Strategy guidance is a board’s most crucial responsibility.
With contemporary directors repeatedly being exhorted to step up their contribution to strategy, the question below tests any Chairman’s confidence in his/her board.…
…Does my board offer distinctive strategic advantage?
Chairmen must judge if board talent and board process offer adequate strategic capability [or, liability] for shaping new directions, curtailing worn-out strategic initiatives, or scraping misguided plans.
Regrettably, when directors have neither the will nor the skill to contribute to the strategy process, unintended consequences from their increased involvement may materialize. Director deficiencies materialize as benevolent dabbling or to an extreme, the adoption of faulty decisions and misguided directions, which result in destructive outcomes to the enterprise. And, these unfortunate scenarios often operate within the context of enthusiastic participation by well-meaning directors… not just within hostile environments.
Director selection has never been more important
This article is not about strategy. It is about director selection.
As expectations for participation rise and the half-life of strategies contract, risk increases for a derailed strategic process and dysfunctional relationships within the board and with management. With these risks, the importance of selecting directors who have the ability to contribute to the strategy process has never been more crucial. We term this… the will and skill to be strategic.
This article delves deeply into the Assess phase of the board selection road map presented below.
Strategy Management Reviewed, Briefly
Directors are expected to be prominently involved in what an organization wants to be and to a lesser extent, in aspects of how it gets there.
Strategy formulation [also termed, strategic intent] deals exclusively with what decisions—i.e., choices about the right vs. wrong long-term direction for the company. Leaders formulate a vision which includes the future they commit to create, the purpose of the organization, and those values which will guide. When fully assembled, strategy is the coherence among the company’s capabilities, the opportunities which are detected, and the leaders’ aim. Strategy is thinking work.
There is a range of reach and risk which measures every strategic vision. At one end of the scale, a market-leader sense of destiny is pursued. In the midrange, strategy is largely created by default when organizations are overly influenced by government intrusion, banks, strong competitors, labor unions, or strong divisional business operations. The other end of the range is a continuous improvement strategy which mostly focuses on internal operational effectiveness. Sometimes, this is called a survival strategy; it actually consists of little direction setting and is erroneously labeled strategy.
Long range planning follows strategy. Planning is the bridge between strategy and implementation. Planning is about designing and resourcing a precise course of action to navigate toward strategic milestones or objectives. Choice of the course of action will range somewhere between a cautious course at one extreme to an aggressive reach at the other end. Whatever the chosen plan, precision, typically focusing on financial projections, is highly valued. Long range planning is how work.
Strategy implementation is the third element in converting visionary thinking into performance results. These matters deal with how the vision will be achieved.
Implementation is about directed action and control. The task of directors is focusing, enabling, and monitoring the priorities, resources, and culture of the operating organization so it performs at or above target. While Boards are typically removed from the hands on aspects of action, they are expected to monitor, problem solve, and judge implementation across the key tasks related to implementation.
Table 1. Directors’ Role in Strategy Management summarizes the contribution which directors are expected to make in the three phases of strategy management. The descriptions in Table 1 presume an active partnership with management in the formulation phase, a challenging, shaping role by the board during long range planning, and a vigilant monitoring and evaluative role during implementation.
Each Board Must Define their Role in a Meaningful Manner
In theory, a board is accountable for shaping strategy and approving the strategic plan; management is accountable for implementing the plan.
In practice, the roles are intertwined. Sometimes problematic implications emerge. Words and phrases applied to the manner boards and management are expected to formulate risk-mitigated strategy — i.e., partner, engage, involve, contribute, shape, — easily confuse the role expectations between management and a board.
Yet, these words do seem to reflect the current reality of the board-management interdependence. Management often wishes to control the strategic planning process, and present a “bullet proof” plan to the board hoping for the board’s rapid grasp and approval of the plan. In contrast, contemporary directors grasp for greater participation in the strategy planning process with increased hands-on control and emotional ownership of strategy. Directors may not be content to be just advisors and overseers; they may want to contribute more actively and directly. Misplayed roles lead to confusion and conflict.
The bottom line is that boards must define their role in strategy management in a meaningful manner. Boards should expect well-informed directors, a healthy board culture, and a tailored strategic planning policy which demarcates the role and responsibilities of the board, those shared roles, and finally management’s role and responsibilities. A disciplined approach to the process, often managed by the Chair, fosters this appropriate contribution by management and directors.
Competency Predictors: The Will and Skill Factors
Different capabilities are required of directors for thinking, planning, and implementation—capabilities are separated into will or skill factors.
“Will” is a function of commitment to serve versus a particular skill or competency to serve. We deal with commitment separately from competency.
The Will to be Strategic.
It seems simple—exceptional directors must show up and be prepared to contribute. Strategy management requires two commitments: availability; preparedness.
Availability. Directors must be available for service—inside and outside the board room. Directors must be regularly available outside traditional board meetings for ad hoc conference calls, telephonic meetings, and for independent study and investigation. According the 2010-2011 NACD Director Compensation Report, board meeting fees now represent only 3% of the total direct compensation for the Top 200 company boards. Directors are paid for service, not meeting attendance.
Preparedness. Directors must show up well-prepped. Strategy work requires independent investigation and synthesis of a company’s core competencies, its value proposition vs. competitors, the aging of its strategies, and emerging threats and opportunities.
The Skill to be Strategic.
Strategy boils down to making decisions about where you can win. Those teams equipped with better skill and process will more often make better decisions.
The work of boards is decisions. And strategic decisions are the most pivotal and crucial choices boards make. Yet, the need for decision spawns uncertainty. For boards, uncertainty begets the need for more information, more analytics, and more time so decisions can become perfect. On the other hand, when boards are concerned about the risk of their decisions, more controls are placed over the operation of the organization; hands-off becomes hands-on with operating management becoming marginalized and the role of the board being confused and conflicted.
Boards must do the right things and management must do things right, so the quality of choices directors make and their decisiveness is essential to the organization.
Let’s now look at the skills that exceptional directors contribute to each phase of the strategy management process.
Strategy Formulation. During strategy formulation, the exceptional board is active in the strategy process—not just relegated to evaluating management presentations. Their work is focused in three areas: defining and engaging [with] management in a disciplined process for creating the strategic vision; fully comprehending competitive analysis, market realities and the full scope of risk, whilst maintaining values and guiding principles and the separation of decision-making responsibility between management and the board in perpetual balance. Table 2, Director’s Strategy Formulation Competency presents competencies which Nominating and selection committees should examine in candidates.
Long Range Planning
During long range planning, the board’s role appropriately shifts more toward quantitative analysis and process oversight rather than the joint partnership role during formulation. Most often, there is an overload of data which must be sorted and deciphered into information. A board’s reliance upon management’s information and analysis typically increases yet the board’s accountability remains unchanged.
Table 3, Director’s Long Range Planning Competency presents competencies to assess in board candidates and further develop within existing board members.
Oversight of implementation is a more important matter for contemporary boards as a consequence of dramatically increased stakeholder expectations for board vigilance due to a small number of sensationally-reported cases of corporate abuse and board inattention across the last ten years.
So, the stakes have risen for management to bring sharper focus, more control, and greater transparency to its corporate affairs. There are no free passes—management is expected to annually deliver results in the top quartile of their sector’s total shareholder return ranking. And, boards are expected to oversee high performance implementation.
Table 4, Director’s Strategy Implementation Competency presents skills and abilities to look for in board candidates and further develop within existing board members.
Engineer your board to be a competitive advantage
An effective board is comprised of accomplished executives, each of whom bring their special knowledge and experience to the work of that board. Each Director has typically been a leader and decision maker in their own business. Now they must work collaboratively, pooling diverse opinions and often conflicting viewpoints, to craft a united position. It is critical for each Director to respect the value that each member of the board brings to the overall team.
The foundation of any board is the aggregate of the hard-wired traits and cognitive abilities of each of the Directors. This topology describes the extent of diversity among the members in how they communicate; how they learn; what is important to them in discussion; their focus of attention in the business; their involvement in debates; their attitude toward change; and much more. This topology can easily be mapped with new assessment technology. This is called team-engineering. With that kind of data, the board can design rules of engagement that satisfy the needs of each director.
Team engineering also serves as an inventory of the strengths and abilities of the board. As the needs of the enterprise change or whenever the board needs to add a director, the team data can be used to see what strengths will be of most benefit. This makes it possible to engineer the board’s capabilities to the specific needs of the business.
Competitive strategy demands greater attention of director nomination processes, as well as better tools and more rigor in director assessment.
About the authors
Dr. Patrick R. Dailey is a founder of Board Quest, LLC. a board of director consultancy. Patrick has held senior level Human Resources positions in Fortune 100 firms, as well as worked in various sectors with multinational companies including Hewlett-Packard, Lucent Technologies and PepsiCo. Patrick serves on the Board of the National Association of Corporate Directors-Atlanta Chapter and as a director for a private business. He received a Ph.D. in Industrial and Organizational Psychology from the University of Houston, Texas. Patrick can be reached at [email protected] or 310.400.9992.
Chuck Russell is a thought leader in the application of assessment technologies to business practices. His book Right Person-Right Job, Guess or Know, shows how the information provided by new generations of assessments shatters the existing paradigms of management, hiring, and training. Chuck is the founder and CEO of BestWork DATA, a pioneer in using assessment DATA for human capital management. Chuck can be contacted at [email protected] or 770.274.0515.