Focus on strategy - the board's role

The role of a board is to think strategically about the future of the organisation, to consider the big picture and take a birds-eye view so that the best decisions can be made. This is no easy task and requires an ability to take a step back from the day-to-day operation of the organisation and focus instead on the larger and longer-term picture.

Questions boards consider

• What is the future of the organisation?
• What is the status of the industry?
• What competition does the organisation face?
• What are the future challenges to the organisation?
• What is the financial state and future state of the organisation?
• What are the legal requirements the organisation must fulfil?

While the role of the board is to develop and confirm this strategic thinking, it is then up to the management team to implement it. Therefore, a strong working relationship between the two groups is vital.

A written plan

An agreed 3–5 year strategic plan and annual operating plan are critical. Taking time out of the day-to-day business to formulate the strategic plan and commit it to paper allows organisations to focus on what is important in the long-term and what they will need to do to achieve their long-term objectives. It allows the entire organisation to have a clear vision so management can align day-to-day activities to achieve this vision so sharing this plan with the wider organisation is an important part of the planning process. It also allows the board to monitor performance both against the overall strategic plan and the annual operating plan and budget.

Getting the right information

Board papers are the most important source of information for them to understand performance against the strategy. They should link to the strategy and keep the board fully aware of the company’s position and progress. For a complete picture of the state of the company the board will normally need information covering company operating data, financial results and financial position, market and sales data, competitor activity and benchmarking and industry trends. The board will also receive detailed information in relation to capital expenditure proposals to allow it to make wise investment decisions.

Key Performance Indicators (KPIs)

Most plans include a number of KPIs which allow for measuring and monitoring progress in relation to strategy. They allow boards to assess the health of the organisation and are often used as part of the organisations performance planning process for management to ensure that management are consistently working towards the relevant goals.

KPIs:

• are factors that are critical to the organisation
• encompass both the organisation’s compliance and performance status
• are set out in the strategic and annual plans
• are agreed in advance as part of the planning process.

The most common and significant KPIs are set in the annual operating plan and budget and are mainly financial in nature. However, there are other important non-financial KPIs such as customer service and satisfaction, employee satisfaction, quality, efficiency, project milestones and brand recognition.

Monitoring of the KPIs including the budget should occur on a regular basis throughout the year to allow for timely intervention and adjustments if required.

Director and board evaluation

The rationale behind evaluating boards is the need to ensure that the board is performing to the best of its capabilities and make changes if it is found that there are areas for improvement. It is gradually becoming acknowledged that, just like in executive and staff management, it is best practice for a board to evaluate their performance on a regular basis.

Once it has been decided that an evaluation or appraisal is to take place, the board should determine the issues to consider and the manner in which evaluation should be conducted. It can also decide whether to evaluate the board as a whole, or individual directors, or both. Such evaluations should take place yearly to achieve maximum effect, with year-on-year comparisons being particularly useful to monitor change.

The IoD's online board evaluation tool assists in the evaluation and development of directors and the CEO. Questionnaires available are board, chair, director and CEO. It helps boards identify their strengths and weaknesses, assess their performance, and determine opportunities for becoming better at what they do. It's simple to set up, easy to use, and now accessible across mobile web platforms. The resulting reports are comprehensive, easy to follow, and enable real change.

The IoD's online board evaluation service is the only board evaluation tool that shows how your board is performing against The Four Pillars of Governance Best Practice.

Find our more about IoD's board evaluation service