Board work is thinking work. Too many boards get stuck in oversight mode and reacting to what comes before them. The engaged board is in constant strategic mode, checking that resources are being used in an optimal way. Also, understanding and reacting to the changing world. Here we look at how that happens.
Welcome to this third in a series of six webinars on principles of governance, hosted by Boardworks and BoardPro. I'm John Page, and this is Graeme Nahkies. And in this third session, we're talking about the strategic role of the board.
- One of the most enduring debates, and it keeps rolling on, is what is the board's role in strategy. If you've got a really strong culture in the organization of management proposing and boards reacting, then there's going to be the sense that, well, the management team does strategy. We can accommodate both the perspective that we're presenting, that the board needs to take a leadership role in the management's responsibility to figure out how to get from A to B, by separating out the idea of the board having to be involved in a strategic thinking process, which must precede strategic planning.
That's an important distinction, but a useful one. And it might lead-- in fact, it does in many of the cases that we work in-- the board having a separate statement of strategic direction or strategic intent, or something like that, which might only be a couple of pages long, but it picks up some of the things we talked about in the previous module.
So, it's a debate between the board's role either being passive or active, which I don't think is useful, because the board needs to be active within its own space. And that creates a framework which allows, then, management to get on and use its expertise and its resources to figure out what is the best way to get from where the organization is today, to where it wants to get.
- The statement of strategic intent is a useful idea, both in terms of giving guidance to management-- this is where we're going and what we want to achieve-- but also, particularly, in the nonprofit world, it serves as an external document to funders and other people that this is why the organization exists. And this is the nature of the change that we're trying to make in the world, so please travel with us, and preferably sign some checks. So, it's a really important idea.
And there is, then, an enormous partnership between management and the board. It's not so one person does one thing and one person does the other. But there is this need for the board to define where the organization is going, and then there's a partnership.
- You made the point about it being really important in a not for profit environment. I think it's also very important in a commercial environment, because there, you have to go out not to find funders, but to find investors. And they need to hear the story, as well. They need to understand, what is the venture that they are being asked to support? So, it's important.
I think one of the things that is a problem in this space, when we start using the word strategic, it's possibly the most overused word in the governance and management lexicon, really. Everyone has their own view of what it means. Maybe we should just talk a wee bit about what's strategic, from the board's point of view.
- Yeah, so what's strategic from the board's point of view, generally speaking, are large things that are going to have a long term impact on the organization. So, new opportunities, big investments, obviously, big bets where you might be betting part of the shop, new things, new opportunities, new areas. These are things that the board should be holding to itself.
- And another dimension of that is that, we talk a lot in governance circles about risk management and the board's role in risk. It's become a problem, I think, that boards are thinking about risk in isolation. And tools like risk registers, and that sort of thing, lead to a degree of siloization of the consideration of risk. But it should really be talked about at the board level in the context of what might get in the way of us achieving these important outcomes.
- But also, what level of risk we're prepared to accept--
- The risk appetite--
- --in association with these initiatives. So, I think it's just worth also talking about what strategy is. Because as you say, people get very confused about we're being strategic, and often, that's not the case. So, strategy simply is that there's a consistency in decision making over time. And you may start off with a particular strategy, but as the famous saying goes, "No plan survives contact with the enemy", and that's true.
So, you have to change strategy. And this is the central conversation of the board. Is the strategy that we have agreed on, still working as we engage with the market or whomever we engage with? And do we need to change it? We may throw that out, and we may adopt some new strategy, emergent strategy.
- Yeah, well, that's Henry Mintzberg's idea, then, that-- and I think it was him that said that strategy is a pattern and a stream of decisions, right? So, it's-- and I think that's quite a nice way of thinking about it, because most strategic plans in a traditional sense, as you say, like the warfare analogy, are out of date almost as soon as they are completed.
And a lot of boards actually are very reluctant to engage in really strung out, arduous, and often just chinwagging discussions that actually produce something which has no direct impact on day-to-day decision making. So a good strategy is something that informs everyone in an organization. They know when they come to a fork in the road which way they should go.
- And It's a live document. We have an annual strategic retreat. We get a bit of paper, and we put it away. But it is a live and ongoing conversation. The other thing is that what people miss, often, is strategy is about choice. So unless you have a valid choice, it's not strategy.
And one of the lovely examples we like to use is, people paint on the wall, we're going to be customer-centric. Well, it is the opposite of choice. We're going to ignore customers? So unless it's a valid choice, it's not strategic. So, a lot of the mantra that you see on strategy, we're going to be excellent, well, that's not a choice.
- And as you said in the previous session, an important part of the board's job is to know what to say no to. So, that plays to the choice issue, as well. John, one of the things that I think we need to emphasize is that the days of the board's involvement and strategy being confined to a once a year, some sort of strategy retreat, is totally redundant. In terms of what we've been talking about, every board meeting should be strategic.
Because one of the things about being strategic is it's inherently about facing the future. OK? So, the board should be constantly talking about where things are. Looking at the external environment, you talked about wind shifts and that sort of thing before. It's about sensing what's going on the environment and pooling their various sources of intelligence, whether it's about the market or what's going on in government, or the things that might influence the organization's ability to succeed. That's all part of a broad strategic thinking role.
And that's something it needs to devote sufficient time to. And really, the greater part of a board meeting should be in that future-facing way, probably at least 60%. Certainly, more than half the board meeting should be facing the future, in a sense we've defined, it, thinking strategically.
- Well, that's right. And we'll talk a bit later about how to structure meetings, but that's right. Maybe 2/3 of the time on things yet to happen, because those are the only ones that you can influence. There are two important things there, I think. One is this idea that the board's central role is as performance monitors. So, having made all the decisions, is the boat going adequately fast in the right direction? And more importantly, how do we know? And if not, what do we do about it?
But also, as Graeme said, scanning the external environment the whole time for opportunity. And one of the things that we often suggest to boards is a little lumbering session at the beginning of a meeting about what are we seeing out there? We're here for a reason, because we're a group of intelligent people with diverse perspectives. So hopefully, we're walking around the world with our eyes open and bringing that back into the boardroom. Are there opportunities out there? Is the wind shifting?
And again, we encourage chief executives and their reports to put that high in their report. Are there things outside that I really think the board needs to be aware of, and just so that we're informed? Because it is, even more so, a rapidly changing world.
- We'll talk more in a later module about that relationship, working relationship between board and management. But I think that too many boards are waiting for a lead from their executive teams. It's like, we just come and we react to whatever's been put in front of us, rather than the board actually holding itself accountable for adding value at every board meeting. And so much of that added value comes from what the individual directors can bring from their own experience and adding wisdom to the things that management is seeing on a day to day basis. So, that's the detachment idea, that the board can be more objective about things, as well.
- That leads neatly into that-- there are three little slides that we've put in there about where the board's view should be, in the weeds, at the treetops, or looking out of the helicopter. And that's a very good teaching analogy. I mean, with no rudeness to staff, they operate at the operational level, and they make a lot of very small, quick decisions in the context of other things.
The chief executives should be operating a little bit higher up. But the board is taking this big view, long term. And there are times when they need to get down when things go wrong, and COVID, we saw. But by and large, they don't want to be in the weeds. And we see too many boards who are spending their time in places they should not be.
- Yeah, I mean, it's one of the issues, though, that people come to the board often out of operational roles. And being involved in the operations of the organization gives them a perspective of what management does. But they need to recognize that their job is different. Their job, as you say, is to be in the helicopter, to have a holistic view of the organization and its operating environment.
To think in system terms, think through, what is the impact of all of this on stakeholders, different categories of stakeholders, for example? And too often, boards find themselves, in a sense, painted into a bit of a corner because the big decisions that you referred to in an earlier session, they might only deal with one or two of those a year. And there's a lot of pressure when that gets to the board for them to approve it, right?
Whereas, they really have to stand back and say, is this something we really want to do? What are the implications? What are the risks that we were talking about before? What are the benefits? And really, is this keeping us on course, or is it some completely new field of endeavor? And that's one of the big calls that you referred to.
- So, I think in concluding this section, we just want to make a couple of points. One is to be clear about what strategy is and isn't, and the fact that the board needs to carve out its own space in which to work, to have this conversation. And the board's strategic role is not every year, in some nice resort, put the bit of paper in the drawer. It's ongoing. It is the core nature of the board's work is to be-- have strategic thought the whole time.
So, the last slide in this section, we've left you with a few little thinking tools which you can explore, but a couple of them we quite like. I like to refer to the back casting, one. I think, Graeme, it's quite useful, isn't it? Which is about working out where it is we want to be maybe in 10 years, and then thinking back, what are the preconditions for success? What have to be in place in order for this to occur?
- How do we get here?
- And how do we do there? What do we have to overcome? What are the challenges? And one of the things we didn't touch on was the fact that actually, strategy is a response to known challenges. And we see lots of strategic plans and you think, well, where are the challenges? So, unless it addresses challenges, it's meaningless. So look, we leave those with you to explore. And we're going to go on to from the board having sorted out what it's doing, to how it connects with the chief executive in the next session.
So look, thanks for joining us across these short seminars. Thank you, my colleague, Graeme. Thank you to BoardPro. We really hope this has been useful. If you want to continue the journey and learn some more, look to our website, boardworks.nz. We've got lots of great articles. We're committed to writing, and have done for 20-odd years. There's a lot of reference up there. And BoardPros's own site has a lot of material, so please, avail yourself of it. Thank you for your time, and we hope it's been useful to you.