Board responsibility for strategy

More and more these days are board of directors expected to be responsible for the success or failure of their companies. They are no longer seen as superannuated observers of the efforts of management to bring about profits and fight for competitive advantage. Directors are now expected to design the strategy for the benefit of their companies

Last week I was fortunate to attend an ICD (Institute of Corporate Directors) seminar, entitled “Strategy Execution Pathway (StEP).” The three speakers for the program, Atty. Teddy Kalaw, Dr. Nick Fontanilla and Engr. Dante Briones, gave the participants a mind-boggling set of lectures that directors should take heed of.

The object of StEP is to enable directors to appreciate their role in strategy design and monitoring. They are expected to know how to prepare a strategy map, and in consequence, learn how to do a scorecard in relation to the decisions they make.  Moreover, strategy monitoring and accountability are expected to be reviewed at every board meeting. It is important to see how the strategy designed had contributed to the company’s performance, and if not, would there be a need to review the strategy? Strategy is necessary to govern effectively.

Kalaw’s two presentations, “Creating Champions: the Role of the Board in Strategy Design and Execution,” and “Power of the Charter: From Vision Setting to Execution,” aimed to explain the concept of governance, its core principles and current fundamental best practices in the field to inform directors that corporate governance goes beyond conformance (as it was when the concept was first introduced as a compliance norm) but is, in fact, a journey to a company’s sustainable performance. Participants learned why strategy formulation and execution must be understood as to how their organizations must first craft their values, mission and vision (VMV), and especially, nourish their firms’ core values so as to utilize these together with their mission, to achieve a challenging vision of where it wants to be at some future date. They would have to understand the concept of competitive strategy and the foundations for its execution. Their strategy must be aligned with the firm’s vision, and all officers and employees must likewise align themselves with the strategy crafted.  Finally, the board has to keep score and communicate performance progress, to the company, to its officers and employees, to the regulators, and to the public.

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Fontanilla noted that nine out of 10 companies had failed the test of strategy execution, informing that only 5 percent of employees understand the company strategy, that 60 percent of organizations do not link budget to strategy, only 25 percent of managers have incentives tied to strategy and executive teams spend only one hour monthly to discuss strategy.  He gave a step-by-step way to translate the strategy: first, design the strategy map, reviewing the VMV and emphasizing that a good strategy map must have the following key features:  It must tell a story, it must be inclusive (for those who govern and who are governed), it is process driven, and it is balanced and interconnected. Well-designed strategy drives execution, and provides the following interrelated perspectives: learning and growth (enabling individuals), internal process (to satisfy customers and stakeholders)—these two are the drivers to get to the outcome—namely, meeting customers’ needs, achieving financial objectives, and, finally, its impact on the society.

At the end of his talk, Fontanilla provided the components of the scorecard, namely: (1) articulation of the components of the strategy; (2) measures to drive behavioral changes and tracking progress to achieve the objective; and (3) checking initiatives that will help close the gap between current and desired performance.

The last speaker, Briones rounded up the day’s exercise by stressing the importance of strategy execution, understanding the development of the scorecard, stating the need to prioritize strategic objectives and appreciating the role of the board in strategy execution.  He told participants to ask: What are you measuring, and what are you asking from management?  He guided participants on how to choose measures by asking the following questions: Does the measure focus on the envisioned strategic shift? Does the measure belong at this level? Can the measure be quantified and repeated over time? can the measurement data be reliably gathered? Can meaningful targets be established to encourage the desired behavior? And, finally, is the frequency of update meaningful?

Altogether, the seminar was a highly educational exercise that board of directors would do well to put into practice. For indeed, their positive response and actions in regard to strategy execution spells the difference between a highly successful company or one that fall by the wayside.

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Turning Points 2018