“The board plays a vital role in shaping strategy.” – Ram Charan
In the world of business, management guru Ram Charan’s words, “The board plays a vital role in shaping strategy” couldn’t be truer. As business owners and CEOs of companies, we often find ourselves navigating through the intricacies of strategy and planning. However, in this journey, there’s a guiding star that can make all the difference – the board of directors. There’s no question that effective boards shape strategy!
In this article, we’ll explore the importance of boards, whether statutory or advisory, for companies of all sizes. We’ll delve into the remarkable value they bring, emphasising the significance of regular board meetings. We’ll also uncover some compelling statistics that demonstrate how boards contribute to higher growth rates, greater profitability, and higher valuations of companies.
Moreover, as we dive into the heart of this strategic planning season, we’ll stress the importance of starting early, setting board meeting dates, and following a structured process that should be completed by the end of November or early December. This ensures that the goals, OKRs (Objectives and Key Results), and KPIs (Key Performance Indicators) are communicated to the staff before the year’s end so they’re ready to start the new year knowing exactly where they’re heading and what their roles in the success of the business will be.
The Board’s Role in Shaping Strategy
The board of directors, whether you have a statutory board or an advisory one, is your strategic compass. It’s not just a collection of senior individuals; it’s a powerhouse of experience, knowledge, and wisdom. They bring diverse perspectives to the table, offering insights that you, as a business owner or CEO, might not have considered.
The role of an effective board in shaping strategy and guiding organisations is multi-faceted, so taking advantage of this and including your board in your strategy workshops and deliberations will add considerable value:
- Shaping Vision and Mission: Directors provide guidance on defining and adapting the organisation’s vision, mission and values to respond to evolving internal and external realities. Their insights help craft an inspiring purpose.
- Guiding Strategy: Boards play a key role in co-creating multi-year strategic plans to achieve the organisation’s ambitious vision. They weigh options and make recommendations to formulate sound strategies.
- Providing Counsel: Directors draw upon diverse expertise in areas like operations, marketing, technology, finance, and leadership to advise executives on strategic business decisions and challenges.
- Risk Mitigation: Boards identify priority risks to strategically important initiatives through a risk management lens. This enables plans to minimise exposure.
- Driving Innovation: Directors encourage ambitious “blue sky thinking” and weigh merits and risks of potential innovations that could strategically differentiate the organisation.
- Sparking Crucial Conversations: During strategy sessions, boards spark productive debate, constructive dissent, and rigorous discussion to stress test assumptions and uncover blind spots.
- Securing Buy-In: Before implementation, boards review strategy, provide input, and formally approve multi-year plans. This secures alignment on the road ahead.
- Monitoring Execution: Boards maintain accountability by monitoring performance on strategic goals and key results through regular reviews of OKRs and KPIs across the organisation.
The Added Value of Boards
Statutory boards are obligatory for larger businesses and useful for smaller ones, but even the smallest can benefit greatly from an advisory board.
Boards add value to companies in multiple ways. Firstly, they provide strategic guidance and contribute to the formulation of long-term goals and objectives. Boards help companies assess market dynamics, identify emerging trends, and make informed decisions to stay competitive.
Secondly, boards offer oversight and accountability, ensuring ethical practices, risk management, and compliance with regulations.
Thirdly, boards bring credibility to organizations, instilling confidence among stakeholders, investors, and customers. The presence of a competent and independent board can positively impact a company’s reputation and attract investment opportunities.
Boards offer guidance, mentorship, access to networks, and a strategic outlook that can be a game-changer for your business. These boards are not only an integral part of corporate governance but, by helping your company navigate challenges and seize growth opportunities, they also serve as the architects of your business’s future.
Boards Drive Growth, Profitability, and Valuations
Statistics reveal the transformative power of boards. A study by the National Association of Corporate Directors found that companies with effective boards of directors outperformed those without them. The numbers are staggering:
- Higher Growth Rates: Companies with effective boards reported 25% higher growth rates.
- Greater Profitability: They achieved 53% higher return on equity (ROE).
- Higher Valuations: Their market valuations were 56% higher.
Other research also affirms that active boards drive improved performance:
- Companies with boards that review strategy frequently exhibit 20% greater growth.
- Businesses with boards more involved in budgeting and goal-setting have 30% higher profit margins.
- Startups with advisory boards raise 7% more funding and exit 17% faster.
- Public firms with robust board oversight enjoy valuation premiums up to 20%.
These figures underscore the immense value that boards bring to the table. They not only provide strategic direction but also contribute significantly to the bottom line.
The Importance of Regular Board Meetings
To harness the full potential of your board, it’s essential to hold regular board meetings. These meetings serve as a platform for brainstorming, deliberating, and making critical decisions about your business’s strategic direction as it unfolds. The following are some key reasons why regular board meetings are indispensable:
- Strategic Alignment: Board meetings align everyone on the same page, ensuring that the strategy is understood and supported at the highest level.
- Accountability: Regular meetings create accountability, pushing the company to meet its objectives and keep track of performance metrics.
- Expert Insights: Boards bring an array of expertise and connections that can open doors and uncover opportunities you might have missed.
- Risk Mitigation: They help identify potential risks and challenges early on, allowing for proactive mitigation.
Planning for the New Year
Now, let’s look at the crucial element of planning for the new year. It’s a process that should commence well in advance. To get started, consider these steps:
Setting Dates for Board Meetings: Begin by setting dates for board meetings. The first should be an informal meeting to outline the initial thinking on strategy and get the go-ahead from the board. Determine the level to which your board members will be involved in your strategy planning and set those meeting dates, too. You want to take advantage of the skills, knowledge, expertise and diverse backgrounds of your board. The final meeting is where you present the strategy for formal approval, and should be booked well in advance.
Completion by November/Early December: The entire process, from outlining your strategy to securing board approval, should be completed by the end of November or early December. This timeline ensures that your staff is aware of the goals, OKRs, and KPIs before the year’s end. This early communication is vital for a smooth transition into the new year.
In Conclusion
As business owners and CEOs, we are at the helm of our organisations, steering them towards success. But remember, even captains need a compass, and that’s precisely the role boards play. They are the guiding star in our strategic planning journey.
Whether your board is statutory or advisory, its significance cannot be overstated. Statistics prove that boards contribute to higher growth rates, greater profitability, and higher valuations of companies. They are not just about meetings; they are transformative experiences.
So, start planning for the new year now. Set dates for board meetings, outline your strategy, and seek board approval. This process, when completed by the end of November or early December, will ensure a seamless transition into the new year. Your staff will be fully informed of the goals and the path ahead, setting the stage for a year of growth, prosperity, and strategic success.
In the words of Ram Charan, “The board plays a vital role in shaping strategy,” and it’s a role we should embrace wholeheartedly.
Do you have a board and do you actively involve it in your strategy planning? Share your insights, challenges, or success stories in the comments below.
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If you’d like learn more on this topic, the following articles and posts might be of interest.
Other articles in this month’s focus on Strategy and Planning:
- Crafting a Three-Year Strategic Plan: The Roadmap to Success
- The Role of OKRs and KPIs in Strategic Planning
- Developing a Strategic Roadmap
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Tracking and Updating Your Plan – Ensuring Your Business’s Agility in an Ever-Changing World
Related Posts
- You’re Driving, But Does Everyone Know The Destination?
- “The best way to predict your future is to create it.” – Abraham Lincoln
- Is Your Strategy Fit for Purpose?
- CEOs – 6 Important Questions to Ask Yourself Before Next Year
- Is Your Strategy Fit for Purpose?
- Why a Proper Board is Essential, Even for Small Businesses
- NEDs – a Cost-Effective Way to Add Significant Value to Your Business
- Board Meetings not Bored Meetings!
- Proper Preparation for Productive Boards
- Boards Accelerate Success & Increase Value for Small Companies, Too
Backgrounders:
HBR: Every Family Business Needs an Independent Director
BDO: Non-Executive directors – Why your privately owned business needs one
From BoardPro: How management can work with the Board in the creation of a business strategy
McKinsey: Tapping the strategic potential of boards
- “The Board Perspective” – collections of articles
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