Who is responsible for the strategic direction of the company?

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.

The strategic management process requires competent individuals to ensure its success. Therefore, to understand strategic management, we must know where strategic decisions are made in organizations.

Inputs to strategic decisions can be generated in a number of ways. Overall, top management, board of directors, and planning staff tend to be those positions that have the most significant involvement and influence in the strategic management process of organizations. The failure of an organization to achieve its objectives can often be traced to a breakdown at the level of the board or top management. However, the final responsibility rests with top management. Some of the strategic management responsibilities are outlined in

Top Management

The term "top management" refers to a relatively small group of people include president, chief executive officer, vice president, and executive vice president. Because the insights of these executives play such a critical role, a number of writers have stressed the importance of matching the characteristics of these executives with the firm's strategies.

The strategic management process of today tends to be dominated by the chief executive officer (CEO). For example, Kenneth R. Andrews described the chief executive's role as "Chief Executive as Architect of Purpose."

George Steiner summarized the role of the CEO in strategic management as follows:

1. The CEO must understand that strategic management is his responsibility. Parts of this task, but certainly not all of it, can be delegated.
2. The CEO is responsible for establishing a climate in the organization that is congenial to strategic management.
3. The CEO is responsible for ensuring that the design of the process is appropriate to the unique characteristics of the company.
4. The CEO is responsible for determining whether there should be a corporate planner. If so, the CEO generally should appoint the planner (or planners) and see that the office is located as close to that of the CEO as practical.
5. The CEO must get involved in doing planning.
6. The CEO should have face-to-face meetings with executives for making plans and should ensure that there is a proper evaluation of the plans and feedback to those making them.
7. The CEO is responsible for reporting the results of the strategic management process to the board of directors.

The chief executive officer (CEO) is responsible for the final decisions, but its decisions is the culmination of the ideas, information, and analyses of others.

They say that those who fail to plan are planning to fail. While it would be a rare organization that does NO planning, too often we fall into one of two camps:  

• Planning for the near term, being essentially ‘reactive’ to current conditions
• Writing a strategic plan and then putting the plan on the shelf and never enacting its provisions

Why do boards find strategic planning so hard? It’s probably because they feel they can’t predict the future and therefore find it difficult to plan for the unknown. True, we cannot know the future. But credit union boards are composed of passionate, resourceful people. They CAN create scenarios. They CAN conceptualize the credit union’s future and plan to make it happen.

Strategic planning requires a deep and strong commitment from the credit union’s leadership – it seeks ownership at every level of the organization. So WHY do it? Here’s some of the most important reasons:

• To clarify the mission to all stakeholders
• To assess, reassess, and adjust programs and services
• To reaffirm that the credit union is headed where it wants to go or should be going
• To focus thinking "outside the box" of everyday operations
• To develop a framework within which to make difficult decisions
• To address external uncertainties and change
• To build teamwork, communication and expertise among board and staff
• To measure organizational effectiveness by incorporating evaluation or measurements into the process

But who’s responsible for strategic planning? Let’s take a look at the roles in strategic planning:

Role of the Board

Without the full board’s blessing and participation, the success of the planning effort is compromised. Whether the board or the CEO introduces the need for planning, the board must be behind the decision to move forward, and then ultimately approve the final directives. The board’s role is to set direction and, with the CEO, determine and fine-tune the mission, vision, and the values of the credit union.

Role of the CEO

The CEO is in the in the driver’s seat, taking charge and managing the strategic planning process. They often are the visionary, hoping to articulate the options available for the future and then get the board’s blessing. They usually are the instigator of the planning idea and sees that the plan is executed in a concrete manner. They coordinate the participation of everyone whose collaboration is needed. They may delegate some of the individual tasks to others but they remain the supervisor who ensures that planning proceeds as expected.

Role of the Staff

Without the staff’s input, perspective, support during planning, and final implementation of the plan it would be impossible to carry out the strategic planning process from conception to successful results. After the overall plan is defined by the board and management, the staff should be busy drafting their own operational plans for implementation. The operational plans are the natural next step to the strategic plan. They translate the board-approved objectives into workable actions and schedules.

Role of a Consultant

A consultant or professional facilitator can add objectivity and autonomy to the process while also alleviating the stress of the additional work load. A facilitator can ensure that all the steps to strategic planning receive proper attention. A consultant acts as a mere facilitator who directs the process and runs the meetings but does not impose his or her opinions. They may also act as the professional guide who takes the responsibility of defining the key issues through interviews and other methods, and then helps steer the board and staff in the right direction.

As the world of credit unions becomes more and more complex with never-ending regulatory changes, interest rate risk, cybersecurity threats, the upcoming EMV chip card technology, mobile banking and payments, and declining non-interest income the importance of strategic planning has never been stronger. 

By Karen Houston-Johnson, VP, Credit Union Resources, Inc.