Roles & Responsibilities

The Board of Directors Role in Strategic Planning

The most basic role of a board of directors is to drive performance.

This is great emphasis on the role of strategic planning.

“The specific responsibility of the board is in a strategic direction to the organization and deciding upon the organization’s strategies and objectives in conjunction with the CEO,” explains the Australian Institute of Company Directors in a note.

A study of directorates in New Zealand found that the skills required for strategic planning were among the most important for board members.

How boards plan strategy 

The basic questions that the strategic planning must answer, according to a New Zealand Institute of Directors, are what:

  • Is the future of the organization?
  • Is the status of the industry?
  • Competition does the organization face?
  • Are the future challenges to the organization?
  • Is the financial state and future state of the organization?
  • Are the legal requirements the organization must fulfill?

Key performance indicators (KPIs):

“An agreed 3-5 year strategic plan and annual operating plan are critical. In the long-term and what they want to achieve their long-term objectives. It allows the entire organization to have a clear vision so that it can be done. It therefore allows the board to monitor performance both against the overall strategic plan and the annual operating plan and budget, “the report says.

Developing and communicating a clear strategy for the organization can help to build stakeholder and investor confidence.

Then KPIs should be established. KPIs are strictly financial – they are both operational, financial and social nature. Boards today have responsibilities to their shareholders, to workers, and to the community, and KPIs should be based on financial status, growth and internal goal achievement, and environmental, social and governance factors (ESG).

Monitoring KPIs is thus the responsibility of the board, and it should be done regularly – this task is often delegated to board committees, but remains the responsibility of the entire board.

Boards, Strategic Planning, and Management

Obviously, monitoring KPIs involves oversight of management, and close collaboration with the CEO and his / her team is a critical part of strategic planning.

The organization is responsible for the quality and soundness of the company. In this case, the board’s role more on questioning, challenging and clarifying the plan submitted by management.

In smaller organizations the board itself may play a more instrumental role in the development of strategy prior to its submission to the board for approval. An organization in crisis might require greater board than usual. “

To formulate strategy, both directors groups recommend offsite sessions with board members and management, to both minimize distraction and to allow a different type of thinking from day to day or regular work to occur. Annual sessions are common in strategy development and review, yet more frequent reporting (at least quarterly or half yearly) is common with respect to the board monitoring the organization’s progress against its strategic plan.

A key part of strategic planning involves the composition of the board itself. In this volatile economic environment, strategic planning must shift with global trends and evolution.

This means that the choice of directors may change from one year to another, as the skill sets needed by the board to perform effectively vary.

“The notion of director tenure is ripe for re-evaluation,” Suggests Diane Smith-Gander, non-executive director of Wesfarmers and AGL Energy and Chair of Safe Work Australia.

“The idea that a director automatically serves for a three-year term, then probably one or two more terms, is antiquated. As a business becomes more volatile, a board might need a certain director for one term and a different director for the next term as the organization changes. Boards need flexibility in directors with different skills, depending on their organization’s needs. “ 

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