Henri Eliot: Are NZ boards spending enough time on strategy?
9:30 AM Monday Apr 14, 2014
For a board to be considered high performing it needs to spend a considerable part of its agenda on shaping, influencing and monitoring strategy, says Henri Eliot.
According to a 2013 McKinsey survey asking board members where they would most like to spend additional time, two out of three picked strategy. A related finding was that 44 per cent of directors said their boards simply reviewed and approved management’s proposed strategies.
Why such limited engagement?
According to the survey “One likely reason is an expertise gap: only 10 percent of the directors surveyed felt that they fully understood the industry dynamics in which their companies operated. As a result, only 21 per cent of them claimed to have a complete understanding of the current strategy.”
Are boards in New Zealand spending too much time on compliance/regulatory matters and not enough time on strategy as well?
For a board to be considered high performing it needs to spend a considerable part of its agenda on shaping, influencing and monitoring strategy.
Too many boards these days are required to spend the majority of their time on compliance and ticking boxes to meet stringent regulatory requirements. Often the agenda has little time allocated to strategy. Is this a growing trend or just a product of the current environment?
I asked several experienced directors for their perspectives covering public, private and not-for-profit organisations (NFP).
Joanna Perry, a professional non-executive company director, feels that you cannot generalise like this. In her experience “each board regularly considers its areas of focus and ensures it is meeting its governance obligations which do include both strategy and compliance or regulatory matters; both adding value as well as ensuring the organisation is not losing value.”
“There is no doubt that in some industries the compliance obligations are significant and boards do need to spend time on these. And areas such as financial reporting, and health and safety, require compliance consideration across all boards; I believe these cannot be shirked. However each board must also consider the areas where they can truly add value, such as strategy, and ensure that enough time is focused on these. It is up to each board to ensure they allocate time appropriately.”
Joan Withers, a professional non-executive director on a number of high profile public companies, feels that the boards she is involved in spend more time today focusing on strategy and they are “now tending to structure their time together to allow for regular dedicated strategy sessions, rather than just including strategic issues within their normal agenda.”
“What I am also seeing is a greater willingness to engage external facilitation in board and senior managements’ development of strategy.”
“Compliance and regulatory issues still get a lot of focus and most companies understand that adverse regulatory intervention can cause a very large, potentially catastrophic destruction of shareholder value. Currently and appropriately boards are very focused on upcoming changes to health and safety legislation and the role they play in improving the health and safety culture of the companies they serve.”
Sam Knowles, professional director on a number of growth company boards, takes the perspective that “Compliance is a fact of life in business. The key challenge for governance is to move from a liability mindset on compliance activities, to taking a strategic perspective. Investing in areas of compliance that can provide strategic advantage and ensuring other compliance activity is embedded within core processes to minimise cost. Being better at risk taking than your competitors should be a core strategic theme for boards.”
Vanessa Ceelen who is Board President of the YWCA Auckland adds, “As an NFP, in many ways we are more accountable to our membership and responsible to our funders than other private organisations. This is as we are utilising the public dollar for a public purpose. Therefore we need to ensure that our processes are robust in nature, our governance framework is appropriate and our directors and staff accountable. However, what we have recognised is that the NFP environment is far more competitive than the commercial environment (from the sheer number of charities all competing for the same dollar) and that we will not survive as an organisation focusing on compliance but rather on a commercial strategy based on growth, collaboration and differentiation.”
From a family/private board perspective, Victoria Carter, professional director, feels that “they probably don’t spend enough time on strategy and what the future looks like, full stop. One strategy day a year really doesn’t mean that trends, and shifts in behaviour and spending are considered by the board throughout the year. It would be wise to allow some time at least quarterly to consider this.”
In the end, an effective board advises management in the development of a strategic plan that aligns with the organization’s mission, the expectations of stakeholders, and offers an appropriate short-, mid- and long-range focus. A key aspect in the board’s oversight role is also to actively monitor management’s execution of approved strategic plans as well as the transparency and adequacy of internal and external communication of the strategy.
From my personal experience, the topic of strategic planning seems to be better addressed when the CEO understands the value of strategic planning and is comfortable putting a process in place. Having a Board Chairman who is appreciative of the value of strategic planning and who is experienced in the discipline also gives organisations a huge advantage in the process.
Henri Eliot is CEO of Board Dynamics