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7/15/2006 12:01:00 AM

Following successful regulatory initiatives, focus returns to strategy. This summer, the National Association of Corporate Directors (NACD) will release its second Blue Ribbon Commission Report. The first edition, released before the demise of Enron and WorldCom in 2000, cited the importance for corporate boards of planning strategy systematically.

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This summer, the National Association of Corporate Directors (NACD) will release a second edition of its comprehensive Blue Ribbon Commission Report on "The Role of the Board in Corporate Strategy." The first edition, released in 2000, cited the importance of a board's involvement in strategy and helped boards look at strategic planning in a systematic way. Since the first report was published, corporations and their boards have witnessed the demise of Enron and WorldCom and have had to place greater focus on implementing accounting and legal systems stemming from the Sarbanes-Oxley Act of 2002 and other regulatory requirements.

Robert B. Stobaugh, commission co-chair and an adjunct professor at Rice University, said companies are now ready to focus on strategy again, and boards should prepare to play a more important role than ever.

What has changed since the original NACD report was published?

Six years ago, when we wrote the original report, we could not foresee anything as large as Enron happening, but we could foresee big problems if boards neglected strategy. Corporate boards were not as engaged as they are today, and the linchpin of engagement is strategy. Now we see boards setting strategic milestones and monitoring how well the company and management are doing to meet those milestones. The key is hitting a happy medium and focusing on strategy while making sure you have controls in place.

Is it the board's responsibility to hold the CEO's feet to the fire?

The board has to remain involved and speak up when it thinks the company is drifting from the plan. This is especially important when it comes to acquisitions. With the market where it is, some companies have relatively high stock prices, and that often encourages CEOs to look at acquisitions. One of the greatest dangers of dissipating company resources is making bad acquisitions. If you have a strategic framework, the board can make sure the acquisition is a very good fit. If it's not, the board has to challenge the CEO.

Does board composition have an impact on strategic planning?

It does because when you're formulating a strategy, you want to be able to get a wide view of what your world might look like. What are the different possibilities the company may face in its competitive environment? What might the markets look like for your new products? You can't fully answer those questions unless you have a diversified board with different skills and experiences. Management often gets focused on the details of today's business and the existing markets. A good board can and should help broaden the view of management.

Is it harder to get people to join corporate boards now?

CEOs are turning down board jobs left and right. Before, most boards were composed of CEOs from other companies, and a CEO sometimes sat on four to six boards. One of our recommendations was to limit the number of boards CEOs could sit on to preferably just the company's board and maybe one other -- no more than two. Many companies have adopted this as a guideline. For other CEOs, they have plenty to do in their own shop and don't want to direct another company that they don't have time to oversee. If you're overloaded, there's a greater danger that you'll let something slip.

Any advice for finding the right people for your board?

Hire a search firm to work with your nominating committee. Directors often suggest people they know, but a search firm can come up with people that you don't know or never thought about. The search firm will look at the composition of your board, meet with your committees and then come up with the names of candidates. Some may be known to you, but many are not. In my own experience, we've gotten some very good directors that no one on our board would have been aware of. That's how you build a stronger board.

Robert Stobaugh is an adjunct professor in the practice of management at Rice University's Jesse H. Jones Graduate School of Management. Over the past three decades, he has served as a director for 11 companies (not all at the same time!), ranging in size from start-ups to $14 billion in annual sales. For 29 years, Stobaugh was on the faculty of Harvard Business School. He holds a B.S. in chemical engineering from Louisiana State University and a doctorate in business administration from Harvard Business School.

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For more information, contact Stobaugh at rstobaugh@hbs.edu or Laura Hubbard in the Jones School at lhubbard@rice.edu.