The Board’s Role in Strategy

“No battle plan ever survives contact with the enemy.”

"Everybody has a plan until they get punched in the mouth."

Whether your preferred quote comes from a Prussian general or an American boxer, every board is surely feeling the truth of these words. The pandemic means strategies have been thrown into disarray and new planning is needed to deal with the crisis, its consequences and the recovery beyond. 

While this is on every agenda, I see some boards and management teams struggling to define their respective roles in setting the organisation’s strategy. Unless this is resolved, boards and management risk tripping each other up or letting vital strategic decisions fall between the cracks.  Clarity is essential, but there is no universal view on who is responsible for what.

A few boards view strategy development as entirely a management responsibility, as management is best placed to understand in detail the internal and external realities of the organisation. These boards see their only role as holding management to account for executing the strategy successfully.

Other boards want to be the strategists, set the organisation’s direction and then delegate implementation responsibility to management.  This is often the case where the board is compensating for a lack of strategic thinking or capability among senior management.

Neither approach is desirable. To be successful the strategy must be owned by both management and the board. And the best way to build ownership is to involve people.

Management is best placed to understand, at a deep and nuanced level, the markets they operate in, the strengths and weaknesses of the organisation and the opportunities and risks it faces. Management should therefore be the driving force in developing and testing different strategic options. Without driving strategy formulation, senior managers cannot be expected to be invested personally in the strategy’s success.

The board needs to satisfy itself with the rigour of management’s strategic assessment. Together they then need to set the final strategic direction, the performance indicators, and the pathway for execution. This ensures management gains the benefits of the board’s experience and insights. More importantly, it ensures the board is as committed to the success of the strategy as management. Just signing off on management’s final strategy, no matter how rigorously the board has tested it, does not build the same level of personal commitment to ensuring success. 

One test of whether a board is fully engaged in the strategy is to examine whether the board’s decisions and discussions are always informed by their strategic context, or whether the board only turns its mind to strategy at an annual strategy day.

There are five simple steps to ensure the board contributes effectively to strategy:

1.    Ensure the board has a clear and shared understanding of its role

Many experienced chairs know the right balance to strike instinctively, but that doesn’t mean the rest of the board understands or shares those views. New directors, in particular, can be unclear about their role, especially if they have moved recently from a long executive career to a non-executive role. Chairs can ensure clarity and alignment around the board’s role by scheduling a short boardroom discussion ahead of significant strategic decisions.

2.    Have the conversation with management about respective roles

I frequently hear senior executives say they are unclear about the board’s expectations, what the board needs and how they want to be involved. Other management teams see no role for the board in strategy setting and will subtly keep the board out of those discussions. The board needs to make its expectations clear to the leadership team.

3.    Strategy cannot be ‘set and forget’

When asked about strategy, directors often highlight the annual strategy day as the time the board discusses strategy. If strategic goals are to be achieved, every board discussion and decision needs to be in the context of the strategy.

4.    Ask the right questions

Directors can help form and test management’s strategic thinking by asking questions such as “How does this development affect our strategic goals and ability to meet them?”, “What have we changed, now that circumstances have changed?”, “What less obvious trends are going to be critical when we next consider our strategic direction?”

5.    Don’t confuse activity with outcomes

One of the greatest strategy failings is investing more time and effort into developing the perfect strategy than in delivering it. Some boards can be dazzled by a brilliant strategic presentation without testing whether it can or is being delivered. Challenge management on how they will achieve their promises and what progress indicators they will hold themselves to.

Whether you are on the board of a top ASX company or a local community organisation, this is a critical time to get strategy right. Clarity and alignment around the roles of the board and management in setting that strategy are vital if your organisation is to weather the current storm and emerge stronger than ever.

Steven Münchenberg is the Managing Partner & CEO, and leads the board practice, at advisory firm Blackhall & Pearl.

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