The Hewlett Packard Enterprises (HPE) Board recently announced the creation of a Strategic Committee, which states it intends to “evaluate HPE's business strategies and identify opportunities for additional value creation.” Is the Board Strategic Committee looking to become more common due to the increasing uncertainty surrounding global economic markets and the changes in domestic and foreign economic policies? Will the “Strategic Committee Compromise” be used to become a shareholder of new weapons activists and push the board to improve performance at a faster rate?
In a press release, HPE said the Strategic Committee is part of the company's ongoing transformation, including an “information sharing agreement” with Elliott Investment Management, one of its largest shareholders. The agreement with Elliott will “allow continued dialogue between Elliott and HPE” and will give Elliott the future “ability to appoint Elliott's representatives to the board.” Activist investor Elliott looks like the catalyst behind the formation of the Strategic Committee. This would be a compromise that avoided the proxy battle over company's instructions. HPE stocks were just over 3% per year in July, but were performing much worse than in April.
Like HPE, many companies coordinate their business strategies due to technological advancements (including AI), global market uncertainty (including trade wars), and pressure from shareholders to improve financial performance. Board members considering changing the company's current business strategy may also want to consider whether the Strategic Committee will support the process.
Because strategy is the full board responsibility, creating a committee with the primary responsibility to oversee business strategy can have multiple outcomes. The HPE Board bets that a dedicated strategic committee can improve the performance of the company, and has added a former CEO with experience in the technology industry to the board to chair the new committee. However, there is no guarantee. Business committees considering forming a Strategic Committee should keep in mind:
Strategic Committees can create the foundation for strengthened discussions between management and the board of directors. Ideally, it should be purely positive for the company to work with the company's best strategists. With a strategy-focused committee, we are theoretically prepared to quickly adapt to changing industry trends and market conditions. The committee works on behalf of shareholders and builds on the ideas of management and the board. In general, better cooperation leads to better outcomes.
The Strategic Committee may change the board dynamics. Planning company strategies may move from full board discussion to discussion of committee recommendations. Are current board members willing to adapt to the change? There is a risk that board members who are not part of the Strategic Committee will not be involved in strategy discussions, even if the committee makes recommendations. A complete board should consider all recommendations completely vibrantly for the best results. Additionally, trust between individual board members may be tested during the transition period. The Chair of the Strategic Committee plays a major role in ensuring that the trust between individual board members and management does not collapse.
Who is most responsible if the strategy fails? While members of the Strategic Committee may be responsible for setting a business strategy, all board members will be responsible if the strategy fails. All board members have the opportunity to question the strategy the committee has put forward, so if members are unable to speak up and ask the right questions when recommendations go down, they will share what outcomes. If the strategy is successful, if all board members share glory, if it fails, they all take some kind of accountability.
