Is your board working at the right level?
Do you ever feel bogged down in the nitty-gritty of every tiny detail at board meetings? Does the conversation feel like its going around and around in circles? Do you ever hear your CEO use the words “micro-managing” and “over controlling”? Well, it could be because your board is too concerned with the operational issues of the organisation; when really they should be focused on the more important strategic matters.
A recent study conducted by McKinsey & Co. of more than 770 directors from both public and private companies across a range of industries (including not-for-profits) around the world identified that the majority of boards do not spend enough time focusing on the strategic issues facing their organisation.
Directors who report having a high performing board said that their boards are more ‘forward-looking’ and focus more on strategic issues such as analysing what drives value, debating alternative strategies, and evaluating the allocation of resources. This, of course, is in addition to ensuring the basics of compliance, reviewing financial reports, and assessing portfolio diversification are covered.
In fact, these higher-performing board members invested an extra eight workdays a year on strategy.
The lack of strategic focus by other boards can be traced back to the fact that many directors find it difficult to identify precisely what constitutes a ‘strategic issue’.
So this is where we hope to help you and your board identify and focus on your organisation’s strategic issues. The below list of questions has been compiled with information from a range of sources and experienced business leaders. It should help you focus discussions at your next board meeting. Share it with your fellow directors to ensure that your meetings are used effectively.
1. Does the issue involve a material amount of financial investment / spend / outlay? Materiality should be determined by the board and is usually represented by a percentage figure against total revenue / income of the organisation (e.g. 5% of total revenue = 5% of $2,000,000 = $100,000).
2. Does it directly relate to and/or impact one or more of the strategic imperatives outlined in the organisation’s strategic plan?
3. Does the issue at hand significantly influence shareholder, customer, and other stakeholder value (either positively or negatively)?
4. Does the issue apply to a significant amount of finance / cash of the business, human resources of the business, or, physical assets of the organisation? In other words, does the issue impact the current resource allocation?
5. Does the issue have the potential to (a) impact the ultimate purpose of the organisation, (b) change the board’s understanding of the external and internal environment facing the organisation, and/or (c) change what the organisation does to achieve its purpose?
6. Is the issue directly related to the CEO’s performance, behaviour, or position?
7. Does the issue relate to the performance (or non-performance) of the organisation against strategic goals?
As way of example, the book ‘Directors at Work: a practical guide for boards’ list major expenditures, significant use of people’s time, and the acquisition, sale or upgrading of physical assets as strategic decisions. Practical examples of strategic decisions that you may experience on your board include the approval of the acquisition of another company, expanding the firm’s geographical scope of operation, agreeing with the proposed introduction of new products and services, budget approvals, increased research and development investment, hiring a new CEO, deciding to close a plant, or agreeing to a capital raising initiative.
Hopefully this list of questions educates and helps focus the directors around your board table on the issues most important for the successful, long-term operation of your organisation.