The Role Of Board Involvement In Strategy: the case for Anitta at Nubank

It is the talk of the town: how could?Nubank ?hire a funk popstar to its board of directors after bringing Warren Buffet as a shareholder? Which credential does she have to fulfill such an important role? What about her "personal reputation"? How can a good firm have someone "like that" among other respectable board members? I have heard all those questions above in my WhatsApp groups this morning, mostly from board members. You probably already have an opinion on that as well.

A marketing stunt or not, I think?Anitta ?at?Nubank ?is an excellent example of how much we have to discuss the role and the composition of the board of directors in every single company. The boardroom is the last silo we don't dare to debate honestly, and I am not talking about gender diversity only. Taken what?David Velez ?and?Cristina Junqueira ?said about getting someone like Anitta to help the company be closer to its target consumers, I think it is a brilliant and necessary move. Are there any business women out there who understand better the young and diverse generations in Brazil nowadays – despite our prejudice, personal taste for music, or public persona? I don't think so. If she will be able to help, we will see. But I guess she may be a great asset to help the company be even more client-centered.?So, congratulations to Nubank for having the vision and the courage to innovate also in the boardroom front.

Diversity of opinions and perspectives are harder to find in the corporate world than gender or racial diversity. And this is crucial for strategy.

This article is not about?Anitta , though. It is about the evolving role of the board of directors in the company's strategy.?Nubank ?is just a good way for us to start our reflections.?

Corporate boards may have rubber-stamped their support of the CEO's strategic plan without much input in its preparation up until the early 2000s. They were most satisfied with rewarding profitability or punishing losses, all based on a back-of-the-envelope view of financial performance. The Sarbanes-Oxley Act of 2002, which compelled board members to pay significantly greater attention to what was going on within their firms than before, changed that in the United States. At that point, the stakes were elevated in terms of the board's responsibility for managing the CEO's job performance, overseeing financial reporting, and controlling risk management. Their legal responsibilities to shareholders grew considerably. Over the last five years, board involvement in strategy has changed even more radically, potentially irreversibly altering the board/management working relationship.

I am using US example because surely it influences how the rest of the world behaves in corporate governance.

Changing norms: from boring to board participation

Before Sarbanes-Oxley (SOX), board members were more concerned with the company's performance, as evidenced by the financials, than with the quality of the reports and the methods used to collect the figures. Of course, that is no longer the case.

As the Great Recession began in 2008, credit dried up, and revenues dropped for businesses worldwide. As the economy deteriorated, the risks and complexities of the business world grew, and strategy mistakes that had previously been overlooked began to magnify, severely damaging or ruining companies - even those that had been monetarily solid performers before this major inflection point. Around that time, the norms for the board of directors' participation in strategy began to shift once more. From behind the wheel, corporate boards began commanding a view - with the headlights turned on bright.

Boards of directors have always differed in their direct participation in the process of strategy and planning processes. Still, it became clear that looking backward was not enough to prevent disasters or even produce innovation.

That would require more participation upfront in strategic planning. Along with important shareholders, boards of directors have traditionally been heavily involved in growth strategies that included acquisitions and mergers. Even when the strategy is structured on more fundamental blocking and tackling maneuvers than a complex one, including M&A transactions, it is sensible and becoming more systematic to seek guidance and advice from the organization's directors in today's environment.

Corporate boards increasingly want to feel at ease with the planning process itself, ensuring that risks are effectively addressed in a standardized manner through a solid strategic planning approach. But it is even more important to have great minds at the board of directors contributing with corporate strategy when we see the world going towards ESG and a stakelder’s approach.

More than?oversight: towards a strategic boardroom?

CEOs and their management teams frequently choose to deal with strategic planning internally without involving the board of directors. The strategic plan is revised, or in some situations, a new strategy is created. Only then is the completed planning product presented to the board of directors at the next Director's meeting. This strategy has the potential to be counterproductive.

Corporate boards are no longer displaying automatic buy-in to their CEOs' initiatives, especially when they were not involved in their creation. When it comes to strategy formulation and strategic planning process design, the trend moves toward closer collaboration between management and the board.

Board members increasingly want a more hands-on approach to strategy development with the CEO, providing their broad and deep experience to fill in any gaps in the management team's experience. Working alone results in a lot of rework.

Boards and administration should collaborate closely to develop plans that offer the CEO good working conditions. While the Chief Executive should be enabled to successfully execute the organization's plan, he or she should be encouraged, or even obliged in some situations, to obtain board agreement when making changes to the strategy. Another evolutionary step in board engagement in strategy may be on the horizon with the current state of stagnant economic growth. In the Evolution of the Board Role picture, a checkmark has been added to the "Plan" column for the "Board" role.

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