Board Role in Strategic Planning

The Board Role in Strategic Planning is to decide organizational purpose and conduct.

Before further explaining this board role, I will clarify 'governing board' and 'corporate governance'.

The board of directors is the governing body

The governing unit of an organisation goes by different names. For a business, it is usually just 'the Board'. For a non-profit organization, it might be a governing council, or simply 'Council'.

The subscribers, or shareholders, of a firm, or the electors or voters of an NPO, normally elect the board members, directors, or governors. This usually happens at an annual general meeting (AGM).

The Board or Council governs the enterprise. It looks after the interests of the Intended Beneficiaries.

The board is the ultimate decision-making authority

The role of Governing Bodies includes -

  • setting the organization's policy, aims, and overall direction,
  • choosing members of the various committees such as advisory, executive, finance, audit, and remuneration.
  • hiring, monitoring, reviewing, evaluating, and removing from role the managing director and sometimes other senior executives, and
  • determining and authorizing payment of items of exceptional expenditure.

It is in the first of these obligations that we find responsibility for the organisation's objectives and its overall direction, including the board role in strategic planning. Though not all its members might be engaged in the organization's day-to-day operations, the entire board is liable, under the doctrine of collective responsibility, for the effects of the firm's policies, actions, and failures to act.

Given this heavy responsibility, directors should understand the board role in strategic planning.

The composition of the board affects its functioning

It is common in some places for the board to include the chief executive officer (CEO), with a small number of their most senior executive colleagues. These board members are 'executive directors'. 'The board usually includes ‘outside directors' or 'non-executive directors' (NEDs). These may be experts, or respected persons, invited from the wider community.

This mixed composition of boards - the non-executive board members with the executive managers - may itself impede a clarification of their respective roles in the strategic planning process. If, as often happens, the senior managers have influence over the selection of the non-executive director roles, this may defeat the purpose of having ‘independent’ directors.

The job of the board is corporate governance

The Board, whether of a company or a non-profit organization, plays the main role in 'corporate governance'. A board role in strategic planning is an important part of corporate governance. Corporate governance is the framework of rules and practices by which a board of directors ensures accountability, fairness, and transparency in an enterprise's relationship with its all interest groups.

These interest groups can include financiers, investors, donors, clients, customers, students, patients, managers, employees, suppliers, industry and professional bodies, government, and 'the community', in the form of neighbouring groups or organisations.

The conventional corporate governance framework consists of -

  • explicit and implicit contracts between the enterprise and the interest groups for the distribution of responsibilities, rights, and rewards,
  • procedures for reconciling any conflicts of interest of stakeholders' duties, privileges, and roles, and
  • procedures for the proper supervision and control of all the major activities of the management, and ensuring reliable information-flows to serve as a system of checks-and-balances.

Board role in strategic planning

In the interest of improving corporate governance, it is vital to clarify the board role in strategic planning, and especially to clarify respective roles for governors and for managers in the strategic planning process. By strategic planning, we mean the process of determining an organization's long-term goals and then identifying the best approach for achieving those goals.

In simple terms, it is the board role in strategic planning to set the organization's goals, and to specify the limits of conduct within which the managers are to operate while pursuing those goals. In contrast with the board role in strategic planning, it is the role of the managers to achieve these goals within these constraints.

At Simply Strategic Planning, the 'corporate goal' or fundamental purpose is ‘’satisfying the Intended Beneficiaries’. It is the board’s job to identify who these Intended Beneficiaries are. They must also identify what benefit they are expecting from their organization. The Board must also determine how much, in terms of quantity and/or quality, the beneficiaries would deem to be 'satisfactory'. Boards should set realistic targets for this aim, and then hand these down to the managers for action. It is not the job of the managers to set corporate targets, although, it is, at present, commonly and irrationally, they who do so. This does not rule out consultation between the board and managers over appropriate targets.

The definition of the benefits thus needs to be more precise than is normal in companies - and far more so in NPOs. What is required is to state a figure, or a set of figures, that reflect the point where, in the opinion of the Board, the Intended Beneficiaries would be satisfied. Moreover, they need to state a level of performance where the Intended Beneficiaries would be dissatisfied. Why? Because it is at around this minimum level that the Board should consider making changes to the top management. Of course, as this is strategic planning all these targets should be for a number of years.

Passing the baton to the executives

Once the governing directors have made their decision, they should hand these long-term targets down to the top management. The management would see it as their first duty to underpin the organization's minimum performance; they must not allow performance to sink to the level defined as the minimum target. They would therefore seek a set of strategies, which, as best one can in an uncertain world, protect their organization from this unacceptable performance.

Next, they should search for strategies, which drive the organization to a satisfactory level of overall performance.

The set of strategies they devise, then, would need to be two-dimensional. It must give the organization a good chance of hitting a level of performance that is satisfactory to the intended beneficiaries, while at the same time protecting it from failure.

Boards need to confront what failure means!

I must stress that defining the target for the minimum level of performance is one of the most important aspects of the board role in strategic planning. No governing director could tolerate an organization performing at a level that brings despair to the beneficiaries, disgrace to the governors, and dismissal for the chief executive.

See more on this elsewhere on this site at Organizational Failure.

The function of a manager is to achieve goals

In recent decades, managers have both set the goals and rewarded themselves when they achieve them - and even when they have not. This can be a most dangerous practice - surely, the danger of being judge and jury in one's own case is widely understood. Governing directors should set the goals and management should achieve them - and if they do, then, no doubt, rewards will flow to them.

Go here for a further range of resources on the board role in strategic planning

Return from The Board Role in Strategic Planning to Organizational Effectiveness.

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