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Top executives and members of a corporation's board of directors have different roles and responsibilities. Traditionally, executives have been responsible for determining the firm's strategic direction and implementing strategies to achieve it, whereas the board of directors has been responsible for monitoring and controlling managerial decisions and actions. Some argue that boards should become more involved with the formulation of a firm's strategies. How would the board's increased involvement in the selection of strategies affect a firm's strategic competitiveness? What evidence you offer to support their position?

Sample Paper For Above instruction

In the contemporary corporate landscape, the roles and responsibilities of top executives and the board of directors are crucial for ensuring a firm’s success and long-term sustainability. Traditionally, executives have been primarily responsible for setting and implementing strategic initiatives, while the board’s role was to oversee and monitor these activities to ensure alignment with shareholder interests (Finkelstein & Mohr, 2003). Recently, there has been a growing debate regarding the advantages and potential challenges of increasing the board’s involvement in the strategic formulation process. This essay explores how such an increased role may influence a firm’s strategic competitiveness, supported by relevant evidence from scholarly research and industry practices.

The Traditional Division of Strategic Roles

The conventional corporate governance model delineates a clear separation of duties: executives craft strategies that are then scrutinized by the board, which provides oversight rather than active participation (Daily & Dalton, 1992). This separation aims to leverage the specialized expertise of executives in operational and market aspects while utilizing the board’s oversight capacity to safeguard shareholders’ interests (Mace, 1971). However, this model may sometimes lead to a disconnect between strategy formulation and corporate oversight, potentially impacting agility and strategic alignment.

Potential Benefits of Increased Board Involvement in Strategy

Increasing the involvement of the board in strategy formulation can offer several advantages. First, it enhances strategic oversight through diverse perspectives, which can lead to more robust and well-rounded strategies (Groom & Sullivian, 2016). Board members often bring a wealth of industry experience and broad strategic insights that can complement executive expertise. Second, a more engaged board can facilitate greater alignment between strategic initiatives and shareholder interests, thereby reducing agency costs and improving accountability (Jensen & Meckling, 1976). Third, active participation by the board may enable quicker decision-making in dynamic markets, fostering agility in strategic adaptation.

Challenges and Risks of Increased Involvement

Despite potential benefits, expanding board involvement in strategy formulation poses several risks. It may lead to strategic myopia or overreach, where the board's involvement hampers executive autonomy and operational execution (Hermalin & Weisbach, 2003). Moreover, board members may lack sufficient operational expertise or be influenced by personal biases, which can compromise strategic quality. Additionally, excessive oversight could slow down strategic decision processes, adversely affecting the firm’s ability to respond promptly to market changes (Zajac & Westphal, 1996).

Evidence Supporting Increased Board Engagement

Empirical evidence indicates that firms with highly engaged boards often outperform their peers in strategic execution. For instance, a study by Adams and Ferreira (2007) found that active board participation correlates with better strategic decisions and improved firm performance. Furthermore, companies with boards that adopt a more holistic approach to strategy tend to experience higher innovation levels and adaptability (Baysinger & Hoskisson, 1990). Notably, the rise of corporate governance reforms emphasizes the importance of board involvement in strategic oversight as a means to safeguard stakeholders’ interests and enhance competitiveness.

Conclusion

Involving the board more deeply in the strategy formulation process can positively impact a firm’s strategic competitiveness by bringing diverse perspectives, increasing oversight, and fostering alignment with shareholder interests. However, it is essential to balance this involvement to avoid bureaucratic delays and undermine executive autonomy. Evidence suggests that effective governance combines strategic oversight with operational independence, enabling firms to adapt swiftly and maintain a competitive edge in dynamic markets. Therefore, a nuanced approach that leverages the strategic insights of the board while respecting executive expertise can optimize firm performance and sustainability.

References

• Adams, R. B., & Ferreira, D. (2007). A theory of friendly boards. Journal of Finance, 62(1), 217-250.
• Baysinger, B. D., & Hoskisson, R. E. (1990). The composition of boards of directors and strategic control: Effects on corporate strategy. Academy of Management Review, 15(1), 72-87.
• Daily, C. M., & Dalton, D. R. (1992). Corporate governance and the accuracy of board perceptions. Academy of Management Journal, 35(3), 580-603.
• Finkelstein, S., & Mohr, J. (2003). Corporate governance, strategy, and policy. Blackwell Publishing.
• Groom, C., & Sullivian, J. (2016). Beyond the Boardroom: Strategies for Effective Corporate Governance. Harvard Business Review.
• Hermalin, B. E., & Weisbach, M. S. (2003). Boards of directors as an endogenously determined institution: A survey of the economic literature. Economic Policy Review, 9(1), 7-26.
• Mace, M. L. (1971). Directors: Myth and Reality. Harvard University Press.
• Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs, and ownership structure. Journal of Financial Economics, 3(4), 305-360.
• Zajac, E. J., & Westphal, J. D. (1996). Director reputation, CEO–director relations, and the dynamics of board interlocks. Administrative Science Quarterly, 41(3), 507-529.