Originally Published in Biz Magazine, March 2016
One of the Boards of Directors’ five major responsibilities is active participation in strategic and business planning. Note the key words “active participation.” There are questions why the Boards of corporations such as Blockbuster, Radio Shack, and Blackberry failed to see the need for a change in strategy if they indeed were active participants bringing a broader business and economic viewpoint.
It is important that there be clear agreement on the role of the Board with regard to strategy. The Canadian Coalition for Good Governance (CCGG) expresses the view that the Board is responsible for setting the overall vision and long-term direction of the corporation. The CCGG further states “The board reviews, questions, discusses and ultimately approves management’s recommended strategy.” The interpretation of this has led to confusion as to whether it is management’s strategy which the Board dutifully approves (passive role) or is the Board clearly setting the strategy (assertive role)? Or is the Board’s role to determine the long term direction of the company and only evaluate if management’s strategy will make progress towards that end?
The National Association of Corporate Directors (NACD) promotes a different position that “Boards should be constructively engaged with management to ensure the appropriate development, execution, monitoring, and modification of their companies’ strategies.” NACD states that the traditional periodic cooperative process of the Board and management jointly establishing the process the company will use to develop its strategy needs to be changed. NACD sees the need for Boards to become continually and proactively involved in strategy formulation.
I have watched many discussions between Boards and management regarding the level of involvement in determining and setting strategy. The involvement by Directors ranges from passive endorsement of management’s strategy on the basis that management are the experts in the business through to active robust discussion in a working session where Directors fully engage with management to discuss scenarios, options, and alternative strategic directions which could be pursued by the organization.
The actions in the strategic planning process include: informing the deliberations; deliberating the information, implications and options; making decisions on the strategic direction and goals; developing plans to achieve strategic goals; and monitoring progress.
The Board needs to own the process for developing the strategy which has Board involvement in critical decisions while respecting management’s deep knowledge of the business. The process to develop the strategy needs to consider the following:
- The facilitator – who selects the facilitator – the Board or management, or jointly?
- Timetable for the process – when will the process occur, will there be preliminary discussions on key topics, will there be a one day workshop, what are the key checkpoints?
- Inputs to the process – what information will be provided and by whom, will subject matter experts be involved, how will stakeholder input be gathered, will scenario planning be used?
- Approach to strategic planning – what time period will the plan cover, is the approach to be blue sky in nature or incremental, is there to be a new vision or will it be a stay the course focus?
- Developing the plan – who will develop the plan, who will develop the goals and the measures, what is subject to Board approval, what is management’s discretion, what is the process to develop the annual plan to operationalize the multiple year strategic plan?
- Monitoring – how will the Board monitor progress, what reporting is required on a quarterly and annual basis, what will require revision to metrics?
There is also new dialogue around the relationship between management’s capabilities and strategy. Some Boards are concerned that management recommends the strategy which it is most capable of delivering rather than the strategy which will be most beneficial to the company. NACD recommends that once the strategic direction is decided, the Board needs to have an in-camera discussion to answer the question: Do we have the management team which can deliver the strategy that we have determined is necessary for the future of this organization? This may be a difficult discussion but the duty of the Board is as a steward of the organization and to provide for its long term sustainability.