Strategic Management – The Role of Board Directors
When it comes to running an organisation, it’s no secret that teams need a strategic plan. But what exactly is the role of the board and management when it comes to developing and implementing these strategic plans? How do the role of the board and the management differ? And, who actually sets the strategy?
While some people believe that the board sets the strategy, and others believe that the board waits for management to set it so they can approve it, the fact is, this process actually varies substantially from one company to another. However, the most important thing is for everyone to agree on the process and ensure that it gets executed well.
In this whitepaper, you will read and learn about the role of the board in strategic management, strategic activities, special situations that require substantial attention from the board and how to choose the right metrics to monitor strategy implementation.
With this greater understanding of how the role of board directors plays in successful and effective strategic management, your board will be better positioned to help the organisation grow and flourish in no time.
Clarifying the board’s role in strategic management
Board directors and managers are equally concerned about where each of them draws the line between managing strategy and managing the company.
In recent years, boards have been under intense pressure to have clear answers prepared regarding strategy for shareholders, regulators and others when corporate performance is lacking. This is because, ultimately, the board is responsible for strategic planning.
But before we get into all that, let’s take a step back and clarify what strategy and strategic planning are. Firstly, strategy is all about having a clear and specific focus on the future that your organisation is trying to create, being conscious of various future possibilities, understanding the consequences of the current environment and actions, analysing what all this means to your company and then selecting what needs to be done based on this analysis before taking action.
Therefore, a strategic plan is all about helping the board make such choices that mould the future that your organisation envisions. Then, implementing those strategies, continually monitoring them and making changes where required. The strategic plan is the board’s greatest accountability tool because tracking, reviewing and communicating the strategic plan are critical for external accountability.
Now that you have a clearer understanding of what strategy and strategic planning are, there are a few things that your board and organisation will need to think about when it comes to the board’s role in strategic management.
When a board needs to prepare solutions for stakeholders, regulators and other key members, there is often a debate on whether boards should rely on outside experts to assist them in reviewing corporate strategy. Now, If so, then the question is to what extent? Outside experts can actually help to prove independence as well as set the stage for challenging top management. However, at the same time, there are others who believe if boards need to do all that work, what role does the CEO play?
Another vein of thought is that boards should primarily be involved in strategic planning when there is a major event, such as a change in the CEO, a large investment opportunity, a looming acquisition, a decline in sales or an unsolicited takeover bid. In these scenarios, boards can choose to schedule strategic planning retreats and make strategic planning a large part of the CEO’s performance evaluation.
If we take a look at best practices, we can see that the board is responsible for guiding the ultimate direction of corporations. Their responsibility also includes reviewing, assessing, understanding and approving specific strategic projects and plans. In the board’s role in strategic planning, board directors need to be able to assess and understand the issues, opportunities, and risks that drive performance in the current market.
Strategic activities for boards
There are several ways that boards can participate in activities related to strategy without micromanaging the CEO or overstepping their role. Firstly, the strategic plan should align with the company’s vision. This means that those two highly important topics should be items on the agenda at least a few times a year.
Board directors need to have a clear picture of what the company’s vision is. Once there is agreement on what the vision entails, then the board can pull together a cohesive strategic plan. Here are three key elements that the board needs to include in a good strategic plan:
- The vision/purpose as a long term strategy filter (the next 10-20 years)
- The strategic plan as a short term strategy filter (two to three years)
- The operating plan to actualise the strategic plan (one year)
Then aside from aligning the strategic plan with the organisation’s vision, board directors should also collect and analyse data related to the industry’s environment, the nature of the competition and the business models in preparation for a board discussion about strategy. This is to ensure that while the strategic plan fits the organisation’s goals, it will also help the organisation remain competitive within the market.
When it comes to strategic planning, the board’s role also entails identifying priorities, establishing goals and objectives, finding resources, and allocating funds to support the strategic decisions that need to be made. To aid this process, boards can also develop a platform for strategic decision-making that defines the fundamentals of the business portfolio and the dominant business model that will help determine the future allocation of resources and capabilities.
Finally, the board is also responsible for monitoring the execution of the strategic plan. This requires the board to oversee the implementation of the strategic plan. For example, as the plan progresses, boards may need to revisit the allocation of funds, as well as consider the impact of acquisitions and divestitures.
Special situations that require substantial board attention
After data collection, analysis and collaboration with management, the board should feel assured and confident about the strategic plan and the direction of the company. However, there are special situations that will inevitably emerge and will require more of the board’s attention.
The board should be prepared to become more involved and maybe even alter the strategic plan if and when more serious and major situations that could impact the strategic plan arise. Questions that require boards to make new decisions about debt and equity that affect the capital structure may also come up.
For example, takeovers, mergers and acquisitions are sometimes an integral part of corporate strategy. These are pivotal events that may provide opportunities for external growth, as well as considerable risks for the company and its shareholders. In such situations, boards need to be on high alert and take action according to the strategic plan developed.
Choosing metrics to monitor strategy implementation
Simply coming up with a strategic plan is not enough when it comes to strategic planning. So with a well-developed strategic plan in place, the next step is to formulate a plan to measure success, or else it will be difficult to track the results of your board’s hard work.
Boards have a variety of options for metrics to help them monitor different areas of the business, including finance, operations, organisational issues, products, sales, marketing and vendors. It is up to your board and organisation to decide which metrics are most important and helpful in monitoring the implementation and execution of your strategic plan.
When boards are part of the strategic planning process in the early stages, it’s easier for them to find ways to monitor the plan’s progress and it will be easier to detect any changes in risk as it evolves. Managers will need to be apprised of all aspects of the strategic plan and boards will be involved as they need to be and as situations evolve that require their expert attention. In the best of circumstances, the strategic plan will outperform its expectations. Where it leads to average or lacklustre performance, boards can expect to have continuing conversations and strategising sessions with managers.
Working on corporate strategy is a complex process. Board directors need to clearly understand their role in strategic management, which is, essentially, to create a strategic plan that aligns with the company’s vision. Then, the board also needs to be aware of all the strategic activities that strategic planning entails and recognise that there will be some special situations that will require extra attention. Finally, the board needs to devise a monitoring plan to track the success of the strategic plan.
The role of the board of directors in strategic management is directly linked to the CEO’s role in the process. Boards need the ability to collaborate and communicate with managers and other executives about strategic planning using a secure board management platform, such as BoardPro.
A board portal is the right digital tool to help boards and their management staff find the balance in the short and long-term strategic planning development process. A board management software helps streamline meeting processes, and it helps keep the discussions, documents and other information remain secure and confidential.
Board management software, like BoardPro, provides a collaborative online space for drawing up strategy plans where they can be challenged and tested. The final process results in a detailed plan that is likely to get the board's final, positive stamp of approval.