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The Role Of The Board Of Directors In Strategic Management

The Role of the Board of Directors in Strategic Management

Boards and managers don’t agree on everything but they both agree that they need a strategic plan. One thing that they don’t always agree on is how to clarify the role of the board and the role of management in developing and implementing the strategic plan. The central question is who actually sets the strategy. Some believe the board sets it and some believe the board waits for management to set it so they can approve it. The actual process can vary substantially from one company to another. The important thing is to agree on the process and ensure that it gets done. A board management software program is the most secure way for boards and managers to collaborate on the corporate strategic plan and the expectations for the role of the board of directors in strategic management.

Clarifying the Board’s Role in Strategic Management

Board directors and managers are equally concerned about where each of them draws the line between managing strategy and managing the company. The board is ultimately responsible for strategic planning. In recent years, they’ve been under strong pressure to have ready answers about strategy for shareholders, regulators, and others when corporate performance is lacking.

There is also a question of whether boards should rely on outside experts to assist them in reviewing corporate strategy and to what extent. Outside experts can help to prove independence set the stage for challenging top management. There are others that believe if boards need to do all that work, what role does the CEO play and is that person competent enough to handle the job.

Another vein of thought is that boards should primarily be involved in strategic planning when there is a major event such as a change in the CEO, a major investment opportunity, a looming acquisition, a decline in sales, or an unsolicited takeover bid. Boards may choose to schedule strategic planning retreats and make strategic planning a large part of the CEO’s performance evaluation.

CEOs and other senior executives should have a great sense around where the company is and the potential for where the company could be. As they’re intricately involved in the daily operations of the company, CEOs are normally the most informed people about how to overcome challenges related to strategic planning.

If we look at best practices, we can see that board directors are responsible for setting the ultimate direction for their corporations. Their responsibility also lies in reviewing, assessing, understanding, and approving specific strategic projects and plans. In their role in strategic planning, board directors need to be able to assess and understand the issues, opportunities, and risks that drive performance in the current market.

Strategic Activities for Boards

There are several ways that boards can participate in activities related to strategy without micromanaging the CEO or overstepping their role. The strategic plan should align with the company’s vision, which means those two topics should be items on the agenda at least a few times a year. In preparation to have a board discussion about strategy, board directors should collect and analyze data related to the industry’s environment, the nature of the competition, and the business models.

Boards can also develop a platform for strategic decision-making that defines the fundamentals of the business portfolio and the dominant business model that will help determine the future allocation of resources and capabilities. The board’s role in strategic planning entails identifying priorities, establishing goals and objectives, finding resources, and allocating funds to support the decisions that need to be made around strategic planning. The board is also responsible for monitoring the execution of the strategic plan. This requires the board to oversee the implementation of the strategic plan. As the plan progresses, boards may need to revisit the allocation of funds, as well as consider the impact of acquisitions and divestitures. 

Special Situations that Require Substantial Board Attention

After much data collecting, analyzation, and collaborating with management, the board should feel assured about the strategic plan and the direction of the company. As more serious situations come up that could impact the strategic plan, boards may need to become more involved. Questions may arise that require boards to make new decisions about debt and equity that affect the capital structure.

Takeovers, mergers, and acquisitions are sometimes an integral part of corporate strategy. These are pivotal events that may provide opportunities for external growth, as well as considerable risks for the company and its shareholders. 

Choosing Metrics to Monitor Strategy Implementation

Boards have a variety of options for metrics to help them monitor different areas of the business including finance, operations, organizational issues, products, sales, marketing, and vendors.

Working on corporate strategy is a complex process. The role of the board of directors in strategic management is directly linked to the CEO’s role in the process. Both parties need the ability to collaborate and communicate about strategic planning using a highly-secure electronic platform like BoardEffect. Board management software is the right digital tool to help boards and their management staff to find the balance in the short and long-term strategic planning development process.

The portal provides a collaborative online space for drawing up strategy plans where they can be challenged and tested. The final process results in a detailed plan that is likely to get a final, positive stamp of approval from the board.

When boards are part of the strategic planning process in the early stages, it’s easier for them to find ways to monitor the plan’s progress and it will be easier to detect any changes in risk as it evolves. Managers will need to be apprised of all aspects of the strategic plan and boards will be involved as they need to be and as situations evolve that require their expert attention. In the best of circumstances, the strategic plan will outperform its expectations. Where it leads to average or lackluster performance, boards can expect to have continuing conversations and strategizing sessions with managers and a board portal streamlines meeting processes, so those discussions remain secure and confidential.

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