Directors Must Challenge Management Strategy When Needed
The management consultant firm McKinsey & Company has carried out a global survey of directors which has highlighted that half of them do not sufficiently challenge management strategy, reveals company secretarial services and corporate support firm London Registrars (http://www.london-registrars.co.uk/).
McKinsey & Company found that nearly 50% of all board directors surveyed around the world failed to sufficiently enquire into and analyse their management’s proposed company strategies and, where applicable, challenge those strategies. Instead, these directors would simply ‘review and approve’ the strategies without due care and attention as to their ramifications.
The survey found that directors are spending the same amount of time discussing company strategy as they were in 2008, despite the fact that the financial crisis has created far more challenges for most firms in recent years. What’s even more surprising is the fact that only 21% of directors surveyed said they had a complete understanding of the strategies they were reviewing and approving. According to the directors surveyed, this is often because they receive insufficient information to make a well-informed decision and that the information that is provided by management is too short-term in focus. Over a third said they had “limited or no understanding of the risks their company faces”. Boards’ attitude to risk is an important part of the arena in which legal and corporate support firm London Registrars works. London Registrars advises all clients to regularly maintain a risk register document as part of their corporate governance and company compliance.
The McKinsey & Company survey did reveal some more encouraging statistics, however. Nearly a third of the directors surveyed rated their boards performance as ‘excellent’; 40% said they have a complete understanding of their company’s financial position and operations; and more than 50% said they have a good understanding of strategy, how value creation works in the company and the dynamics of their industry.
With regards to the shortcomings of directors which were revealed, almost half were prepared to spend 25% more time discussing company matters in order to gain a deeper understanding of the business and its current challenges.
For further information on board corporate governance, visit the London Registrars website at http://www.london-registrars.co.uk/.
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