Red Flags
from March/April 2006
How can you tell if your company’s strategy needs attention? Here are some warning signs:Bad follow-through. “It’s important that the board make sure not only that the senior managers are committed to the success of the strategic implementation but also that they have the authority and resources to do it,” says Richard Steinberg of Steinberg Governance Advisors. “Budget planning and capital expenditures need to be aligned with the strategy.”
A “no” from the market. Consultant Chuck Lucier recommends that board members pay attention to the company’s stock-price performance. “For most companies,” he says, “the stock market’s view of reality is at least as good as management’s. If the market is flat, as it’s been lately, and the company’s stock is down 10%, chances are something is happening that the director needs to know about. It’s not enough if management says, ‘The analysts don’t understand what we’re doing.’”
Not invented here. “As soon as you hear management saying, ‘We don’t do it that way here,’ you know you have problems,” says Robert Stobaugh of Rice University. “Directors come from different backgrounds and industries and can be a source of new ideas. If the CEO is unwilling
to listen, it can be a sign that management has become ingrown.”
Clueless leaders. “If management doesn’t understand what’s going on with the company’s competitors, you need to say ‘Whoa!’” says Warren Batts, the retired CEO of Tupperware Brands Corp. One company on whose board he served was a mall-based retailer that for many years refused to acknowledge the market inroads being made by specialty “big box” retailers. “The company atrophied before finally waking up,” he says, “and by that time it had been taken over.”
Surprise products or competitors. If board members learn about a breakthrough product or a new competitor from a newspaper or trade journal, they need to find out why the information didn’t surface in the strategic planning process, says Robert E. Mittelstaedt Jr., dean of Arizona State University’s business school.
The control-freak CEO. “If the chief executive doesn’t want you talking to the company’s business-unit managers, I would be concerned,” says Boston Consulting Group senior adviser Colin Carter. “A lot of boards don’t get good external data on things like market-share trends or the reasons for the loss of key staff, and that’s one way to find answers.”
