Francesco Di Costanzo
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(3) Why Boards Overweight Strategy and Underweight Execution Risk

/13 min read

The Structural Asymmetry in Governance

There is a structural asymmetry at the heart of modern corporate governance. Boards are designed to debate strategy. They are not designed to interrogate execution risk with equal intensity. Yet most catastrophic value destruction does not originate in flawed strategic intent. It originates in operational plumbing — in migration cutovers, vendor dependencies, control failures, testing shortcuts, escalation delays, and incentive distortions.

Research on board processes consistently shows that boards are typically presented with a single management option for most decisions and disagree with CEOs only rarely. Directors spend much of their time in supervisory mode rather than adversarially stress-testing execution assumptions. At the same time, directors themselves increasingly acknowledge that strategy execution oversight remains a major improvement area.

The imbalance is structural, not moral. Boards are optimized for direction-setting. They are under-instrumented for delivery risk.

Strategy Is Episodic. Execution Is Continuous.

Strategy is legible. It can be debated in offsites, summarized in slides, narrated to investors, and approved in a discrete vote. Execution risk is continuous. It accumulates silently inside systems and processes. It first appears as weak signals: defect backlogs, SLA breaches, capacity strain, compliance exceptions, vendor concentration, model drift.

Boards gravitate toward what is narratable. Execution risk is measurable only if it is deliberately instrumented.

Strategy risk is the risk of choosing the wrong direction — misjudging markets, technology shifts, regulation, or competitive positioning. Execution risk is the risk that the chosen direction fails in translation — that the organization cannot deliver change safely, on time, within cost, and within risk appetite.

Strategy risk is debated. Execution risk is assumed.

That assumption is where value is lost.

The Repeatable Pattern of Value Destruction

The past decade provides a consistent empirical pattern. Knight Capital’s collapse was triggered by a software deployment failure and inadequate controls. Target’s Canadian expansion unraveled under supply chain and data governance breakdowns. TSB’s core banking migration disrupted customers and resulted in regulatory penalties tied to operational governance failures. Boeing’s 737 MAX crisis exposed systemic breakdowns in design, certification, and oversight processes. Deepwater Horizon demonstrated how contractor governance and barrier management failures can compound into catastrophe. Zillow’s algorithm-driven expansion faltered when forecasting uncertainty collided with operational and balance sheet realities.

In each case, the strategy was not irrational in isolation. The failure occurred in delivery mechanics.

The pattern repeats: optimistic timelines, underestimated complexity, insufficient leading indicators, dependency concentration, and delayed escalation. Boards approved direction. The system failed under stress.

Why Boards Drift Toward Strategy

Several structural forces reinforce this bias.

Mandate design is central. Governance frameworks explicitly charge boards with setting direction and overseeing management. Culturally, however, an implicit boundary emerges: boards govern; management manages. Execution oversight sits in a grey zone — acknowledged but insufficiently designed.

Time economics exacerbate the drift. Strategy is episodic and can be addressed in discrete sessions. Execution risk requires cadence, telemetry, and repeated interrogation. Under limited board time, episodic debate displaces continuous monitoring.

Information architecture compounds the issue. Boards receive curated narratives. Weak signals emerge first in operational telemetry long before they surface in board decks. When boards are presented with a single recommended option — rather than structured alternatives — their ability to interrogate execution trade-offs is constrained. Governance processes encourage approval rather than structured challenge.

Reputational incentives reinforce the asymmetry. Strategic boldness is visible. Operational excellence is invisible when it works. Directors gain reputational capital for endorsing direction, not for insisting on slower rollouts, redundancy investment, or kill-switch design. Accountability returns only when failure is public.

Layer onto this the predictable effects of cognitive bias. Complex transformations trigger systematic underestimation of cost and risk. Silent fragility is underweighted relative to visible competitive threats. Cohesive boards suppress dissent, especially when leadership narratives are strong. None of this requires incompetence. It is a natural outcome of governance under uncertainty.

The Negative Reinforcement Cycle

There is a deeper dynamic at work beyond information asymmetry.

Management often presents a single, coherent recommendation to the board. This signals alignment and decisiveness. It simplifies decision-making. It avoids overwhelming directors with technical trade-offs.

But the dynamic is reciprocal.

When boards allocate most of their cognitive energy to strategic direction, their appetite to evaluate multiple execution avenues diminishes. Directors want to debate where the company is going. They are less inclined to interrogate how many viable pathways exist to get there, or what the trade-offs are between velocity, resilience, cost, and control.

Over time, this creates a negative reinforcement cycle.

Management learns that boards prefer singular recommendations tied to strategic ambition. Boards become accustomed to evaluating strategy at altitude rather than testing execution design at ground level. Optionality collapses. Counterfactual testing weakens. Delivery risk becomes embedded rather than debated.

The result is compression. Complex execution problems are reduced to linear plans. Contingency pathways remain underdeveloped. Escalation triggers are undefined. When stress hits, there is no structured alternative ready to activate.

Governance design subtly suppresses execution pluralism.

Breaking this cycle requires boards to demand execution optionality explicitly — at least two credible delivery pathways for major transformations, clear articulation of trade-offs between speed and resilience, and pre-agreed conditions under which the board would pause, slow, or pivot.

Without that discipline, strategic bias and simplification bias will continue to reinforce each other.

AI and Digital Transformation Amplify the Gap

Digital transformation and AI magnify the consequences of this governance imbalance.

AI increases system coupling. Data feeds models; models feed products; products feed operations. Small technical deviations propagate quickly across functions. Vendor ecosystems introduce concentration and shared-responsibility ambiguity. Regulatory regimes now formalize execution governance as board-accountable. Cyber disclosure rules compress reporting timelines. Operational resilience frameworks formalize disruption tolerances. AI risk management standards emphasize lifecycle governance and monitoring. Emerging regulatory regimes impose staged compliance obligations that intersect directly with deployment roadmaps.

Execution risk has moved from operational nuisance to capital markets and regulatory exposure.

Approving an AI strategy without instrumenting model governance, data lineage, resilience testing, and vendor concentration risk is not strategic oversight. It is strategic optimism.

The Non-Obvious Governance Failure

Boards do not fail because they ignore execution. They fail because they treat execution as a reporting artifact rather than a governance design problem.

They review status. They do not design instrumentation.

Execution risk becomes governable only when boards insist on leading indicators rather than lagging narratives, when they define disruption tolerances before transformation begins, when they stage-gate capital deployment tied to readiness evidence, and when escalation triggers are pre-agreed rather than improvised during crisis.

High-performing boards treat execution oversight as a product. They require explicit kill criteria. They demand alternative options at major decision points. They commission independent assurance outside the delivery chain. They map digital and AI initiatives directly to regulatory timelines and control obligations. They define, in advance, what constitutes unacceptable operational deviation.

This is not micromanagement. It is governance engineering.

The Capital Markets Reality

Markets often reward strategic announcements immediately. Operational failure reprices abruptly and asymmetrically. Credit markets penalize operational fragility quickly because downside crystallizes in liquidity, capital, and covenant pressure before it appears in long-term earnings deterioration.

Boards that overweight strategic optionality while underweighting execution resilience are implicitly accepting convex downside without structured mitigation.

In complex, leveraged, or regulated environments, that asymmetry compounds.

Conclusion: Direction Is Not Delivery

The preference for strategy over execution oversight is understandable. Strategy is intellectually gratifying. Execution oversight requires engagement with detail, discipline, and uncomfortable trade-offs between speed and control.

Yet in an era where a single software release can generate nine-figure losses, where AI drift can trigger regulatory breach, and where vendor concentration can disable critical infrastructure, the operational plumbing beneath strategy is the primary vector of value destruction.

Strategy determines direction. Execution determines survivability.

Boards that redesign their governance model to instrument execution risk will not only prevent catastrophe. They will create durable advantage because reliable delivery compounds.

Boards that continue to treat execution as downstream management detail will keep approving elegant strategies that collapse under operational reality.

The paradox is structural.

The correction must be intentional.

Sources

Board Processes, Strategy vs Execution, and Dissent

  1. Schwartz-Ziv, M., & Weisbach, M. S. (2013). “What Do Boards Really Do? Evidence from Minutes of Board Meetings.” Journal of Financial Economics, 108(2), 349–366. https://www.sciencedirect.com/science/article/pii/S0304405X12002218

  2. McNulty, T., & Pettigrew, A. (1999). “Strategists on the Board.” Organization Studies, 20(1), 47–74. https://www.scribd.com/document/822388195/Mcnulty-Pettigrew-1999-Strategists-on-the-Board

  3. Barroso-Castro, C., Villegas-Periñan, M. M., & Casillas-Bueno, J. C. (2017). “Board members’ contribution to strategy: The mediating role of board processes.” European Management Journal, 35(3), 373–382. https://www.sciencedirect.com/science/article/pii/S0263237316301720

  4. Eirola, A. (2025). “Boardroom Dissent: An Integrative Review and Future Research Agenda.” International Journal of Management Reviews. https://ro.ecu.edu.au/cgi/viewcontent.cgi?article=5292&context=ecuworks2022-2026

  5. Xiao, J. (2021). “Antecedents and consequences of board dissent.” https://research.vu.nl/files/152419302/The_unfriendly_board_Antecedents_and_consequences_of_board_dissent.pdf

  6. Almandoz, J. (2016). “Domain Experts on Boards and Organizational Failure.” Academy of Management Journal, 59(4), 1119–1149. https://journals.aom.org/doi/10.5465/amj.2013.1211

  7. Kennesaw State University, Coles College of Business. (2024). “Characteristics of a Rubber Stamp Board: The Curious Case of Enron.” https://www.kennesaw.edu/coles/research/docs/spring-2024/spring-2024-02.pdf

  8. McNulty, T., Zattoni, A., & Douglas, T. (2024). How Can Boards Improve Their Effectiveness? IESE Center for Corporate Governance. https://www.iese.edu/media/research/pdfs/ST-0653-E

  9. Boardwise. (2025). “Effective Decision Making: Proven Strategies Every Boardroom Needs.” https://www.boardwise.io/en/blog/effective-decision-making-proven-strategies-every-boardroom-needs

  10. Diligent. (2026). “15 Board Management Best Practices for 2026.” https://www.diligent.com/resources/blog/board-management

Surveys on Strategy Execution Oversight

  1. National Association of Corporate Directors (NACD). (2025). Trends and Priorities Survey and 2025 Governance Outlook Report. https://www.nacdonline.org/all-governance/governance-resources/governance-research/outlook-and-challenges/2025-trends-and-priorities

  2. NACD. (2025). 2026 Governance Outlook Survey (Governance Outlook 2026: Five Actions for the Year Ahead). https://www.nacdonline.org/all-governance/governance-resources/governance-research/outlook-and-challenges/2026-governance-outlook

  3. NACD. (2025). “Boards prioritize strategic execution, technology and people heading into 2026.” https://www.prnewswire.com/news-releasesboards-prioritize-strategic-execution-technology-and-people-heading-into-2026-302639477.html

  4. Reuters. (2026). “Boards Prioritize Strategic Execution, Technology and People Heading Into 2026.” https://www.reuters.com/press-releases/boards-prioritize-strategic-execution-technology-people-2026-2026-01-06/

Biases, Planning Fallacy, and Cognitive Dynamics

  1. Kahneman, D., & Tversky, A. (1979). “Intuitive prediction: Biases and corrective procedures.” In Judgment Under Uncertainty: Heuristics and Biases. https://en.wikipedia.org/wiki/Planning_fallacy

  2. Lovallo, D., & Kahneman, D. (2003). “Delusions of Success: How Optimism Undermines Executives’ Decisions.” Harvard Business Review. https://hbr.org/2003/07/delusions-of-success-how-optimism-undermines-executives-decisions

  3. Ness Labs. (2020). “The planning fallacy: why we underestimate how long a task will take.” https://nesslabs.com/planning-fallacy

  4. Project Management Institute (PMI). (2012). “Planning Fallacy – Causes and Solutions for Project Performance.” https://www.pmi.org/learning/library/planning-fallacy-causes-solutions-project-expectations-6374

Case Study: Knight Capital (2012)

  1. U.S. Securities and Exchange Commission. (2013). “SEC Charges Knight Capital With Violations of Market Access Rule.” Press Release 2013‑222. https://www.sec.gov/newsroom/press-releases/2013-222

  2. U.S. Securities and Exchange Commission. (2013). In the Matter of Knight Capital Americas LLC. Administrative Order. https://www.sec.gov/files/litigation/admin/2013/34-70694.pdf

  3. Knight Capital Group, Inc. (2012). “Knight Capital Group Announces $440 Million Pre‑Tax Loss From Erroneous Trades.” https://www.sec.gov/Archives/edgar/data/1060749/000119312512332176/d391111dex991.htm

  4. Silver-Greenberg, J., & Craig, S. (2012). “Knight Capital Says Trading Glitch Cost It $440 Million.” The New York Times (DealBook), 2 August. https://dealbook.nytimes.com/2012/08/02/knight-capital-says-trading-mishap-cost-it-440-million/

  5. Dolfing, H. (2019). “Case Study: The $440 Million Software Error at Knight Capital.” https://www.henricodolfing.com/2019/06/project-failure-case-study-knight-capital.html

Case Study: Target Canada

  1. Bensinger, G. (2015). “Why Target’s Canadian Expansion Failed.” Harvard Business Review, January. https://hbr.org/2015/01/why-targets-canadian-expansion-failed

  2. Canadian Business. (2023). “The Last Days of Target Canada.” https://canadianbusiness.com/ideas/the-last-days-of-target-canada/

  3. Dolfing, H. (2019). “Case Study 7: The $2.5 Billion Cross‑Border Expansion Mistake by Target.” https://www.henricodolfing.com/2019/09/case-study-target-canada-failure.html

  4. Intuit QuickBooks. (2016). “How Poor Inventory Management Ruined Target Canada.” https://quickbooks.intuit.com/r/inventory/how-poor-inventory-management-ruined-target-canada/

  5. Argentus. (2022). “6 Supply Chain Lessons from Target’s Canadian Misadventure.” https://www.argentus.com/6-supply-chain-lessons-from-targets-canadian-misadventure/

  6. Panorama Consulting. (2021). “6 Lessons Learned From the Target Canada Supply Chain Failure.” https://www.panorama-consulting.com/target-canada-supply-chain-failure/

  7. Innovapte. (2025). “Navigating Rapid SAP Data Migration: Lessons Target Canada.” https://innovapte.com/blog/perils-of-rapid-sap-data-migration/

Case Study: TSB Core Banking Migration

  1. Financial Conduct Authority (FCA). (2022). “TSB fined £48.65m for operational resilience failings.” https://www.fca.org.uk/news/press-releases/tsb-fined-48m-operational-resilience-failings

  2. Prudential Regulation Authority (PRA). (2022). Final Notice: TSB Bank plc. https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/regulatory-actionfinal-notice-from-pra-to-tsb-bank.pdf

  3. Bank of England. (2022). “TSB fined £48.65m for operational resilience failings.” https://www.bankofengland.co.uk/news/2022/december/tsb-fined-for-operational-resilience-failings

  4. BBC News. (2022). “TSB fined £49m over IT system meltdown.” https://www.bbc.com/news/business-64036529

  5. Morgan Lewis. (2022). “UK Financial Regulators Levy Nearly £50 Million in Fines on TSB for Operational Resilience Failures.” https://www.morganlewis.com/blogs/sourcingatmorganlewis/2022/12/uk-financial-regulators-levy-nearly-50-million-in-fines-for-bank-operational-resilience-failures

  6. Celent. (2023). “Recalling learnings from TSB’s core banking migration challenges.” https://www.celent.com/insights/771585276

  7. ComputerWeekly. (2022). “TSB hit with huge fine after IT migration disaster.” https://www.computerweekly.com/news/252528519/TSB-hit-with-huge-fine-after-IT-migration-disaster

Case Study: Boeing 737 MAX

  1. U.S. House Committee on Transportation and Infrastructure. (2020). Final Committee Report on the Design, Development, and Certification of the Boeing 737 MAX. https://transportation.house.gov/imo/media/doc/2020.09.15%20FINAL%20Boeing%20737%20MAX%20Report.pdf

  2. Federal Aviation Administration (FAA). (2021). Summary of the FAA’s Review of the Boeing 737 MAX. https://www.faa.gov/sites/faa.gov/files/2022-08/737_RTS_Summary.pdf

  3. Gates, D. (2020). “Boeing’s 737 MAX ‘design failures’ and FAA’s ‘grossly insufficient’ review slammed.” The Seattle Times. https://www.seattletimes.com/business/boeing-aerospaceu-s-house-preliminary-report-faults-boeing-faa-over-737-max-crashes/

  4. Martin, J. W. et al. (2020). “The Boeing 737 MAX: Lessons for Engineering Ethics.” https://pmc.ncbi.nlm.nih.gov/articles/PMC7351545/

Case Study: Deepwater Horizon

  1. National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling. (2011). Deep Water: The Gulf Oil Disaster and the Future of Offshore Drilling. https://www.govinfo.gov/content/pkg/CHRG-112shrg64994/pdf/CHRG-112shrg64994.pdf

  2. “Deepwater Horizon investigation.” (2012). Wikipedia. https://en.wikipedia.org/wiki/Deepwater_Horizon_investigation

  3. HumanFactors101. (2025). “Unravelling the Deepwater Horizon disaster: Key insights.” https://humanfactors101.com/incidents/macondo-deepwater-horizon/

  4. Safe Influx. (2021). “Deepwater Horizon Incident – Evaluation of Breached Barriers.” https://www.safeinflux.com/wp-content/uploads/2021/08SXBUSR048-Deepwater-Horizon-Incident-Evaluation-of-the-Breached-Barriers-.pdf

Case Study: Zillow iBuying (Zillow Offers)

  1. CNET. (2021). “What happened at Zillow? How a prized real estate site lost at iBuying.” https://www.cnet.com/personal-finance/mortgages/what-happened-at-zillow-how-a-prized-real-estate-site-lost-at-ibuying/

  2. Metz, R. (2021). “Why Zillow Couldn't Make Algorithmic House Pricing Work.” Wired. https://www.wired.com/story/zillow-ibuyer-real-estate/

  3. Fortune. (2022). “Zillow’s $6 billion home flipping business was a disaster.” https://fortune.com/2022/06/01/zillow-6-billion-home-flipping-business-housing-market-fortune-500/

  4. GeekWire. (2021). “Why the iBuying algorithms failed Zillow, and what it says about the business world’s love affair with AI.” https://www.geekwire.com/2021ibuying-algorithms-failed-zillow-says-business-worlds-love-affair-ai/

  5. Datta, A. (2021). “The $500mm+ Debacle at Zillow Offers – What Went Wrong with the AI Models.” InsideAI News. https://insideainews.com/2021/12/13/the-500mm-debacle-at-zillow-offers-what-went-wrong-with-the-ai-models/

  6. Stanford Graduate School of Business. (2021). “Flip Flop: Why Zillow's Algorithmic Home Buying Venture Imploded.” https://www.gsb.stanford.edu/insights/flip-flop-why-zillows-algorithmic-home-buying-venture-imploded

  7. Franck, T. (2021). “Zillow says it’s closing home-buying business, reports $304 million Q3 loss.” CNBC. https://www.cnbc.com/2021/11/02/zillow-shares-plunge-after-announcing-it-will-close-home-buying-business.html

Regulation: Cyber, Operational Resilience, AI

  1. U.S. Securities and Exchange Commission. (2023). “Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure.” Final Rule. https://www.sec.gov/rules/final/2023/33-11216.pdf

  2. The CPA Journal. (2025). “The SEC Finalizes Rule on Cybersecurity Disclosures.” https://www.cpajournal.com/2025/08/27/the-sec-finalizes-rule-on-cybersecurity-disclosures/

  3. Proofpoint. (2025). “What Is SEC’s Cyber Disclosure Rules?” https://www.proofpoint.com/us/threat-reference/sec-cybersecurity-disclosure-rules

  4. Financial Conduct Authority (FCA). (2026). “Operational resilience.” https://www.fca.org.uk/firms/operational-resilience

  5. FCA. (2021). Policy Statement PS21/3: Building Operational Resilience. https://www.fca.org.uk/publication/policy/ps21-3.pdf

  6. Prudential Regulation Authority (PRA). (2021). Supervisory Statement SS1/21: Operational Resilience: Impact tolerances for important business services. https://www.bankofengland.co.uk/prudential-regulation/publication/2021/marchoperational-resilience-impact-tolerances-for-important-business-services-ss

  7. Drova. (2025). “Third-party resilience under PS21/3: What the FCA wants you to prove — and the simplest way to prove it.” https://www.drova.com/blogthird-party-resilience-under-ps213-what-the-fca-wants-you-to-prove-and-the-simplest-way-to-prove

  8. National Institute of Standards and Technology (NIST). (2023). AI Risk Management Framework (AI RMF 1.0). https://www.nist.gov/itl/ai-risk-management-framework

  9. Lumenova. (2025). “AI Governance Frameworks: NIST AI RMF vs EU AI Act vs Internal.” https://www.lumenova.ai/blog/ai-governance-frameworks-nist-rmf-vs-eu-ai-act-vs-internal

  10. Propelex. (2025). “SEC Cybersecurity Disclosure Rules: Compliance & Governance.” https://www.propelex.com/resources/sec-cybersecurity-disclosure-rules

  11. European Union. (2024). Artificial Intelligence Act (EU AI Act). https://digital-strategy.ec.europa.eu/en/policies/european-approach-artificial-intelligence

Board–Management Roles, Rubber‑Stamp Risk, and Governance Culture

  1. Becht, M., et al. (2016). “Chairman and CEO: The Controversy over Board Leadership.” Harvard Law School Forum on Corporate Governance. https://corpgov.law.harvard.edu/2016/07/26/chairman-and-ceo-the-controversy-over-board-leadership/

  2. Santa Clara University, Markkula Center for Applied Ethics. (2015). “When Boards and Management Conflict.” https://www.scu.edu/ethics/focus-areas/business-ethics/resources/when-boards-and-management-conflict/

  3. Charan, R., et al. (2024). “How the Best Boards Engage with Management.” Harvard Business Review. https://hbr.org/2025/01/how-the-best-boards-engage-with-management

  4. Summit Consulting. (2025). “The Misunderstood Role of the Board: Strategy vs Rubber‑Stamping.” https://www.summitcl.com/the-misunderstood-role-of-the-board-strategy-vs-rubber-stamping/

  5. ACCA. (2010). “Corporate Governance and Risk: A Study of Board Structure and Risk.” https://www.accaglobal.com/content/dam/acca/global/PDF-technical/corporate-governance/rr-129-001.pdf