the strategic parameters, conversely, will tend to dampen entrepreneurial activity and
reduce the potential for new (as opposed to incremental) combinations of productive resources (Burgelman
1983).
Selecting directors
The strategic parameters of an organization, its shared frame of reference, are to a large extent in uenced

by the character and style of the chief executive. The board’s role in selecting the chief executive gives it
power of a very high order, and again reinforces its potential for setting the strategic context of the
organization. As Mintzberg (1983: 70) states:
This is the one decision the board can never fully delegate (except, of course, to one of its
members, who might in fact be the outgoing chief executive). And the power to appoint of course
constitutes the power to dismiss as well. Were the board to possess no power other than this one—
and truly to possess this one—then it would be a potent force indeed in the organisational power
system.
Mace (1971) and Herman (1981,) believed the board did not ful l this role, but there is growing evidence
that, as far as dismissing the chief executive is concerned, boards are exercising this role with increasing
regularity (the process of disciplining directors is explored in Chapter 6).
p. 46 The selection of a chief executive is a relatively rare occurrence. The data that did emerge expressed the view
that, if the turnover of the chief executive was in the normal run of things (usually retirement), then it was
typically the person recommended by the outgoing chief executive who would succeed to the position. This
candidate was usually known to other board members as the heir apparent. However, this is not always the
case. In one example, a chief executive, in conjunction with the chairman, believed that either of two men
could take the role after the chief executive’s retirement. In the period up to the retirement (six months),
the two candidates were encouraged to stake their respective claims—one was the marketing director, the
other the nance director. In the end, the marketing director secured the position: ‘We were going for
expansion overseas. What we needed was a big push on our marketing strategy and our marketing focus. X
was in a real sense the right man at the right time’ (chairman).
The process of selecting a new chief executive, though often a foregone conclusion, still follows certain
‘rules’. The chief executive will consult with his or her chairman (or, in the case of chief-executive duality,
the most senior member of the ‘inner cabinet’, usually the nance director). They will speak about the
appropriateness of a number of internal candidates. Even if one candidate is to be chosen with certainty,
nevertheless a list will be prepared by the two senior board members. This list may include an outsider, a
person from another company who is deemed to have exceptional ability and whose pro le appears to
match the requirements of the company’s aims and could t in with other board members.
Interviews will be held with the shortlist of candidates, normally conducted by the chief executive and the
chairman. The candidate’s vision for the future, leadership qualities, track record, and the potential
impression he or she would make to major investors will be scrutinized. So, too, will the signal the
appointment would make to the rest of the company. In broad terms, would the appointment signal
continuity or a change in management style? Informal soundings will also be made, not only internally but,
on occasion, with important investors. It is largely through these informal conversations that the board
members have the opportunity to give their opinion. The vote in the board meeting as to the appointment is
usually a fait accompli, with the unwritten rule being to express no dissent.
For managers to be selected to executive director positions, the chief executive again tends to dominate the
process. Though most large rms have succession systems in place for the top cadre of managers, it is the
chief executive who decides who makes it to the board. For non-executive directors, too, the process is not
radically di erent. However, it is often the chairman who will decide that the appointment of a nonexecutive
is necessary: Tt is my job to make sure we have balanced team. If I feel we are under strength in an area, or
could use some expertise in a particular discipline, I may decide that we need someone to join us. It could be
a consultant, or it could be a non-executive’ (chairman). The chairman, or chief executive, will seek
approval from the board that a non-executive is required. Once this approval is secured, the chairman and

chief executive will draw up a job speci cation for the role and this will be usually be given to headhunters,
p. 47 who will conduct a search and report back with a list of names. The chairman will sift through the names
and arrive at a shortlist. Interviews will be undertaken, again with the chairman and chief executive, and the
candidates will normally meet all the executive and other non-executive directors informally over dinner.
After informal soundings with other directors, the chairman and chief executive will make the decision.
Another favoured route to the selection of non-executives is for the chief executive simply to nominate
contacts or personal acquaintances: ‘I picked this board. They were my appointments, We had particular
needs to ll and I knew people who could do the job. They have all been excellent’ (chief executive).
This is rare, however (this was the only mentioned occurrence of a chief executive hand-picking all the
non-executives). Directors are now conscious of the need to appear objective in their selection process:
‘Because of our brand and reputation, we have to appear whiter than white. We can’t a ord to be seen
loading the bases. We have to be transparent; we can’t get away with an old school tie method of getting
directors on board’ (chief executive). The danger is that, from the external point of view, the chief executive
is seen as selecting a cosy club, or a team of ‘yes’ people for the board. But the majority of directors spoke of
their desire to have a diversity of opinion within the board and wanting genuine debate. A chief executive
said:
I don’t expect to be agreed with all the time. I want my executives to challenge me, to come up with
their own ideas. I can’t do everything on my own, the business is too complex for that. I need good
people around me, and that includes the non-executive. They have to earn their money here and
that means speaking up at board meetings and telling us things we didn’t already know.
But were a chief executive to hand-pick all the board members, this is no guarantee that, because these
directors owe their position to the patronage of the chief executive, they will always support him or her. One
executive director said: ‘As long as we are sailing in the right direction, everyone is happy with the captain.
But if we look like we are going to run aground, we will ask serious questions of the captain’s tness to
continue. His every decision will be scrutinized.’
Strategic content
The process of strategy in large rms is characteristically determined by a top-down and bottom-up
approach, with the board providing much of the strategic context within which strategic behaviour may be
monitored. The data from this study support the view that strategic activity occurs at multiple levels within
the rm, a view that provides for a broader view of strategy than the traditional rational planning model
assumes. Given that the board has some input in establishing the strategic boundaries of the organization,
what input can the board have in determining strategic content? Our discussion thus far shows that it is
through the manipulation of the strategic context of the organization that the board makes its major
contribution to strategy, rather than through a substantive contribution to the decision-making process.

Let us explore this in a little more detail.
p. 48 The genesis of strategic proposals

The formal strategy formulation process—the determination of corporate objective setting in terms of
business portfolio and resource allocation (Bower 1970; Burgelman 1983, 1991)—derives its content chie y
from the deliberations of the executive committee. Strategies proposed by the business units or divisions
will usually pass before the executive committee; it is at this stage that de ciencies in content and
presentation of the proposed strategy will be highlighted and conformance or divergence from the overall
strategic aim of the company will be assessed. Emerging from this process will be strategic proposals that
have the endorsement of the executive committee. At the board meeting, therefore, it is highly unlikely that
the non-executives will overturn the choices made by members with the greatest rm and industry-speci c
knowledge, who have access to the fullest information, and who have the opportunity to consider the
choices in the greatest detail. Such a view comes, for example, from Pahl and Winkler (1974), who state that
much pre-board activity constitutes a screening mechanism, often defended on the grounds that, without
such a strategy, there would be too much information given to non-executive directors (though managerial
theorists would posit that the information asymmetry involved leads to managerial manipulation of the
company, a theme discussed below). Serious discussion of strategic options and related decision-making
are therefore not the norm. Sometimes, the executive committee will call a formal planning committee to
assess strategic options. A number of companies have a specialist corporate planning department, which
examines strategic trends and undertakes competitor analysis, the results of which are normally presented
to the board at regular intervals, but more normally are fed straight through to the chief executive. Much of
this work is routine. The illuminating fact to emerge from the interviews is that initiatives to investigate the
feasibility of new strategies usually come from either the chief executive or the chairman. In other words,
the planning department was not seen as a form of brainstorming department or skunkworks, where new
ideas would be aired or tested as a matter of course. The reality is, it seems, more mundane. Their
involvement in innovation springs directly from the ideas (typically) of the chief executive or the chairman.
On occasion, of course, discussions at board meetings will throw up interesting thoughts or problems that
will need to be investigated further in order to ascertain their potential e ects. But the majority of
interviewees whose companies did have planning departments said that they were largely reactive to the
insights of the chief executive or the chairman. One chief executive said:
I, or one of my team, but usually me, will ask the corporate planners to assess the merits and
demerits of a particular proposal. Often it will be just an idea, something I’ve thought of, which
sounds interesting and which might be worth checking out. They come back with a brief report and
if it looks promising, we’ll develop a full proposal and put it to the management team for their
comments.
These and other comments are interesting in that they show the emergent nature of strategy within
p. 49 organizations. A number of directors stated that some of the key business strategies, and perhaps even
the corporate strategy, were results of ashes of individual insights rather than outcomes of formal
planning processes and methods. The chief executive director of an engineering rm said:
We were looking at ways to meet the targets we had set. We had grown organically throughout our
history but, just at that time, I had noticed a nice business, not directly in our core business, but
which would represent a useful piece of vertical integration. I wrote the strategy basically on the
back of an envelope and gave it to the planning director and his team to investigate. They reacted
very positively and we bought the company.

Inner cabinet
With regard to the political aspect of decision-making, this study found that boards tend to be dominated by
an inner circle of directors. This inner circle, or cabal, typically comprised the chief executive, the chairman,
and the nance director. This accords with Pahl and Winkler’s (1974) study, which described the notion of
positional elites—that is, directors who form a circle of members responsible for decision-making (1974:
106). One chairman said: ‘Much of strategy-making and vision comes from the key triumvirate of the
chairman, chief executive and the nance director. Don’t make too much of democracy in the boardroom.’
Of course, this triumvirate did not always comprise the dominant elite. Sometimes, directors spoke of a
particular function (for example, marketing or operations), whose executive would be part of an inner
cabinet, or else the head of the main division or business unit might also be a orded this status. The
evidence of this research is that, though these inner cabinets certainly exist, this does not entail that other
directors are irrelevant to the decision-making of the organization. The reality is that these members, who
are normally the most experienced in the rm, talk to each other a great deal outside the board meeting on
strategic issues. Often these discussions will be the early test bed for future proposals, and agreement
among the inner cabinet will ensure that a plan will be investigated further. In this sense, the inner cabinet
is less a circumventing device against board procedure, or a subversive of the power of the board, than a key
part of the informal strategic control process, where key directors will discuss progress and assess
opportunities without the formality of convening either the executive committee or the board:
I will talk to the chairman every week about all kinds of things, much of which would not be
appropriate to bring to the exec committee. Some of it will be gossip, some blue sky theorizing, we
might talk about how so and so is doing in the division. There’s no set agenda but 1 rind this
meeting invaluable, particularly on a personal level. (chief executive)
Certainly, in terms of who the shareholders want to meet to discuss the progress of the rm, it is normally
the chief executive, the chairman, and one other, usually the nance director. Some directors are
marginalized, of course, in terms of power, and the views of some directors were listened to more intently
p. 50 than others: ‘Martin is an expert when it comes to law, and I would always consult him in the event of a
legal problem. But as for strategy, he needs to take a broader view. I nd he doesn’t think deeply enough
about it’ (chief executive). The extent of a director’s marginalization depended on the knowledge and
behaviour of the individual director and the degree of con dence he or she enjoyed with colleagues. It did
not always break down along functional or divisional lines, nor in the director’s position in the resource
allocation process.
Crisis conditions
Though we found little evidence to suggest that the board is involved to a great extent in formulating the
content of strategy, in times of crisis the board does become much more proactive in its activities. In two
companies, the threat of takeover saw an increase in board activity. The number of formal board meetings
did not increase, but there was a great deal more informal activity, with many telephone conversations, ad
hoc meetings between executives and non-executives, and a strong concerted action to build the best
defence: The board has to act as a board and not as a management committee. This is particularly so in crisis
situations. For example, in bid circumstances, the board should present a united front and each member,
including the non-executives, should have a speci c task to perform’ (chief executive). This approach has

a nities with the type of control labelled control by exception’ (Molz 1985). This view holds that ‘the board
would make most decisions on a review and approve basis, but under cataclysmic conditions, the board
would take independent action. The most frequent occurrence of such an action is when the board decides to
terminate the chief executive o cer involuntarily’ (Molz 1985: 90).
The decision to remove a chief executive is dealt with in Chapter 5. In terms of an increase in board activity,
the event certainly does increase the number of conversations between directors, again usually outside the
regular board meeting, particularly prior to the decision to re the chief executive. These meetings will be
coordinated bv the chairman (or, in the case of chief-executive duality, the leading non-executive director),
as executive directors themselves will nd it di cult to stand overtly against the incumbent chief executive,
since they may not wish to appear disloyal or commit ‘regicide’ or indeed want to be perceived to be staking
a claim for the job themselves. The enforced turnover of a chief executive is normally due to serious
underperformance ot the company, or malfeasance, or a catastrophic failure of a project. One executive said:
For ve years we had done exceptionally well under X. We could do no wrong. Then he wanted to
expand, to build on our good fortune. We bought a large US rm, paid way over the top, though we
didn’t know that at the time. It just never performed for us, but the CEO couldn’t see it. He was
wedded to his plan. On top of it all, one of the US execs was arrested for fraud. The rm became a
serious drain on our resources. Most of us wanted to cut and run, but X wouldn’t hear of it. A group
of us met the chairman and canvassed the other non-execs and said, Took, X can’t turn things
around’. We were helped by some conversations I had had with a few big investors. We put the case
to X and he took it very calmly. It was like he was relieved. It was a great shame, because he had a
terri c mind.
p. 51 Boundary spanning
Another area that could be construed as involving non-executives as partners in the strategic arena is
boundary-spanning activity, primarily concerning non-executive directors using their access to
information external to the company to feed into strategic discussion and, as a result, reduce environmental
uncertainty. One director said: ‘One of our non-executives was for many years a senior civil servant. His
knowledge about the workings of Whitehall has been of considerable bene t to us, particularly as we
operate in a very sensitive market and we need to be able to in uence the right people.’ This element of
board behaviour will be examined in Chapter 6.
Discussion and conclusions
The board’s involvement in strategy is often taken as the de ning characteristic of its role. The prescriptive
literature urges a clear link between the degree of the boards involvement in strategy and organizational
e ectiveness (see e.g. the Cadbury Report (Cadbury 1992)). The managerial theory, however, has stressed
the passive nature of board activity. In terms of the other major theories, the board’s strategic input is
regarded as an important and potentially e ective mechanism in ensuring good corporate governance. In
this research, we have tried to explore the realities underlying these normative strictures. In terms of
strategy formulation, it is at the corporate level that the board is expected to make a contribution, helping
the executive team to craft corporate objectives. But, as was made clear from the interview data, the

strategv-making process in large companies does not proceed in a purely top-down fashion, with the
corporate centre taking the lead. This study supports the ndings of Bower (1970), Burgelman (1983, 1991),
and Mintzberg (1983), which demonstrate tha’ strategy is typically developed both at executive committee
and business-unit level The board is largely responsible for setting the strategic parameters within which
strategic activity can take place.
Given that there is a predominately bottom-up movement in most strategy-making, the role for the board
appears to be limited to activities of coordination and checking for consistency and coherence among
proposed strategies. In some cases it appears that the role of the board is no more than the sign-o on the
strategies of business units or divisions, but, from our interview’ ndings, this minimal activity appears to
be rare. The review and analysis of strategic proposals are very important factors both in maintaining the
quality of corporate objective setting (the gatekeeping function) and in instilling con dence among those
executives who demonstrate the required quality of thinking and presentation (the con dence-building
function).
The board’s role in determining and maintaining the de nition of the business, in conjunction with its
gatekeeping role and con dence-building activity, is important in shaping the domain of discretion for
managers. Though these roles may be interpreted as constraints on management activity (and so
p. 52 constituting an important element in the board’s control role), they are also crucial strategic
mechanisms for the company, for at least three reasons. First, the board is the ultimate arbiter of what
constitutes the focus of the company (‘what business are we in?’, ‘what areas should we go into?’).
Secondly, through selective screening and con dence building, the capacity for innovation and
entrepreneurship can be regulated. Thirdly, through constant examination of the business de nition and
corporate strategy, the commitment to certain strategies or business sectors may be questioned and so
boards may be instrumental in breaking organizational habits and forcing change, a nding that supports a
key conclusion of Judge and Zeithaml (1992).
These activities of the board are certainly more limited than some commentators would prescribe, and we
saw little evidence of the ‘partnership’ model of board activity, except in times of crisis, a view that accords
with the ndings of other writers (e.g. Lorsch and Maclver 1989; Demb and Neubauer 1992; Pettigrew and
McNulty 1995).
There are a number of implications for theory from this analysis. First, what of managerialist theory? The
story we encountered was one of managers developing strategic proposals but within a framework of
corporate objectives approved by the board. Mizruchi’s (1983) thesis that boards remain controllers of the
strategic agenda nds support from this data. The managerialist view also does not seem to square with the
nding that the directors interviewed said that they ran their companies in the interests of shareholders.
This accords with the ndings of Hill, who stated (1995: 276) that ‘an emphasis on the distance between
owners and managers fails to capture the sense shared by all directors that they are in fact already running
their companies in the interests of the shareholder and this is what legitimises their activities’. Admittedly
these claims may well be merely directoral rhetoric, but increased shareholder activism, greater public
interest in the activities of boards, and a desire for legitimatization on the part of directors, provide strong
incentives to act as good stewards of the organization.
This may not be enough to satisfy agency and transaction-cost theorists. The evidence of boards’ rather
limited input into the strategic decision-making process makes it them prima facie rather ine cient
mechanisms for reducing potential managerial opportunism. This view could be supported by the fact that
information on strategic options is controlled via the executive committee, which may suggest that the
board is a passive instrument. However, we found no evidence from executive directors that information
was withheld from the board or that executives tried to steamroller nonexecutive directors over decisions.
The e ort in the executive committee was focused on gaining consensus over a decision and on bringing it

to the board fully formed and coherently argued. This elimination of dissension was represented throughout
the lower levels of the rm, as business, unit strategies came up through the organization. Much of it is due
to the information-processing capacity of the board: the board cannot listen to every nuance of debate; it
expects the strongest proposals to survive, and it expects a certain generalization of its presentation so that
it does not get lost in the details. No evidence of manipulation was found. Like Hill (1995), this research
continually encountered directors who sought to embody the idea of the ‘professional director’, with strong
p. 53 commitments to the success of the rm, and who saw their purpose as improving the value of the
business within the targets and culture of the company. The ideas of stewardship theory thus gain backing
from this data.
In terms of elites’ theory, we have found that there are strong directors and weak directors—that is,
directors who are members of an inner circle, and those who are outside, a division of power not co-
terminus simply with the split between executive and non-executive director. Identifying elites with the
board of directors is therefore conceptually inadequate. This nding is further reinforced by the fact that
strategy is often developed by managers throughout the organizational hierarchy, which suggests that real
power does not lie only at the top, but is dispersed throughout the rm. These conclusions mirror those of
Pahl and Winkler, who also stated (1974: 120) that in our companies, however, membership in the cabal of
controllers could not be given any consistent de nition in terms of position’.
For resource-dependence theorists, there was evidence that non-executive directors did contribute to
‘opening doors’ for rms through use of contacts, so, in a rather indirect way, aiding the strategy process.
We shall explore this issue further in Chapter 6.
In the next chapter, we examine the board’s role in the control of the organization. Though this role has
been treated as conceptually distinct from the strategic activity of the board, we shall see that, in several
important respects, the board’s use of certain organizational control systems can be highly proactive and
form part of the scanning of the environment for future business opportunities and prospects for
organizational renewal.
Appendix. Case illustrations
Business definition
In the four case companies, there was strong evidence that the corporate boards were actively involved in
the strategic process, both in the design of explicit organizational de nitions and in the choices made for
the business portfolio and decisions made for acquisitions and divestments. Usually, of course, this is not a
one-o event but an incremental process, and changes will be made gradually as the organization adjusts to
its changing environment. We found that the board was an integral part of this continuing process.
The delineation of strategic boundaries is intended to focus opportunity-seeking behaviour to support
organizational strategies (Burgelman 1991; Simons 1994). Before privatization, BAA’s sole focus was the
running of airports. The introduction of a strong retail price index formula following privatization
prompted the need for a wider speci cation of strategic activity and increased search behaviour. The
decision to diversify into four core businesses in the mid-1990s represented a major shift away from the
existing corporate purpose, which was in essence to manage airports. The reconception of the mission and
the scope of the business formed part of a continuing board-level debate over the merits of diversi cation:
The board discusses all major decisions. Anything over £10 million goes to the board for debate.
Most decisions are continuations of existing projects, but on huge issues like the Heathrow

Express, we will have a meeting the day before, have dinner, and people connected with the plan
will present. We never approve decisions of any kind until we show the non-executives. Everyone
is up to speed. (BAA director)
p. 54 At BAA, the mission statement provides a clear overview of the values and direction that employees are
expected to embrace. The statement conveys information about how the organization creates value—’most
successful airport company in the world’—the key priorities—’customer safety and security the highest
priorities’—the strategy—’seeking continuous improvement in costs and quality of our services’—and the
relationship with sta —’enabling employees to give of their best’. The board updates the mission
statement every year in order to maintain its relevance. ‘We decided in our mission statement that we had
better move into four businesses. The proposal came forward—it was a shared view of strategy. We wanted
to go into manufacturers’ outlets. Our retailers thought it was retailing of the future. We partnered with a US
leader’ (BAA director).
Though diversi cation was supported by the management committee, and was particularly strongly
championed bv the chief executive, gaining agreement at board level was di cult. The non-executive
directors were well aware that a previous diversi cation into hotels and property had failed, with a resulting
condemnation by the City, and they were anxious to preserve shareholder value and ensure that the same
mistakes did not happen again.
The idea came into the strategy committee and was held there until we found a way to do it. The
plan then went to the management committee. The company had diversi ed before and had failed.
Once we decided to go, I told the board through my monthly report that we were working on it, so
they were not surprised by it. We must go back to the board again and ask for another £10 million. I
keep telling people through the Chief Executive’s report. There was much debate as to whether we
should diversify. (BAA director)
There are some issues where we might debate with the board ‘what should we do’. Should we
support DanAir at Gatwick? We took advice and soundings with the board. There is a huge public
enquiry about Heathrow—we had to decide whether we could fund this. The more quality we have
on the board, the better will be our decision-making. (BAA director)
A major part of the corporate de nition discussion for Securicor is the maintenance of the brand identity.
The rm’s reputation for integrity, reliability, and security has been the foundation tor its growth, but all
strategies, and, in particular, targets for acquisition, are assessed for their likelv impact on the brand image.
The preservation and enhancement of the brand as the key asset for Securicor were a principal role for the
board, and were mentioned by all directors interviewed. For example:
We inherited the Securicor brand name, which has strong implications for integrity and solidity.
This is our most important asset. And the board has to recognize that. The board must bear in mind
the brand name in all of its dealings. So the rst job of the board is about protection and
development of the brand name. All board members must understand this. Indeed, the strong
name of Securicor is important in attracting non-executives, good quality non-executives.
(Securicor director)
It is the board’s role, therefore, to act as guardian and enforcer of the corporate values and ensuring the
maintenance of brand integrity. At Securicor, the board meets twice a year to discuss all issues concerning
strategy and the focus of the business: ‘We have, maybe twice a year, an away weekend from Friday evening
to Monday morning. We will sit down and review the whole of the group’s business and a strategic overview.
We have an evaluation and planning exercise. We can be very critical of what has happened’ (Securicor
director).

As with Securicor, the board of Burmah Castrol is deemed to be responsible for ensuring the integrity of the
p. 55 brand: ‘With a brand such as ours, there are so many opportunities open to us. Some of these are
geographical, some technological, some marketing. It is the boards role to probe these opportunities and
make sure that the value of the brand and the Castrol name are not endangered’ (Burmah Castrol director).
At Burmah Castrol, the board is not the originator of strategy—it is the management committee that is
responsible for the strategic management and policy direction of the companv—but before the annual
strategic plan is devised, the board will identify, with the chief executive, a number of principal issues that
have to be included. This process ‘provides an overlay to the strategic discussion’. Again, the strategy
process is top down and bottom up—the chief executive will say: these are the objectives, principally stated
in terms of nancial targets (growth in earnings). We invite you to make proposals to meet these targets. It
is an iterative process.
There is no formal mission statement published by Burmah Castrol, but, in interview, directors were
forceful in stating that there are certain underlying values that are rmlv in the domain of the board: ‘We
are the guardians of the values of the rm. It is up to us to maintain the integrity of the company’ (Burmah
Castrol director). The annual report states that the board is responsible for the development and
implementation of strategy to provide for the company’s commercial success. It was clear from the
directors’ interviews that the broad strategic direction—the business the company is in—is controlled by
the main board. A key tenet of the rm is that ‘diversi cation cannot take place from the bottom up’, and
the rm regularly reassess the business portfolio as part of the diagnosis and change process. This is crucial
in a rm that has grown in part through a strategy of in- ll acquisitions: ‘Every three years we go back to
absolute basics and ask some fairlv basic questions, for example, what are we doing in a particular business?
A rm must continuously renew itself (Burmah Castrol director).
At Allied Domecq, business de nition is clearly part of the board’s role:
Determining the business mix, which parts of the sector to back by allocation of resources and so
on, is how the board adds value. This can only happen outside the operating businesses. (Allied
Domecq director)
The board determines the shape of the business portfolio. (Allied Domecq director)
In an organization that has broad interest, in retailing, spirits and beers, and food, and r highly diversi ed,
maintaining the strategic boundaries and focus is very important The group is seeking to concentrate on
spirits and retailing in order to become an international player. In terms of the company’s values, the board
is responsible for ensuring a coherent and consistent value structure and culture throughout the
organization: ‘In a company such as ours, the board ensures that synergies in values are extracted and that
the group as a whole develops a culture that is harmonious’ (Allied Domecq director). The mission is to grow
shareholder value by ‘working together across the world in our chosen sector of drinks and hospitality. We
enjoy providing the best in quality—reassured bv brand performance and our customers’ perceptions of
what we o er’ (Allied Domecq Annual Report 1995).
A major decision in the company was to dispose of its foods business in 1994. The food business was
increasingly viewed by the board as not representing an ‘area of strength in terms of management
capabilities’. This decision was originally devised bv the chief executive and chairman, who then called in
the non-executives to discuss the idea on an informal basis. Once the logic of the decision was accepted, it
was a question of convincing the executive directors. The chairman and chief executive called together the
top 300 people in the company—’the guys who are responsible for us making the budget’—to explain the
core idea of changing the company from a ‘conglomerate to one which focuses on two sectors—retailing
and spirits and wines’.

p. 56 The non-executives were a key part of this. They helped the chief executive and the chairman with
the executive members—they helped to push the idea. We used them like consultants. The board
was involved all the way through. We also discussed at board level what we should accept, in terms
of cash, for the businesses. The non-executives were helpful here too. (Allied Domecq director)
Gatekeeping
In each of the four case companies, it was clearly stated that the board was not responsible for the
formulation or creation of strategy. Rather, at the heart of the strategic process was the executive
committee, which took the lead in strategy discussion and which coordinated the strategy development
process in business units and divisions. These committees were sta ed with the heads of the major business
units, functional chiefs, the chief executive, and the nance director. The role of the executive committee in
acting as a strategic lter to the board is con rmed in the views of directors in the four companies. The
executive committee develops strategic options and examines those of the management committees of
business units or divisions. This forum meets on average once a week. The strategic content of the
corporation is determined largely by this group. Strategy formulation is clearly left to those members of the
company who have the best information and greatest understanding of the business. In the case of BAA, the
executive committee is supported by a strategy team, comprising three people headed by a strategy director,
who is not a main board director. The modus operandi of this unit is largely to receive ideas from the chief
executive or other executive directors and to examine them for their potential—though, through the
strategy unit’s continuous monitoring of the environment, it will inevitably diagnose new opportunities.
Though the executive committee has the principal role of developing strategic options, it became clear that
it is the board s role is to act as gatekeeper to strategic proposals:
Now we are much more geared to strategy con rmation. Strategy develops in the management
committee. There is a debate with the board on possible options, both in pointers for the business
and in nancial terms. (BAA director)
We have got an EDC [Executive Directors’ Committee) which meets twice a month. The EDC would
review the previous month’s results and decide on acquisitions and disposals. The acquisitions
would be rati ed at EDC and then it would be put to group board. We have got a lot of wise men
who would ask wise questions. There are 7 NEDs [non-executive directors] on the group board.
Most have long experience in the business world. They ask searching questions. (Securicor
director)
In the gatekeeping process, a key normative constraint is that the strategic proposals are in line with the
business de nition of the company. Board members base their judgements on a number of criteria,
including the track record of the proposer, the internal logic of the proposal, its strategic t, the clarity of
presentation, and so forth. The board, however, has the latitude to encourage proposals that do not
immediately seem to t the de nition of the business as ordinarily understood. In other words, the board
can encourage innovation and entrepreneurship. The gatekeeping function is normally associated,
particularly in the sociological literature, with rewarding conformity. In some cases, however, gatekeeping
can be relaxed, so that nonconformity will not be punished and may even be encouraged.
p. 57 Non-executive directors play two roles in the process. First, they provide evaluative feedback on a
proposal, which is essentially a critical role, examining the content of the proposal for rigour, value creation
potential, and, importantly, its timing (‘does it make sense to pursue this now?’). Secondly, the non-
executive directors can bring their own ideas based on their experience with their own companies and
contacts, which in a real sense forms a new stream of information on which to revise the original proposal.

Such information—for example, ‘when we (i.e. the non-executives own company) wanted to dispose of a
business, we sought out an alliance as an exit strategy’—is intended to point the proposal in a new
direction. This new information can help to develop a submitted proposal, and this kind of information is
greatly valued by executive directors.
At Burmah Castroi, the non-executive directors contribute to the ‘macro-tactics’ of the business: ‘their role
is to criticize the strategy constructively. They do not need to go into the details of the product market
strategy—they need to see the big picture and give their advice’ (Burmah Castroi director). An important
decision taken by Burmah Castrol was to sell a signi cant part of their business portfolio—the fuels
business (to the Frost Group in July 1995, for £89 million). The decision was placed in the strategic plan as
an ‘under-review’ item (as opposed to a ‘de nite-decision’ item). The executive team worked up the
proposal and put it to the board meeting, arguing strongly for the sale on the grounds of focus and strategic
logic and the nancial impact the divestment would have: ‘the board deliberated it, discussed timing and
how much we could get for the sale and so forth. The logic was strong so it was passed’ (Burmah Castroi
director).
At Allied Domecq, the sector businesses manage their operations with the support of the executive
committee,’which provides direction and authority for the day-to-day control of the business’ (Allied
Domecq Annual Report 1995). The sectors and business units operate within a framework of delegated
authorities and reserved powers that seeks to ensure that certain transactions, signi cant in terms of size of
type, are undertaken only after careful corporate review. The two key strategy generators are the executive
committee and the strategy committee, and so strategy formulation, in common with the other companies,
does not take place at board level. However, ‘the key strategies will come before the board and we will take
decisions on them. So the non-executive director can bring a dimension to strategy’ (Allied Domecq
director).
Discipline
It was clear that, in all four case companies, the executive directors regarded their nonexecutive directors as
people of considerable talent and standing and that developing proposals was a process that was strenuous
because, as one BAA executive said, ‘nobody wants to look ridiculous or lacking judgement at a board
meeting’.
Because the board meeting is a major arena for executives to build their standing and gain resources from
the company, they are highly conscious of the need for strong performances. Thus the proposer of a strategy
needs to ensure that the proposal is sound and well developed rst before it reaches the executive
committee and, secondly, when it comes to the board. When asked what was the role of the board, a
Securicor director said: Tt is a con dence. It adds con dence to decisions made by the EDC. It gives a seal of
approval. You can’t underestimate the importance of the check. You have to get things into shape before it
goes to group board. It makes you do your homework.’
At Burmah Castroi, the appointment of strong non-executives is encouraged, for the quality of their insight
and the capacity to raise the game of the executives: ‘There is a particular breed of businessman who bullies
p. 58 too much, has an overbearing style. They do not want strong people around them. But for us, we want
strong non-executives—we want to be con dent about our ideas, have them subjected to intelligent
criticism’ (Burmah Castrol director).
At Allied Domecq:
The executives and the non-executives do work quite closely, though there is a certain amount of
tension. There is a certain amount of edge in bringing forward proposals. Executives know they
will be questioned by non-executives. It’s still a team—there’s one character who is disliked—but

the executives do feel nervous, particularly as they are performing in front of the chairman of the
remuneration committee, who is a formidable gure. (Allied Domecq director)
Confidence-building
It has been seen that through this gatekeeping process, proposals, though rarely rejected, were submitted to
criticism and, at times, suggestions for new direction. This review and revision activity is important, but it
is not usually a discrete process; it is normally accompanied by the process of encouraging and reinforcing
successful managerial behaviour. As stated earlier, in each company, strategy consisted of a top-down and
bottom-up approach, with the board setting broad strategic parameters and business units developing
strategies to t in with the core business direction and overall nancial aims. In its gatekeeper role, the
board will ultimately have the nal say in the shape and stretch of the strategic plans coming up from the
business-unit heads and lower-level managers. Through the board’s comments back to these managers,
strong performance can be reinforced and strategic insight can be given: ‘We know who is good. They are
the people with good track records, who do it time and again. If these people come up with ideas, we will
listen’ (BAA director).
At Securicor, this process of reinforcement and encouragement is made easier through the formal structure
of the business. The corporate structure dictates that each executive director sits on a subsidiary board. This
is an important avenue for lower-level managers to impress and for senior executives to give positive
feedback and encouragement to able employees:
Monitoring company health comes from my attendance of subsidiary board meetings. I wander
along, ‘walking the ship’. I talk to individuals, I get to branches when I can. I prioritize my
involvement. It is very important that senior managers have contact. I could walk into any business
in the organization and know it was well run and what the morale was like there. (Securicor
director)
It is di cult, but you must do it. I talk to the grass roots. It is very important to tell people whether
they are doing well or not. I expect my colleagues, both senior and junior, to do the same.
(Securicor director)
The clarity, originality and presentation of strategic ideas from business units during the strategic planning
process are important to the Burmah Castrol scanning of managerial talent: ‘We believe strongly in
decentralization. We expect the heads of divisions to work hard and implement good strategies within the
framework we set down. Four times a year management has to give a good account of themselves. The board
assesses them. This is a strong opportunity to give feedback and a good chance for management to impress’
(Burmah Castroi director).
Allied Domecq underlined the importance of informal contact with managers in the con dence-building
p. 59 process: ‘We look at the sector boards and below once a year in terms of management development. But a
lot of work assessing and discussing with managers is done outside the formal board meeting’ (Allied
Domecq director).
Non-executives are also encouraged to meet with sector heads and key business managers, ostensibly to
learn more about the business, but this process also presents an opportunity to assess the calibre of
managers and to encourage their plans for the business.

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