The Directors Role in Board Strategic Planning
A board of directors, under the principles of good corporate governance, is responsible for planning the organisation’s strategy and communicating it to management for implementation.
- Review and evaluate present and future opportunities, threats and risks in the external environment and current and future strengths, weaknesses and risks relating to the company;
- Determine strategic options, select those to be pursued, and decide the means to implement and support them;
- Determine the business strategies and plans that underpin the corporate strategy; and
- Ensure that the company’s organisational structure and capabilities are appropriate for implementing the chosen strategies.
A well-composed board — that is, one which includes board members from a variety of backgrounds, and who possess complementary skillsets — should discuss all aspects of strategy. A well-developed strategy takes into account elements like the current market outlook given the perspective of the economic climate, financial reporting and projections for the future, and marketing — effectively every aspect of the organisation’s operations and environment.
Board Strategic Planning Process for UK Board Members
- Identify strategic business vulnerabilities.
An effective board of directors need to review their strategies from the perspective of where the organisation might show weaknesses that others could exploit: A takeover would be an obvious threat, but underperformance would be another. Each part of the organisation should be reviewed according to parameters of effectiveness and performance. Actions that might affect the shareholders must also be considered as potential vulnerabilities.
- Assess the current and emerging economic outlook.
The global economy has never been more volatile than in the past decade, and directors must take into consideration whether a plunge into recession or a nascent recovery is in progress. Scenarios should be run in which varying economic conditions affect the organisation. Board members should bear in mind the effect of economic or world events on suppliers, customers and other stakeholders.
According to this perspective, one area to which board members must pay particular attention is the price of energy. Now one of the most volatile costs on a balance sheet, the price of energy must be considered within a medium-term perspective. The price of oil may be low today, but in six months, it may be through the roof again. If your operations involve the supply of electricity, then a strategy must be developed to purchase power from the grid at the best price.
Companies with effective treasury departments in place will have a strategy developed for foreign exchange costs. But board members must be vigilant in projecting changes in currency costs over the long term.
- Determine how, and in which part of the company, growth can be increased.
The board of directors should monitor and review operations in every part of the company to see if changes, for example providing increased resources, would result in increased growth. Management decisions should also be reviewed for performance results. Where growth can be acquired in a merger or an acquisition, these options should be carefully considered.
- Fix long-term goals.
Given pressure from shareholders to show increasing profit every quarter, boards can find it difficult to fix and work for long-term goals. Certainly, performance must be satisfactory each quarter. But the pursuit of goals that could keep the company ahead of the competition for many years must continue as well. This is certainly a difficult balancing act for any board of directors, but it is one that is inevitable. Good communication with shareholders can help maintain support as long-term goals are pursued.
- Oversee risk monitoring, including that of cyber risks.
Just as goals, economic outlook and growth objectives must be fixed, so the risks inherent in all of these strategies must be determined and carefully monitored via the internal controls that a good corporate governance framework will set up. The audit committee is the board’s front line in terms of risk management, but many boards today also have a risk committee. However, even with these two committees at work, boards must review carefully how well oversight is functioning, particularly with respect to the rapidly evolving world of cybersecurity.
- Determine a strategy for investing profit and monetising assets.
Shareholder pressure for boards to maintain a good return on corporate cash flow makes it critical for boards to ensure that the CFO’s strategy for this is viable. It should, of course, be monitored for risks as well.
And any cash management strategy should be tied in carefully with decisions about dividend payments to shareholders.
- Plan for Corporate Social Responsibility and Environmental and Social Governance.
Today, Corporate Social Responsibility (CSR) and Environmental and Social Governance (ESG) are an integral part of any board’s operations. The former concerns actions that show that the organisation contributes to the surrounding community; the latter is now part of all financial reporting, and one that major shareholders scrutinise. Directors may have to consider integrating CSR into their business objectives. Today’s shareholders are more interested in investing in socially and environmentally responsible organisations. Directors should assess their stakeholders’ views on CSR and consider reporting CSR-related activities in their annual reports to publicise their stance on the matter.
Find out about 2019 corporate governance priorities with this white paper and see how it can help board strategic planning.
Diligent’s Board Software Supports Board Strategic Planning
We’ve seen that board members have vast responsibilities, over a wide range of areas. Staying up to date and prepared with this workload is a real challenge.
Diligent Governance Cloud, with its secure environment and range of applications, provides all the tools a board member requires to be a high-performing and effective director.
First of all, Diligent Governance Cloud protects all communications and stores all documents and materials using the highest grade of security.
Then, tools like a library of reference material, including all board-related materials, but also background on areas like the economy or the market in which the company operates, are available to directors whenever and wherever they need them within Diligent’s board management software. Diligent Insights also provides specific topic materials selected especially for directors.
In addition, there is a powerful group of applications for board member activities like voting, taking the meeting minutes, board evaluations, entity management and much more. Diligent’s Nomination and Governance board succession planning module, gives boards access to critical information for good governance oversight.
Diligent Governance Cloud supports the work of a board member at every level of activity.
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