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Bringing Opportunity Oversight Onto the Board’s Agenda

Book Description

Boards of directors have two broad responsibilities on behalf of shareholders and other stakeholders, according to the authors: overseeing the protection of existing value and creating new value. Even though most boards take growth seriously, in practice board oversight has become unbalanced. The imbalance between board risk and opportunity oversight, the authors argue, is a potentially serious problem. Although risk-management advocates claim that their frameworks can accommodate risk and opportunity, the authors are skeptical of those claims. Ensuring the development of the company’s opportunity generating capability, they write, should be an integral part of the board’s role in value creation. In the board’s capacity as opportunity overseer, it should have a well-informed point of view about: •the company’s overall approach to recognizing and pursuing opportunities, •the current state of the enterprise’s opportunity-generating capability, •how that capability aligns with the enterprise’s strategic challenges, and •top management’s action plan for enhancing that capability. Correcting the imbalance in board oversight will require a concerted effort, because the orientation toward risk is so entrenched. “We are not simply referring to companies that stress innovation, make large R&D investments or are active in acquiring other businesses,” the authors write. “Rather, we mean the combined ability of organizational and management processes to search for, create, identify, develop and realize value-creating opportunities — reliably and consistently.” This requires an active, constructive partnership between the board and senior leadership — and a board that understands and monitors how the company achieves and maintains a high level of value-creating performance. Companies can attempt to build opportunity-generating capabilities internally (as Apple has done), acquire them (as Monsanto has done) or attempt some combination. Given the differences among enterprises, there are no simple models for effective opportunity oversight. In most cases, boards will need to develop their own tools and practices. Strengthening the opportunity oversight capabilities of boards will take time, according to the authors, as well as an opportunity-motivated CEO, enthusiastic board members and a board and senior executives willing and able to work in partnership.