The seven key strategic planning tasks boards should be a part of and how to incorporate them into your process
By TK Kerstetter
What is the board’s role in strategy? Anyone who has served on a public company board has asked himself or herself this question. It is a question that has been asked and debated for decades by the profession’s best, yet we still struggle finding a common answer on what could be considered a best practice. One thing that we can all agree on is that directors want more time on board agendas to discuss strategy. In my 18 years at Corporate Board Member and as Chairman of NYSE Governance Services, we never had an annual board survey where directors haven’t ranked more time to discuss strategy as the top response to “What do directors want to spend more time on?” So why don’t boards just add strategy topics as part of their agendas? The truth is … it’s not as easy as it sounds. Typically, board meetings are filled with so many regulatory or legal “must-dos” that carving out constructive time for deep strategy discussions is rare.
"The board’s role is for its members to contribute their advice and experience to key portions of the planning process."
Before we deal with the issue of how the board’s strategy discussions should occur, let’s first understand what the director’s contributions should be. The board’s role is for its members to contribute their advice and experience to key portions of the planning process, including confirming that the organization’s tactical and financial goals meet the mission, the CEO’s vision, and the investors’ expectation for growth in shareholder value. Also a key aspect of the board’s oversight role with respect to the company’s strategic direction is to ensure that the business plans have identified the risks inherent in conducting operations and then actively monitoring management’s execution of approved strategic plans.
So … realizing that the beginning of this article looks at strategy and the board’s strategic planning responsibilities from 30,000 feet, the value of this column is to provide some answers. The following are specific planning tasks that I believe are part of the board’s role in strategy and strategic planning.
Mission — Boards need to contribute to the initial formation of the mission and its review for validity each year. The mission outlines the primary work and purpose of the company.
Vision — The vision is the CEO’s view of the company’s strategic direction. There can only be one vision, but the board of directors needs to sign off that it meets the mission and can contribute to long-term shareholder value.
Situational Analysis — This is the exercise of understanding the competitive and regulatory environment. Simply put … it is getting your arms around where you are today and what hurdles exist to get you to where you want to be.
A thorough situational analysis includes:
a review of your competition, industry (or industries), and regulatory/political environment;
a projected economic forecast of all regions and countries where you currently operate or plan to do business;
a technological impact study of how related innovations and risks will affect your operations;
a SWOT analysis that will review current strengths, weaknesses, and threats;
a comprehensive financial and capital allocation report that includes a financial peer group comparison;
and any meaningful survey information from internal employee cultural research.
The shareholder and proxy adviser analysis is important for the board to do, but I prefer doing that type of review outside of the strategic planning process.
Qualitative and Quantitative Goal Setting — Companies can do goal setting from the bottom-up, the top-down, or even a hybrid approach. Regardless, some goals will literally fall out on the table from the situational analysis, and the board needs to sign off on any corporate goals developed. This is where a director’s experience and probing questions can be very important.
Strategic Plan Tactics and Business Plans to Reach Corporate Goals — This is the meat of the planning process, and it seems best for the board to step aside here and let management do its job. Certain directors with relevant experience may be asked their opinions depending on the relationship they have with officers throughout the organization, but basically, a director shouldn’t be involved in this business unit and senior management function.
Presentation of Plan and Budget — The board needs to sign off on the entire plan and budget and ensure that compensation plans are structured to motivate the desired behavior and result.
Plan Execution and Key Performance Indicators Review — The board is responsible for conducting at least quarterly reviews of the plan’s performance, discussing what has changed from earlier environment forecasts, and assisting in determining whether changes in the plan are warranted. Plans must be flexible to adapt to changing conditions, but management still must be held to a high level of accountability
While I would never profess to be able to delineate all of a board’s planning responsibilities in this single article, this summary does get into the specifics of a board’s role in strategy, at least as it relates to the strategic plan. Because enterprise risk analysis is part of the strategic planning process, it can be argued that the role of the board in strategy is the second most important oversight fiduciary duty that it has next to ensuring it recruits and retains the right CEO for the company.
Now back to the actual strategy discussions and the when, where, and how they are conducted. I can only say that there are many options. I know boards that have strategy committees and deal with strategy in every quarterly board meeting. I also know boards that don’t intentionally plan strategy on their agenda because they do a two-day off-site planning retreat where they can devote uninterrupted attention to the company’s direction and strategies. Each company and board must decide what works best for them. If you are a board member and your board isn’t doing anything to participate or approve strategy and the strategic planning process at your company, I would quickly check the organization’s D&O policy. I say that because the first question you will get from one of the judges at the Delaware Court of Chancery is, “Did you as a board member review and approve the company’s direction and planning process?” Good luck if the answer is no!