At the start of every year, businesses put together their operating plans, projections, and budgets for the year ahead. In addition to the financial metrics, most businesses also set operational goals for the company to reach throughout the year. A good plan will be future-focused on where the company wants to be at the end of the year, and will show how that will position the business to achieve its vision and potential in the years ahead. In other words, a good annual plan will marry the long-term strategy with near-term operating tactics for the current planning cycle.
Companies do this routinely every year as part of the business operating system. The plan is usually presented to the board first, and once the board has approved it, then it is published to the company with fanfare and a big feel-good kickoff meeting. Approving the annual plan is an important board responsibility, and is a moment of clarity when the board is explicitly agreeing with the CEO and leadership team on what constitutes success for the current planning cycle, how it will be measured, and how it will be reported. It is a time when the board’s strategic role intersects with the near-term operations of the company, and it should highlight for the board exactly how the company expects to execute the plan.
While companies have a well honed routine to generate and publish the annual plan, it is not as common for boards of directors to take a step back and consider their own role and plan for the year. In other words, to explicitly define the board plan and kickoff. This may seem like a strange idea, but think about a high-growth business that is expanding and maturing every day. We routinely evaluate the leadership team’s skills, and anticipate the need to upgrade or replace leaders as the company outgrows their capabilities. If the company is changing that much, shouldn’t we also consider how the role of the board is changing? Might that also lead us to evaluate board roles and board composition?
Often, the board holds a performance review discussion with the CEO at the end of the year. At the same time, the board should encourage the CEO to turn the tables and provide a performance review for the board as well. Too many CEOs perceive their board of directors to be ineffective or dysfunctional, but they do not feel they have a ‘safe’ mechanism to provide feedback, up to and including a request to change the board composition. The start of the year should be a time for the board to perform its own self-assessment. Boards can become stale over time as member’s perspectives calcify, and contribution becomes routine or nonexistent. Long-term members may see the company through an historic lens and be unable to refresh their perspective and recognize the company and its executives as they have matured. It is like knowing someone as a child and still thinking of them that way even after they grow up. This can lead to distrust in the company’s ability to execute, or be perceived as a lack of support for key executives the board is still treating as children. An open discussion among board members can highlight these behavior patterns and set the stage for a more productive process going forward.
I have frequently written about curating the board to be a competitive weapon. With the start of each plan year, there is also an opportunity for a healthy discussion about the role of the board, and how the board can contribute to the business achieving its goals. For the board to truly be a competitive weapon, there has to be an alignment of board capabilities and contribution with the operational goals the team has set for the business. The board needs to have the skillsets to be of assistance to the business. As an example, if the company anticipates a liquidity event or capital raise during the year, the board needs to be focused on the metrics that will result in an optimal outcome, and assist the company to avoid distractions. Board members may need to tap into their network of bankers, lawyers, investors, and service providers to assist the company to effectively go to market, and institutional-investor board members may need to prepare their institutions to participate in the capital raise, or support the liquidity event. Some funds have partners that specialize in capital events or M&A, and they may want to swap positions with existing board members when the company moves into this phase. The important point is to assess the plan for the board in the context of the plan for the business, and curate the board accordingly. Bottom line, the board that helped the company to get to where it is, may not exactly be the board to help get it to where it needs to go.
Assessment, adjustment, and planning should go on throughout the year, but the kickoff is a unique time that presents an opportunity to reset and rejuvenate the board process. Just as the business performs a look back and evaluates the prior year, the board of directors should do the same, and as the business develops its annual plan, the board should take the start of the year to consider its own role in achieving the plan.