Strategy is one of the board’s three Priorities. (The other two are Leadership and Execution). The board must fully understand and approve this Priority for the company. But often, as it relates to strategy, the division of labor between the board and management is unclear. That lack of clarity creates both tension and inefficiencies.
The person in management charged with clarifying the complementary roles of the board and management can start by laying out the parameters of “Strategy.” In short, Strategy covers:
- Planning & Risk
- Capital Planning & Shareowners.
Planning and Risk
The strategic plan, capital plan, and the annual budget are important articulations of strategy and planning. Start-ups may begin a year not knowing whether they can meet payroll come third and fourth quarters. Some smaller companies only have an annual budget. But these are important tools that enable enterprises to plan for and achieve greater progress.
Risk analysis is an essential element of planning. The 2002 “Enron” and 2008 banking crises elevated the importance of risk analysis for the board – especially in reviewing and approving strategic plans. Understanding and articulating a company’s appetite for risk is a management function. But the board should understand and align with management, then oversee management’s implementation of the plans and risk mitigation.
Boards can and should foster a corporate culture of innovation. It can do so by showing interest in new products and services, improvements to existing products and services, as well as improvements to the supply chain, methods of production and service delivery.
Capital and Shareowners
The Board must ensure efficient allocation of the company’s capital – acting on management’s analysis and recommendations to update and upgrade capital assets or dispose of underperforming assets. The Board must also understand the peculiarities of the company’s balance sheet, credit ratings, and shareowners (including their priorities and policies); and oversee management’s communications with shareowners.
Divide the Work and Conquer the Marketplace
- Drive development of the Company’s strategy
- Lay out the Company’s main purpose, the uses, and sources of funds, and
- Plan for profitability.
Then, the Board makes the decisions on key capital allocations and structural decisions. In doing this work on Strategy, the Board will be less hands-on than when it is working on Leadership.
Strategy Plan Meeting Process
It can be helpful to discuss with the Board well in advance of the (typically annual) strategic plan meeting how management and the Board will approach both preparation and the meeting itself. Gaining alignment at this point reduces disconnects at the meeting itself.
The meeting itself will cover a lot of ground – the company’s mission, M&A priorities, dividend levels, new product initiatives, shareowner base and priorities, the regulatory environment, expense management, the role of technology in the company’s business, marketing initiatives, customer value proposition and new business opportunities.
It can be helpful to allow the board time to reflect on what likely will be extensive and expansive discussions and for management to respond to any open questions, then, at the next regularly scheduled board meeting, approve the strategic plan, the capital plan, and the annual budget.
Then, it is up to management to execute these plans – and for the board to monitor and oversee that execution.
Let FORESIGHT help you develop agenda that ensure that your Board addresses your Company’s fundamental Strategy topics.
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