In order to effectively react to a crisis, boards and management need to be able to respond quickly to changing circumstances, while avoiding hasty (and perhaps ill-advised) decision-making. Boards can act with foresight and business acumen only if and when they are continuously involved in the development of long-term strategy.

According to a report of the National Association of Corporate Directors’ Blue Ribbon Commission, a board must be constructively engaged with management in “establishing an overall destination, and making provisions for frequent mid-course correction. Strategy involves perpetual redefinition—internally for strengths and weaknesses, and externally for opportunities and threats, focusing intently on competition. It measures and re-measures the gap between aspiration and capability, makes plans to bridge that divide, and ultimately audits the accomplishment of those plans.”

A board deeply involved in developing strategy with management will have a deeper and more nuanced understanding of the company’s business and its strategic environment. “Their expanded knowledge [will] better prepare them to contribute to future strategic discussions and decisions,” including evaluating responses to rapidly changing conditions, writes David A. Nadler, vice chairman of Marsh & McLennan Cos. in the journal Strategy & Leadership. When a crisis hits, a board engaged in corporate strategy will be better able to stay focused on long-term prospects amid the tumult. The board will be sufficiently familiar with the company’s resources and competitors to effectively evaluate responses to the crisis on both a short-term and a long-term basis or to rethink the strategy entirely.

Of course, it is not enough to merely involve the board in the development of corporate strategy. Developing corporate strategy is a dynamic and complex endeavor, as companies face changing business conditions and assess whether current strategies are producing the intended results. Large public companies will typically have a senior officer in charge of corporate strategy, supported by a staff and consultants drawing on multiple disciplines and specialized expertise. Lacking these resources in most cases, independent directors face significant challenges if they are to contribute to strategy development. While management focuses on strategy every day, the boards of many companies are limited to providing input into this complex process during quarterly or annual sessions. Officers may evaluate outcomes and adjust aspects of strategy on a real-time basis; directors typically wait until their next meeting, when they may receive an update from management. While the board may bear responsibility for the oversight of strategy, the resources required to make ongoing, substantive contributions are often inadequate or unavailable.

While daunting, it is not impossible for board leaders to successfully engage their board colleagues in the ongoing development, refinement and, if necessary, redefinition of corporate strategy. In the process, they will develop a more deliberative approach to strategic thinking, which not only can prepare them for future crises, but also will provide them with a better overall understanding of the business, which can add value in calmer times.

“These mind-numbing presentations [by management] have to go. They need to be replaced by animated, relevant, focused, easy-to-comprehend presentations that zero in on the issues that the directors need to know.”

- Paul Brountas, author

A recent meeting of the Lead Director Network brought together lead directors, presiding directors, and non-executive chairs from major companies, including Caterpillar, Coca-Cola, Delta Air Lines, Eli Lilly, General Mills, Home Depot, Microsoft, and Morgan Stanley. Members suggested six steps that board leaders can take to enhance and improve their board’s contributions to corporate strategy.

1. Ensure that the board is receiving adequate information. For the board to have effective input into decisions about corporate strategy, directors must have comprehensive information, especially about assumptions underlying the strategy, alternatives that may have been considered, and risks that may jeopardize the success of a strategy. A recent study concluded that most of the information received by boards from management concern financial data and measures, not relevant strategic information. Board members said they receive only a moderate amount of information related to strategic information such as external environment assessments, internal resource analyses, business entry and exit data, and risk analyses.

Lead directors should take steps to ensure that meaningful strategic information is being provided to the board. As one member of the Lead Director Network noted, “I have to ensure that the right flow of information is getting to the board to help directors understand why management is taking a particular course.” This is particularly important for new board members or a board just beginning to enhance their participation in corporate strategy. The ramp-up time may be significant as the board digests all the information, but learning about the company and its strategic environment will enable the board and the management team to be responsive and enhance value in times of hardship or calm.

2. Provide for continuous board involvement. Lead directors should work to involve their boards in corporate strategy in an ongoing way, shifting from a model of periodic management reporting to a model in which management and the board collaborate in developing and monitoring corporate strategy. Paul Brountas, author of the book Boardroom Excellence, notes in an article in Strategy & Leadership, “Strategy work is an iterative process, not a big-bang event. Yet, often [companies] treat it as though it were a one-time event by scheduling the board’s strategy meeting or making strategy the key agenda item at the annual board retreat. Absent a rich context, directors are hard pressed to contribute effectively.”

Lead directors should include a “strategy update” in agendas for regular board meetings, provide the board with relevant background information prior to meetings, and build a robust dialogue between the board and the CEO regarding strategy at the meeting. A one-sided advocacy presentation on strategy by management, with no board interaction, won’t suffice. Noted Brountas, “These mind-numbing presentations [by management] have to go. They need to be replaced by animated, relevant, focused, easy-to comprehend presentations that zero in on the issues that the directors need to know to perform their oversight function effectively and assist management in achieving the objectives and strategies jointly established by the board and management.”

3. Improve the quality of board discussions about corporate strategy. As one Lead Director Network member noted, “We have to guard against getting too tactical. I have to go to other directors and say, ‘No, we’re high level, and management is responsible for the tactical things.’” Another member agreed: “As lead director, you have to understand when a particular issue goes from a micro to a macro level.” Lead directors should engage the board in challenging management, when appropriate, on strategic issues. Directors are sometimes reluctant to openly debate management and a lead director may need to encourage board members to speak up on important issues.

Lead directors should engage the board in challenging management, when appropriate, on strategic issues. Directors are sometimes reluctant to openly debate management.

4. Use executive sessions for discussions of corporate strategy. As chairs for executive sessions of independent directors, lead directors should ensure that these sessions include candid discussion of strategic choices, constructive feedback for management, and a consensus on decisions about corporate strategy. If the board has not reached consensus on a particular issue, it will have difficulty helping shape management’s thinking about the issue. Said one Lead Director Network member, “The dialogue continues until you reach an agreement. You may have to make it clear to management that they haven’t made their case yet, and they need to come back to the board with a better business case.”

5. Provide guidance and feedback to the CEO. The lead director of the board serves as a liaison between the board and the CEO. Lead directors may help the CEO prepare for a board discussion of strategy by previewing questions and concerns. They can follow up from board meetings and executive sessions by communicating to the CEO the sentiments and reactions of the directors.

According to a recent survey conducted by NACD, CEOs ranked board participation in strategic planning as the second-highest priority for their boards, but the surveyed CEOs gave their directors only the 11th-highest score in rating their effectiveness in this endeavor. One Lead Director Network member offered a potential explanation: “As a CEO, you have some board members who are focused on strategic questions. You can also have other board members who don’t add as much value. Sometimes, a few board members color how [the CEO] views the whole board.” A lead director can help focus the CEO’s interaction with the board in a constructive, positive manner, and elevate the CEO’s evaluation of the effectiveness of the board’s engagement. By keeping the discussions sufficiently macro-level and focused, and communicating clearly with management, the lead director can develop an effective, collaborative relationship about corporate strategy, rather than a combative one.

6. Ensure that the composition of the board facilitates contributions to strategy. While not every director must be a “strategic thinker,” having the right combination of skills and backgrounds will allow the board to have effective input into corporate strategy. A recent commentary in The McKinsey Quarterly advises that on a board of a dozen directors, “a litmus test of strategic energy is the presence of at least three or four members who have deep industry expertise in the core business and market conditions the company faces . . . [Boards] should now ensure that their ranks include directors with the industry knowledge crucial to the primary business of their companies. Once that expertise is in place, other board members can be screened for deep functional or geographic experience.”

By implementing the steps above, lead directors can ensure their boards will collaborate more effectively with management in developing and adjusting corporate strategy. Once a board is substantively involved in an ongoing manner, it can help keep the company focused on long-term growth, during both the calm waters of economic prosperity and the choppy seas of a downturn.

For more on strategy, go to www.directorship.com/strategy.

Michael Egan (megan@kslaw.com) is a partner and Eric Kurtz (ekurtz@kslaw.com) is an associate in the corporate practice group at King & Spalding LLP.  As part of its focus on corporate governance, King & Spalding, with Tapestry Networks, created the Lead Director Network, a group of lead directors, presiding directors, and non-executive chairs from many leading American companies that meets to discuss how to improve the performance of their corporations and earn the trust of their shareholders through more effective board leadership.

After Eli Lilly agreed to buy ImClone Systems for $6.5 billion, a growing number of analysts questioned whether Lilly had overpaid. Whether or not Lilly will be able to raise the money is under scrutiny, according to The New York Times.

Eli Lilly announced the $70-per-share deal on Monday in order to beat out an offer of $62 a share from Bristol-Myers Squibb.

Lilly said it would have to raise $2 billion to $3 billion in debt, which it believed it could easily attain despite the current economic crisis. The remainder would come from its $6 billion in cash.

Both Moody’s Investor’s Service and Fitch Ratings said that they would review Lilly’s debt ratings for possible downgrade.

Credit Suisse’s Catherine Arnold was noted by the NYT that Lilly may have to forgo future deals after paying the cash and taking on further debt.

Eli Lilly said it agreed to acquire ImClone Systems in an all-cash deal the companies valued at $6.5 billion. The $70-per-share bid beat out Bristol-Meyers Squibb’s $62-per-share offer, according to The New York Times.

The deal solidifies the end of an independent ImClone, the company that was brought to fame after the company’s founder and former CEO, Samuel D. Waksal, and his friend Martha Stewart, to prison, according to NYT.

Lilly bought ImClone in hopes of selling Erbitux, ImClone’s only marketed product, although it has five other cancer drugs in clinical trials.

Bristol-Meyers, which owns 17 percent of ImClone, had originally bid $60-per-share but activist investor and chairman of ImClone, Carl Icahn rejected the offer as too low.

ImClone has said that the bid would not be subject to financing, an important note as the current credit crisis has made financing difficult.

Eli Lilly is the unnamed “large pharma company” that activist investor and ImClone chairman, Carl Icahn, said is prepared to acquire the company for about $70-per-share. Lilly is in advanced talks to acquire ImClone for approximately $6.1 billion, according to The Wall Street Journal.

The formal bid by Lilly could cause Bristol-Meyers Squibb to increase its unsolicited offer of $62-per-share. Bristol already owns about 17 percent of the company. Last week, Icahn had called Bristol’s offer as “absurd,” saying that the bid was grossly undervalued.

Like other drug makers, Lilly is having some difficulty with its drug development pipeline, according to WSJ. Friday, the Food and Drug Administration delayed a decision to approve Lilly’s potentially breakthrough new heart drug. The FDA has delayed the decision twice as it continues to look into the safety of the heart drug as well as Lilly’s diabetes drug, Byetta.

ImClone Systems is expected to announce later today that it is continuing talks to sell itself to a major pharmaceutical concern for a price in the range of $6.1 billion, according to The Wall Street Journal. Activist investor Carl Icahn has been searching for a higher bid.

The biotech company, which last week rejected an unsolicited offer from Bristol-Myers Squibb to acquire it for $5.4 billion, is expected to announce a deadline by which it hopes to have a deal with its other suitor. The two sides remain in “deep discussions” according to the WSJ, and they believe they can reach a solution within the next few days.

ImClone has also expressed interest in exploring possible deals with Pfizer and Eli Lilly.

ImClone chairman Carl Icahn called the revised offer from Bristol from $60-per-share to $62-per-share “absurd.” He mocked Bristol CEO James M. Cornelius for making it.

“If you wish to make your attorneys wealthier, I can show you more productive ways to do so,” Icahn wrote in an open letter. “Or, if you simply want publicity, I can also help you in that regard without your having to make unnecessary expenditures.”

Roger Ailes, Fox News

Sharon Allen, Deloitte & Touche

Herbert M. Allison Jr., Director

Gavin Anderson, GMI

Philip A. Armstrong, GCGF

Norman R. Augustine, Director

Stephen Bainbridge, UCLA

Maria Bartiromo, CNBC

David Batchelder, Relational Investors

Lucian A. Bebchuk, Harvard Law

Irv Becker, Hay Group

Beverly Behan, Hay Group

Richard Bennett, The Corporate Library

Robert S. Bennett, Skadden Arps

Dennis R. Beresford, U. of Georgia

Ethan Berman, RiskMetrics Group

Ben Bernanke, The Federal Reserve

John Biggs, Director

Leon Black, Apollo

Lloyd C. Blankfein, Goldman Sachs

Richard Blumenthal, State of Conn.

Magnus Bocker, Nasdaq OMX

John C. Bogle, Hall of Fame

Richard Breeden, Breeden Partners

Catherine L. Bromilow, PwC

Beth A. Brooke, E&Y

Warren Buffett, Berkshire Hathaway

Peter Butler, Governance for Owners

Marshall Carter, NYSE Euronext

Martha Carter, RiskMetrics Group

John J. Castellani, Business Roundtable

William B. Chandler III, Chancery Court

Ram Charan, Charan Associates

Peter Clapman, Governance for Owners

John C. Coffee, Columbia Law School

Frederic W. Cook, Frederic W. Cook & Co.

J. Michael Cook, Director

Christopher Cox, SEC

Jim Cramer, TheStreet.com

Andrew Cuomo, State of New York

Kenneth Daly, NACD

Julie Hembrock Daum, Spencer Stuart

George L. Davis, Egon Zehnder Intl.

Stephen M. Davis, Millstein Center

James L. Dimon, JPMorgan

Samuel A. DiPiazza, Jr., PwC

Christopher Dodd, U.S. Senate

Amy Domini, Domini Social Investments

William H. Donaldson, Hall of Fame

Thomas J. Donohue, Chamber of Commerce

Ed Durkin, United Brotherhood of Carpenters

Theodore L. Dysart, Heidrick & Struggles

Jay Eisenhofer, Grant & Eisenhofer

Charles Elson, U. of Delaware

John Engler, NAM

Richard Ferlauto, AFSCME

Timothy Flynn, KPMG

Margaret “Peggy” Foran, Sara Lee

Cynthia M. Fornelli, CAQ

Barney Frank, U.S. Congress

William F. Galvin, State of Mass.

William W. George, Harvard Business School

Kayla Gillan, RiskMetrics Group

Robert J. Giuffra, Jr., Sullivan & Cromwell

Scott Goebel, Fidelity

Holly Gregory, Weil, Gotshal & Manges

Robert Greifeld, Nasdaq OMX

Joseph Grundfest, Stanford Law School

Steven Hall, Steven Hall & Partners

Robert Hallagan, Korn/Ferry Intl.

Laurence P. Hazell, Standard & Poor’s

Edward Herlihy, Wachtell Lipton

Robert Herz, FASB

John A. Hill, Putnam

Paul Hodgson, The Corporate Library

Christopher Hohn, TCI

Michele J. Hooper, Director

Anthony J. Horan, JP Morgan

Carl Icahn, Icahn Investments

Ray R. Irani, Occidental Petroleum

Edward Kangas, Director

Adam Kanzer, Domini Social Investments

Henry Keizer, KPMG

Donald Keough, Director

Joe Kernen, CNBC

Richard Ketchum, FINRA

Charles King, Korn/Ferry Intl.

Catherine Kinney, NYSE Euronext

Jannice L. Koors, Pearl Meyer & Partners

Richard H. Koppes, Jones Day

Henry Kravis, KKR

Frederick J. Krebs, ACC

John A. Krol, Director

Robert Kueppers, Deloitte & Touche

Arthur Levitt, Hall of Fame

Martin Lipton, Wachtell Lipton

Jay W. Lorsch, Harvard Business School

Joann Lublin, Wall Street Journal

Steve Mader, Korn/Ferry Intl.

Ken Marzion, CalPERS

Mary Pat McCarthy, KPMG

Bill McCollum, State of Florida

Robert McCormick, Glass Lewis

Blythe J. McGarvie, Director

William McGuinness, Fried Frank

Patrick McGurn, RiskMetrics Group

W. James McNerney, Jr. Boeing

James P. Melican, PGI

Pearl Meyer, Steven Hall & Partners

Bill Miller, Legg Mason

Ira Millstein, Hall of Fame

Nell Minow, The Corporate Library

Robert A.G. Monks, author, Corpocracy

Peter Montagnon, ABI

Gretchen Morgenson, New York Times

Anne Mulcahy, Xerox

Anne Mule, Sunoco

Rupert Murdoch, News Corp.

Alan Murray, Wall Street Journal

Jim Naughton, Corporate Governance Blog

Thomas Neff, Spencer Stuart

Duncan Niederauer, NYSE Euronext

Joseph Nocera, New York Times

Floyd Norris, New York Times

Mark Olson, PCAOB

James Owens, Caterpillar

Michael Oxley, Hall of Fame

William Patterson, CtW

Henry M. Paulson, Jr. U.S. Treasury

Harry Pearce, Director

Harvey L. Pitt, Kalorama Partners

Becky Quick, CNBC

Carl Quintanilla, CNBC

David Rubenstein, Carlyle Group

Paul Sarbanes, Hall of Fame

Charles E. Schumer, U.S. Senate

Stephen A. Schwarzman, Blackstone

Mary Shapiro, FINRA

Damon Silvers, AFL-CIO

David W. Smith, SCSGP

Michael Smith, AIG

Jeffrey A. Sonnenfeld, Yale School of Management

Larry W. Sonsini, Wilson Sonsini

Andrew Ross Sorkin, New York Times

Myron T. Steele, Delaware Supreme Court

Leo E. Strine, Chancery Court

David N. Swinford, Pearl Meyer & Partners

John Thain, Merrill Lynch

Andrew Tuch, Corporate Governance Blog

James S. Turley, E&Y

E. Norman Veasey, Weil Gotshal & Manges

Stephen Wagner, Deloitte & Touche

Carol Ward, Kraft Foods

Henry Waxman, U.S. Congress

Ralph Whitworth, Relational Investors

John Wilcox, TIAA-CREF

Note: More than 100 individuals are named because some listings contain more than one person at the same company or in the same industry.

For the complete 2008 Directorship 100 article, click HERE.

Among those directors is John Lechleiter, who is slatedto become the company’s CEO next week, according to Reuters.

CalPERS said that Lechleiter,Alfred Gilman, and Karen Horn are accountable for a weak stock price and badcorporate governance policies, according to Reuters.

“It was on their watch thatEli Lilly experienced severe stock underperformance, poor corporate governancepractices, and was unresponsive to shareowners,” said Russell Read, CalPERS‘ chiefinvestment officer , said in a statement.