Boards, CEOs, and Strategy: A New Nexus of Change

As the adage says, change is the only constant, and that is more applicable than ever for boards. Board members must be on the lookout for potential market disruptions. When they see these changes coming, they need to work with the CEO to adjust the company strategy accordingly. But there’s a new twist to the story: both the role of the CEO and the nature of corporate strategy are undergoing dramatic changes.

The role of a CEO today bears little resemblance to previous generations. Take pay, for example. With every passing year, CEO pay is becoming more complex, affected not only by regulations (at least 19 since 1983, notes a recent study by the HR Policy Association’s Center On Executive Compensation), but also by the various environmental and social incentives that compensation committees voluntarily include in CEO discretionary pay. Yet CEO pay continues to rise, sparking criticisms and lawsuits—such as Tornetta v. Musk, a recent case that was successful in challenging Elon Musk’s pay. Meanwhile, since being endorsed by The Business Roundtable in 2019, company responsibility to all stakeholders has moved from lip service to expectation. We have all seen oil executives, bank executives, and tech executives grilled over the past several years about the social impact of their decisions. It is far more likely today that a CEO will be asked to defend a company before Congress than it was at the turn of the century. In short, today’s CEO has an extremely difficult job. In the first quarter of this year, 622 CEOs announced their departures, the highest quarterly total on record, according to Challenger, Gray & Christmas.

Not surprisingly, oversight of strategy, too, has changed. Whereas directors were once expected to review and approve strategy, they are now taking an active role in developing and adjusting it on a continuous basis. The role of the board has become more iterative in ensuring that strategic plans stay on course or pivot as conditions dramatically shift. As cochairs Sue Cole and Kelvin Westbrook state in the Report of the NACD Blue Ribbon Commission on Adaptive Governance, disruptive risks “have the potential to change industry structure or operating conditions, make existing business models obsolete, derail growth, or otherwise pose a fundamental threat to the long-term strategy of the organization.”

This issue of Directorship—by exploring the twin issues of strategy and leadership—can help directors operate in this new nexus of change. ■

This article is from the Summer 2024 issue of Directorship.