The two critical roles of the board of directors are (1) oversight and (2) going-concern. The oversight role entails effective risk management and compliance enterprise-wide. While the going-concern role is about organizational sustainability through effective strategy formulation, business model, and execution.
What is going-concern?
It is the primary role of the board to sustainably grow the business. The board must make sure their business they preside over can never go burst or collapse, otherwise, that is a sign of a poor board of directors. The first duty of the Board is to ensure sustainable growth. This is achieved by discussing the strategy and growth areas to tap into.
To achieve their role of going-concern or ensuring the existence of the business for the foreseeable future, the board must take a leading role in strategy formulation and follow up for effective execution. At every board meeting, the board must ask: what is our purpose? What business are we in? What is our business model? Is our business viable? Where will growth come from? What do we have to invest in now to create value for our stakeholders now and in the future? What changes are taking place in our environment that could affect our profitable or sustainable growth? Are we winning or losing?
What are our short-term game (tactics) and long-term game (growth strategy)?
For that reason, the board must continuously challenge the executive to provide feedback on the strategy.
To monitor strategy execution, the board uses a tool called a strategy scorecard. The scorecard is a collection of performance areas or enterprise targets or objectives, with clear measures, targets, indicators of performance, and responsibility centres. Only critical targets must be included in the score. Look at the scorecard as a car dashboard. Only the critical items in the car are monitored on the dashboard.
To be continued.
Copyright Mustapha B Mugisa, Mr. Strategy, 2021. All rights reserved.