The Hewlett Packard Enterprises (HPE) board recently announced the formation of a Strategy Committee that the company says is intended to “assess the strategies of HPE’s businesses and identify opportunities for additional value creation.” Is having a board strategy committee about to become more common as uncertainty surrounding global economic markets and changes in domestic and foreign economic policy increases? Is the “strategy committee compromise” going to become a new weapon activist shareholders use to push boards to improve performance at a faster rate?
In a press release, HPE said the strategy committee was part of the company’s continuing transformation, which also includes an “information sharing agreement” with Elliott Investment Management, one of its largest shareholders. The agreement with Elliott “will allow for an ongoing dialogue between Elliott and HPE,” as well as give Elliott “the ability to appoint an Elliott representative to the board,” at some point in the future. Elliott, an activist investor, appears to be the catalyst behind the formation of the strategy committee—likely a compromise that avoided a proxy fight over the direction of the company. HPE stock was down a little over 3 percent for the year in July but was performing far worse than that in April.
Like HPE, many companies are adjusting their business strategies due to technological advancements (including AI), uncertainties in the global marketplace (including trade wars), and pressure from shareholders to improve financial performance. Board members who are contemplating making changes to their company’s current business strategy may also want to consider whether a strategy committee would aid that process.
Since strategy is the responsibility of the full board, creating a committee with primary responsibility for oversight of business strategy has the potential to yield multiple outcomes. The HPE board is betting that a dedicated strategy committee can improve company performance, and they’ve added a former CEO with technology industry experience to their board to chair the new committee. However, there are no guarantees. Corporate boards considering forming a strategy committee should keep the following in mind:
A strategy committee can create a foundation for enhanced discussion between management and the board. Ideally, having the company’s best strategists working together should be a net positive for the company. With a committee focused on strategy, the company could theoretically be more prepared to adapt to industry trends and changing market conditions faster. The committee is built on the idea of management and the board working together on behalf of the shareholders. Better cooperation generally leads to better outcomes.
A strategy committee will likely change board dynamics. Planning company strategy may move from a full board discussion to a discussion of committee recommendations. Are current board members willing to adapt to the change? There is a risk that board members who are not on the strategy committee may become less involved in strategy discussions even when the committee makes recommendations. The full board must vet all recommendations with full vigor to get the best outcomes. Additionally, trust between individual board members may be tested during the transition period. The chair of the strategy committee will play a large role in making sure that trust between individual board members and management does not break down.
Who is most accountable if the strategy fails? While strategy committee members may be more responsible for setting the business strategy, all board members will be held accountable if the strategy fails. Every board member will have an opportunity to question the strategy put forth by the committee, so if members fail to speak up and ask the right questions when the recommendations come down, they share in the whatever outcome results. If the strategy succeeds all board members share in the glory, if it fails, they all have some accountability.
