The Board of Directors and the Top Management Team: A Strategic Leadership System
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Based on the doctoral dissertation of Dr. Kris Thys at the Research Center for Entrepreneurship and Family Firms at Hasselt University, supervised by professors Pieter Vandekerkhof, Tensie Steijvers, and Maarten Corten
The role of the board of directors can vary. Traditionally, the board of directors is seen as the supervisor of top management. However, in practice, especially in medium-sized to large companies, boards of directors often take on a more advisory role, especially in strategic decisions. In many cases, the board of directors works closely with the CEO and other top executives in formulating business strategy. This leads to a kind of interdependence between the board of directors and the top management team in the strategic decision-making process.
While such collaboration is common in many companies in various forms, the board of directors and the top management team are still often considered separately. However, if there is interdependence between the two groups, they are jointly responsible for the strategic direction of the company. Therefore, it is essential to consider them as a joint entity when we want to understand their influence on strategy. In my doctoral research, I considered the board of directors and the top management team as one strategic leadership system (abbreviated as SLS). This implies that while the top management and the board of directors focus on their own short-term goals, such as day-to-day firm management for the top management team and oversight for the board of directors, both groups simultaneously work together towards one common overarching goal: making the best strategic decisions for the company.
In essence, my research focused on the extent to which the collaboration between the top management team and the board of directors, as a strategic leadership system, impacts strategic decision-making in private companies. Three key dynamics have been identified within the SLS: collaboration, conflict, and diversity. To investigate these dynamics, I conducted questionnaires with all directors and top managers in 41 Belgian family businesses.
Collaboration within an SLS
The collaboration between the board of directors and top management was measured using the concept of behavioral integration, which deals with the degree of cooperation, information exchange and joint decision-making within a group. This allowed us to gauge how effectively top managers and directors operated as a unified team within the SLS. The results indicated that strong collaboration between the board and top management positively impacts the quality of strategic decisions.
Task conflict and leadership
Executives and top managers often approach at strategic issues from different perspectives, leading to differences of opinion about the content of strategic decisions. Our results show that the resulting task conflict hinders the development of a joint strategic vision between directors and top managers.
The leadership of the SLS is supposed to defuse these conflicts. However, since the SLS is not a formal governance body, it often lacks a clear leader. Sometimes the members of the SLS differ on who they see as a leader during the strategic decision-making process. Some might see the CEO as the leader, others could look to the chairman of the board of directors, while still others might designate a major shareholder as leadership figure. My research shows that centralized leadership, where there is no ambiguity and it is clear who is in charge, reduces the negative effects of task conflict. In contrast, in a decentralized structure, in which there is uncertainty about who is responsible for strategic decisions, conflicts and power struggles can actually worsen the cooperation between the top management and board of directors.
Diversity in knowledge and experience in family businesses
Diversity in the SLS regarding backgrounds and experiences, also known as variety, is generally seen as an advantage for the quality of strategic decisions. However, in the specific context of family businesses, our results indicated that this kind of diversity – albeit being theoretically conducive to better strategic decisions – does not always automatically lead to better decisions. Disagreements about family values among directors and top managers in family firms can dominate strategic decision-making at the expense of diversity, limiting the effective use of this diversity to enhance strategic decisions.
Practical recommendations
Based on our findings, we offer several recommendations for boards and top management teams, especially within family businesses:
Effective cooperation between the two bodies is essential for successful strategic decision-making. Regular and structured interactions, such as joint strategic sessions with all top managers and directors or cross-functional committees with specific top managers and directors, can foster this collaboration and reduce conflict.
In addition, it is very important to pay attention to the composition of the top management and the board of directors. Both hard skills such as diversity in knowledge and experience, along with soft skills such as communication and collaborative decision-making, play a critical role in the success of an SLS.
In family businesses, it is also important to align family objectives between directors and top managers in function of strategic decisions. This could be achieved by creating a psychologically safe environment that values and respects diverse viewpoints, mitigating potential conflicts and bolstering collaboration in a fragmented SLS. To achieve this, it is important to manage the size of the top management team and board, ensuring teams are neither too large nor too small to keep them manageable. Additionally, supportive, coaching-oriented leadership should clearly define both SLS and individual goals to minimize insecurity while fostering an environment where members feel free to express themselves.
Policymakers should also recognise the importance of the collaboration between the board of directors and top management and reflect this in regulations. For instance, recommendations regarding the composition of boards – whether in terms of gender, expertise, or other factors – should ideally also consider the makeup of the top management team. Belgian corporate governance guidelines, such as the Code Buysse, recommend ensuring diversity and complementarity in backgrounds and expertise among directors when forming a board. However, given the dynamic interaction between the TMT and the board, it is equally important to ensure this complementarity at the SLS level as well. A lack of diversity and complementarity across both groups can lead to an incomplete understanding of the effect on strategic decision-making.
Conclusion
In summary, the board’s traditional role is to approve and oversee strategy, while management is responsible for initiating and implementing it. In practice, however, these roles often overlap, as CEOs frequently rely on the board for strategic guidance. When viewing the board and top management as a strategic leadership system (SLS), the board should participate in all phases of strategic decision-making, acting from an advisory role. However, the level of board involvement may depend on factors like company size, industry, and decision complexity. Boards should avoid blending roles too much and maintain oversight without interfering in day-to-day management. For example, setting clear, measurable milestones or establishing cross-functional committees for specific projects can facilitate collaboration without diluting management’s accountability. For high-stakes decisions, the board can for instance offer insights on risk and planning, leaving operational actions to management. Regular check-ins could help the board stay informed and aligned while respecting the management’s operational autonomy. In this way, the board and top management can collaborate on strategic decision-making as one cohesive SLS, making the best strategic decisions for the firm.