Strategy is one of the board’s three Priorities. (The other two are Leadership and Execution). Yet the division of responsibility for strategy between the board and management is often unclear. That lack of clarity can create tension and inefficiencies.
The executive charged with clarifying the complementary roles of the board and management can start by laying out the parameters of “Strategy.” It covers:
- Planning & Risk
- Innovation
- Capital Planning & Shareowners.
Planning and Risk
The strategic plan, capital plan, and the annual budget are all important articulations of strategy and planning. Start-ups may begin a year not knowing whether they can meet payroll come Q3 and Q4. Some smaller companies may only have an annual budget. These important tools enable enterprises to plan for and achieve greater progress.
Risk analysis is an essential element of planning. The 2002 “Enron” and 2008 banking crises increased the importance of risk oversight for the board – especially as it reviews and approves 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.
Innovation
Boards can foster a corporate culture of innovation 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 ensures 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. It must also understand the peculiarities of the company’s balance sheet, credit ratings, and shareowners (including their priorities and policies). And it oversees management’s communications with shareowners.
Divide the Work and Conquer the Marketplace
Management should:
- 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 well in advance of the (typically annual) strategic plan meeting how to approach preparation for and expectations for the meeting itself. Gaining alignment at this early point saves prep time and reduces disconnects at the meeting.
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. Allow time for the board to reflect on the 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.
After board approval, management must execute these plans – and boards must monitor and oversee that execution.
Let Foresight help you develop agenda that ensure that your Board addresses your Company’s fundamental Strategy topics. Learn more at https://foresight.board-ops.com/
