Determine strategies and plans*

Harvard Business School survey - establishing corporate direction

The primary task for all boards is to establish corporate direction.

It is also the area in which boards find it most difficult to spend sufficient time and about which directors most frequently report the inadequacy of their knowledge.

Consider these results from a Harvard Business School survey: -

• 90% of companies fail to execute strategy
• 85% of executives spend less than one hour a month discussing strategy
• 60% of companies do not link budgets to strategy
• Only 25% of managers have incentives linked to strategy
• Less than 5% of the workforce understand the strategy

Having considered corporate and financial strategic options for the organisation, the board is then able to decide the direction for the organisation. Next is to ensure that business strategies and plans are developed to implement the corporate strategy.

These are likely to be the responsibility of the management – the people who have to deliver the results.

The role of the board is to approve the development process and to ensure that the strategies and plans are consistent with the corporate strategy.

This might be integrated with the organisation's budgetary process and is likely to be iterative – depending on the extent to which the board needs to be involved.

Key considerations are: -

• Plans are consistent with corporate strategy
   
• Plans are compatible across different business units
   
• Individual and combined plans are achievable within the resources available, and the forecast revenues and costs
   
• Plans are consistent with and potentially responsive to changes in market, economy and regulatory environments
   
• Plans are consistent with legal and ethical requirements
   
• Plans are supported by the management

Corporate governance check

Are business strategies and plans for different parts of the organisation determined and regularly reviewed by the board?

Business strategies are consistent with corporate strategy, objectives and plans?

• The board and individual directors receive up to date, accurate and appropriate performance information?
• The board sets targets and reviews performance on a regular basis?
• The board responds appropriately if performance does not meet expectations, or conditions change?

* Inspired by the Institute of Directors Standards for the Board