The Role of Board of Directors: Delegation vs Involvement in the Strategic Decision-making

Abstract

Nowadays it is widely accepted that one of the central responsibilities of any board is to set strategic direction for the firm and ensure its long-term survival. The board needs to assess the appropriate level of delegation to the firm’s top-management that allows the board to be sufficiently involved and to enable management to bring its specific expertise into the formulation and implementation of corporate strategies. Although most of the corporate governance literature has focused on the monitoring and control role of the board, this research complements that traditional line of inquiry by examining the other equally role of the board in its advising, counseling and service role. Non-executive directors are expected to be objective overseers of the executive team. However, that “objectivity” comes at a high price with respect to board involvement because it brings with goals that can sometimes be at odds with the executive team, yet the executive team will always have a knowledge advantage over the non-executive directors. There are some who argue that part-time non-executive directors are no longer feasible, particularly for large corporations, and that there needs to be a movement to full-time professional directors. Indeed, there is some empirical evidence suggesting that full-time professional directors are more effective than part-time non-executive directors are. While we are sympathetic to that public policy position, it highlights the practical and theoretical challenges associated with this research.