Governance and Strategic Planning

What is Strategic Planning?

Strategic thinking and planning means looking into the ‘white spaces’ to find needs and wants in society not now being addressed. In contrast, making plans with action steps based on known trends is tactical and yet essential to success — to getting through the near-term and creating the ability to, and the map to chase the dreams: the mission and vision.  Mission and vision are destinations with no numbers in them. The tactical plans are more specific with time-frames or deadlines with measurable & numerical milestones. Since these latter plans are necessary to implementing strategy, to progressing toward the mission and vision, they are often called strategic planning. As a result, the more difficult strategic thinking doesn’t happen.

What examples of misuse of the term “strategic” have you found?

Herer’s one example,  an instrtuctional piece, “Strategic Planning For A Credit Card Program.” The sub-title is a clue, “Managing a credit card program is difficult, but it can be very rewarding.” Leadership is akin to strategy, doing the right things; managing is akin to tactics, getting things right, and responding to known forces and trends.

I received invites to attend a socalled “Strategic Collections Conference.” The decision to make loans or issue credit may well have been a strategic decision; once in effect, it changes the company and is difficult to undo. Once a company issues credit, collecting is a necessary operation and various tactics may make collecting more effective.

Why do you care if the word “strategy” or “strategic” are misused?

Dan’s biggest concern is applying the term strategic to tactical — long-range and operational planning — lulls leaders into thinking they are thinking and working on strategy when we are not. Leadeers cannot be described as dilligent and caring while ignoring the benefits of preparing their organizations for the future generations. For, if your mission and vision are worthwhile to society, they should care about viability and sustainability.

What is the meaning of your catch phrase, “Seeking Farther horizons?”

In my opinion, based on decades of working with clients and observing businesses and nonprofit organizations, that we are all too focused on now and the near term. In fact too much time is spend looking at recent historical information instead of what’s ahead. I am seeking, and help clients seek farther planning horizons as our planning model explores in more detail.

Is it okay to skip a year not conducting strategic planning retreat?

Strategic planning, “Yes. It should take a major shift in the way the world works before you re-write a mission, vision, or enterprise strategy. Strategic thinking, on the other hand, is an ongoing process that may at any time casue a reevaluation of those directions and appropriate adjustments. Keep in mind, this answer does not pertain to goals for the next decade. Refer to our planning model for clarity.

What is a mission statement?

A mission statement is an answer to the question, “why do we exist?” A memorable statement weighs-in at 13 words or less. The statement addresses a condition that will exist when the mission is completed. If a mission explains what the organization does, it should adress why the organization does what it does. Statements about how you do what you do are the strategies, the behaviors, processes and unique characteristics employed to achieve the mission. Your products or services are what you do; if others do them too, your mission describing them cannot be unique.

How does a vision statement differ from a mission statement?

A mission could be the solution to a society’s needs that last a century. Visions, conditions to produce in twenty to thirty years, are stepping stones to achieving the mission. Visions address outcomes for both the communities served and key things like what the organization wants to be known for, legacy ideas, and big, hairy and audacious goals (uncover BHAGs rather then drive them.)

Read more frequently asked questions and Dan Clark’s answers on his site.

When an organization is mature and has sufficient resources to hire a competent executive to take over operations, can the board be fully constituted with strategic-thinking, right-brain dominant directors?

In theory, “Yes.” On a foundation of well-written governance policies and oversight practices, a board can more clearly separate its directorial duties from managerial activities. Another benefit is the maintenance of two perspectives:

• ·         Management does; the board oversees;
• ·         Management is about getting things right while the board is about doing the right things;
• ·         Management is about means and the board is about ends.

Separate perspectives enhance the development of the organization’s mission and vision. Yet, this does not mean the two entities work separately. The partners, management and the board, work together on areas where they need the other’s perspectives: primarily, strategic planning, and aligning the business plan with the strategic plan.

Personally, I do not know any board like that: fully creative and innovative. Yet it seems logical to make it so, doesn’t it?

I receive questions all the time. This question is a good one becuse it goves me a chance to clarify what might not be clear in a fast-paced workshop.

Since I think the two terms, accepted and approved may be too similar, I prefer neither when it comes to a board using material it does not need to act on. Whatever organization you represent, you should know what relevant laws, regulations, acreditation quidelines require your board to act on. I take the position that the duty of care suggests that a board hire an architect to design its building, hire a CPA to do its audit, and hire competent management to make a myriad of operational decisions it can not study enough to make itself, and in a timely fashion.

When a board’s policies include a list of the reports it wants from management, the board will reprimand the CEO for not providing a report. Therefore, if there’s no record of a gap, reports were delivered. That should be sufficient under regulatory or legal scrutiny. Acting on or approving a report implies that a diligent board might someday disapprove of a report. You can let the minutes show that directors have received a special report of some kind.

Remember, there are no requirements for a board to approve any reports from other parties the board relies upon for information; I’ve inquired with many attorneys across the country about this. Approving reports may never become an issue but it is an admonition I found in Robert’s Rules of Order, Newly Revised. If directors and a board act in good faith, exercising care, it
is difficult for a court to prove negligence and attach a director’s personal assets. However, if the board approves a report that is flawed, the case seems much easier to make.

The board must approve the minutes of its actions to record for posterity its decisions it made. A board also needs to act on, approve or deny every other business decision that it has not delegated to others in writing–acts it also approves. Usual delegates are committees or the CEO. The duty of care requires a board to be sure it delegates to parties competent to make those decisions.

Most boards that I know approve an annual budget. You might call it a spending plan that authorizes management to pay out what is in the expense part of the budget. John Carver (Boards that Make a Difference, 1990) reminds us that a budget is a financial control tool; rather than a board approving it, a board could require that management use one for planning and control. In the former case, the board does not have to approve checks written before or after the fact because it approved the spending before the year began. In the latter case a board needs to work out the details so it complies with its Bylaws.

If the board has delegated authority to a Committee or the Executive, then it only needs to be informed of those decisions, not individually in most cases, because the board reads reports on the status and performance of the organization reflecting the results of many of management’s decisions.

An effective board delegates decisions for one or more reasons to a committee or management because:

• The decisions come up frequently and unexpectedly and the organization can suffer waiting for the board to deal with it.
• A committee or management can keep track of the facts and act more quickly than the full board.
• Failure to delegate authority to a competent person is an insult of sorts, and squanders some of the community’s money.
• The duty of care is demonstrated best when a board allows expertise to act in its stead when it cannot render the best decisions itself in a timely manner.

Here’s my short ( 3 min) video on the subject: http://youtu.be/-4tgtlg9kIU

George Bernard Shaw once said, “You see things and you say, Why? But I dream things that never were; and I say, Why Not?”

Too many organizations today, nonprofit and for-profit, have stopped dreaming. It seems impractical to plan beyond a few months or a year’s financial projections. I guess it’s an efficiency thing: “Why plan since everything will change anyway.” That’s a mindset for those who will rather respond to the world than try to shape it.

Inherent in every start-up is the notion, spoken or silent, that the organization has a chance to make the world a better place. Being profitable at it (even nonprofits need reserves) does command attention yet, it is an essential byproduct of success. Dreaming of what can be is squashed by the pressures of money and markets and competition.

Here’s what you can do to make visions of a better world, the world your organization intends to affect, a part of your planning process:

1. Continue planning as you have been.
2. Add to your long-range plans ideas you have that are too far out to commit resources to achieving. For example, it’s been in your mind a while now to expand your efforts to a new territory but it’s premature to do anything about it. Put it in the plan with a completion year 8, or 9 or 10 years from now. Describe it concisely; add no other details or action steps for now.
3. Exercise your visioning skills. Have your leadership team (the board and top management) exercise creativity by having conversations about what they would like to see decades ahead. Do not allow discussions of where known trends will take things. Instead, ask the question, ”What should things be like decades from now?” Focus that discussion on the world around your organization and not the organization itself. Don’t burden these early efforts with work product — no minutes or published notes; just have the discussions, limit the time for them (it’s an exercise not a decision meeting or planning event), and get back to normal work when the discussion is through.

Consent agendas save time because a board dispenses with — approves in one action — a host of routine items that do not need discussion or debate. Typically consent items include minutes of prior meetings, actions required by outside authorities, actions previously debadted now ready to be codified, and recommended actions from committees and professionals.

In an effort to stifle discussion on reports that need no discussion at a board meeting, leaders are placing on Consent, reports that the board never before approved. That makes those reports a product of the board while it had no hand in producing them. It adds a layer of liability to that board.

Better to declare that reports are for information, not board meeting discussion unless an issue is scheduled for discussion — it’s the issue, not the report that’s scheduled for discussion.

Better yet, make reports to the board separate from meeting agendas; there’s no need for the agenda to be a transmittal for all things your board should study.

Congress, State Legislatures and regulatory agencies are beginning to make fiduciary duties more specific. For example, I am receiving questions related to the new rule from NCUA, 701.4 (b) (3). What has for Centuries been common law is now becoming de jure, not only for credit unions but all nonprofits.

Trying to make governance policies address every new thing invites trouble:

• Repetitive provisions that are supposed to mean the same thing, inadvertently worded differently, create confusion instead of clarity;
• Policies contain words that mirror the requirement but are not your own;
• Policies are an unintelligible patchwork quilt with gaps too hard to see.

Although I’ve not been present lately when Examiners raise the issue, it’s not hard to imagine them asking for your policy on Red Flag, your policies on enterprise risk, and policies on directors’ financial literacy.  While you have a body of policies that covers the water front, Examiners seem to expect a neat page that covers just one inlet. If that’s a good way for you to govern, that’s okay. As a former board member and former CEO, I favor a smaller body of policies arranged by topics we can search by day-to-day.

To be clear, policies in this context are the board’s governance policies. We are not addressing operating policies like personnel or products and services. (Visit my website for more on that separation.)

Rather than change one’s policies to comply with every new thing separately, it’s better to see that your current broad governance policy language covers the new thing. If it does not seem to cover it in appropriate places, add a phrase or two until coverage is accomplished. Then, adopt a resolution acknowledging how your existing policies cover it. For example:

Whereas, NCUA Regulations now require all directors to demonstrate a knowledge of accounting practices, the ability to interpret financial statements, and to ask substantive questions, and

Whereas Governance policy I-E, Code of Ethics, ¶ 8 instructs us to “do one’s job to the best one’s ability, efficiently and effectively, such that one contributes to the moral and financial success of this credit union,” and

Whereas Governance Policy I-E, ¶ 21 reads, “To uphold and comply with the laws, rules, regulations pertaining to the operation of a credit union, and

Whereas Governance Policy I-E, ¶ 24 reads, “To carry out the duties and responsibilities of the credit union position to the best of one’s abilities and to seek out and participate in opportunities to increase that knowledge and skill,” and

Whereas Governance Policy I-F, Board of Directors, ¶ 4 and ¶ 5 cover the Board’s accountability for the performance of the credit union and its long-term viability, and working with the CEO, the Board will assess, monitor and control risks … by reading management’s reports and questioning the CEO, C-Level Executives, and internal & external auditors,

Now Therefore, we acknowledge our duty to comply with NCUA Rules and Regulations 701.4.

Credit union leaders will find additional references in I-R, Director Performance to include in a resolution on this new regulation.

Such a resolution makes it clear to directors and creates simplified package to save regulatory examiners from having to search for it all.

The way to write governance policies is to be general enough, philosophical even, to cover all the provisions of any new requirements generally. You can see in the sample resolution, that existing policies cover the new rule.

Also, see to it that a governance policy requires that the board’s executive alert the board to all new laws, rules and regulations that address the board or alter prospects for the organization’s success.

To keep current, directors and top managers need to review their Governance Policies regularly, at least once every three years; write that into the governance policies, too; as in my Board Governance Policy Model for Credit Unions, I-C, ¶ 5, “To assure that we comply with our own policies, to assure that our policies are right for the times, and to assure our leaders are familiar with them, at least triennially, the Board will review this entire manual.”

A consent agenda is a simple tool that can save valuable board meeting time. Add up the hourly value of all the directors and managers attending your typical meetings. The total “cost” may impress you or distress you.

A consent agenda is a list of items that rarely if ever require discussion or debate before the board approves it. A prime example is the minutes of the prior meeting:

• The board needs to approve it as a record of its actions.
• More than one person has reviewed the draft for before it’s published thereby eliminating challenges on spelling, grammar or accuracy.
• Most the directors presented this record were there and can agree with it.

Boards avoid being accused of approving big decisions without preparation, discussion and debate (a.k.a. Rubber Stamping) because that defies a demonstration of the board’s care. Therefore, consensual items are routine, like monthly meeting minutes.

Another example is the codification of something previously discussed and debated. Your board may discuss an item related to strategy or governance policy at a board meeting, and instruct someone to craft the words to be adopted later. After the executive, for example, has several times done an effective job of capturing those ideas and putting them into a clear writing the board approves easily, the next one could be placed on the consent agenda.

In some organizations, credit unions in particular, effective board delegate decision authority thought to be reserved for the board. For example, the Federal Credit Union Act in ¶ 103, delineates several duties for a board including interest and dividend rates. In today’s complex and ever changing financial markets, CUs learned that an Asset Liability Management Committee or management is better able to make timely, knowledgeable decisions.

Nonprofit organizations experience similar issues with accreditation expectations. Caring about the responsiveness and viability of the organization, the board delegates decision and implementation authority. To comply with requirements, the decision maker attach their decisions to the consent agenda where the board acts on them. Until the laws or expectations catch up with reality, the consent agenda serves both due diligence and compliance.

While the purpose of the consent agenda is to adopt noncontroversial board approvals in one action, many leaders incorrectly see it as a way to dispense with discussion. As a result, many consent agendas contain reports the board did not previously approve. When a board approves a report, it owns it and that can be misleading to readers, incurs potential liability to the board, and adds no real value.

A board that wants to avoid wasting valuable board time discussing historical details, declare that they are off limits in board meetings. There will be times when directors or managers believe it of value to discuss events and trends found in reports. When that is the case, schedule a segment of meeting time for that discussion; add a “discussion” segment apart from New Business or Action Items. Otherwise, when a director has a question about something in a report, the individual seeks answers outside of meeting time.

For an earlier post referring to consent agenda, see Oct 2004, “Consent Agenda Supports Governance.”

There are several other items addressing this topic at danclark.com >> Resources: Articles and Tools

See my video on this:

At my CU when I was there, the mission statement was, “To improve the financial positions and  capabilities of our members”

My Criteria for a mission statement are:

1. It answers the question, “Why are we here?” It is the “raison d’etre.”
2. It is a simple single sentence.
3. All volunteers and staff are able to remember it; borrowing from Advertising master Ogilvy, not to exceed 13 words.
4. is worthwhile to the people or communities served and possibly a moving target; as conditions change, it is still relevant and insiders want to achieve such a great result.

A mission statement does NOT have to be read by any other than insiders, and that could include funders; the public and beneficiaries/members are not the intended audience.

Further, a mission statement does not have to outline key strategies—leave those to the strategic plan.

It does not have to delineate any other goals—leave those to the business plan.

It should not suggest activities, products, or processes because, the mission statement is an “ends” statement, not a “means” statement. Strategies stated elsewhere will guide management’s means-oriented planning in separate documentation.

Review my planning model at danclark.com; for speed click here   http://bit.ly/a7CnaO

Many nonprofit organizations have audit committees. Credit unions may call them Supervisory Committee. Laws,  regulations, an organization’s Bylaws, and its charter for the Audit Committee, determine its roles and powers. For the context of this blog post, the Audit Committee (AC) watches all aspects of the organization on behalf of its members or the community—its primary beneficiaries. My comments here are based on generally accepted practices notwithstanding written requirements to the contrary.

What should the role of an AC be regarding policies proposed to and acted on by the board?

An Effective Audit Committee:

• Demonstrates its commitment to compliance and excellence by helping the board to succeed and stay out of trouble.
• Alerts the board to potential …
  • compliance issues: laws, regulations, existing company policies, core values, current plans
  • unclear language – because the AC has to be able to determine compliance with some policies, it is wise to obtain clarity
  • apparent violations or conflicts with existing laws or regulations (“apparent” because the AC is not the Corporate Attorney)
  • negative effects or dusfunction caused by the policies– for example, I offer a Beetle Bailey comic strip as a case in point. After Sarge yelled at Private Bailey for eating while mopping, Sarge pulled a big book off the shelf and read, “Privates named Bailey will not eat hamburgers while mopping their sergeant’s floors.” Bailey answered, “It’s a cheeseburger.”
• Proves its worth by asking questions (these examples relate to the Bailey story):
  • What if the employee violates with something else?
  • How many times has this act occurred and what were the consequences?
  • What’s the worst that could happen without this policy?
  • What damage could this policy do to morale, relationships, and employees’ perceptions of management?
  • What is the real concern addressed in this policy [e.g. efficiency]
  • Could the policy accomplish the same effect worded more generally? (Hopefully after hearing the questions, the policy writer might offer, “Employees should focus on what they’re doing; multi-tasking may lead to errors and other inefficiencies.”)
• Remains aware of all the policies and especially those requiring compliance. (Policies are guidelines unless written like and treated as rules—not recommended in today’s shifting environments).
• Expresses only how the AC views a proposed policy unless egregious enough to require another opinion.
• Alerts the Board Chair when proposed policies appear flawed, and can back it up with a reasonable amount of research.
• Focuses on the Committee’s mission and sees it as a strategy for organizational success.
• Maintains its independence and objectivity.

 An Ineffective Audit Committee:

• Offers policy language.
• Verifies or “vets” proposed policies – the AC approves of it so the board can approve it.
• Fosters negative reactions to its work by acting righteous, all-powerful and better than the board.
• Cannot not persuasively explain its concerns.

Over and over, in the discussion of board governance, micromanagement, and delegated authority, one concept or definition continues to block the clarity sought in Governance Policies: operational.

The foundation of board governance is the delegation of authority to the talent a board has hired to take on the day-to-day operations. Some nonprofits have to wait years or decades to have an adequate and reliable cash flow to hire true expertise.

Expertise is more than the ability to take orders and perform tasks. As the number of operational decisions grow, a board becomes less able to deal with them all. Eventually, hiring a competent manager or executive is necessary.

Often, knowing its ultimate accountability for success, a board fails to acknowledge or recognize the available expertise it hired. Boards continue to struggle with the weight of operational decisions, lacking time make poorer decisions, and neglect to test and nurture executive talent.

Something is operational if it:

• Affects the employees day-to-day.
• Affects the delivery of benefits to the primary beneficiaries of the mission.
• Comes up frequently or regularly.
• Has a greater impact on finances this month, quarter or year, and not future years or decades.
• Can be handled by the executive or the people the executive hired.
• Addresses means rather than ends.

Examples include: personnel or HR policies; paint and wallpaper in an office used by staff; delivery methods of services to primary beneficiaries. Delegating means giving the authority to act, implement, than report.

Each organization is different because its people and therefore the culture is different. Conduct a candid conversation among directors and top management to see how you define operations–management’s job.

Delegate adequate authority to the executive to carry out operations. Define and describe the executive’s reporting requirements for performance and status. Hold the executive accountable for acting according to the board’s guidance and limitations.

Delegation is the way leaders manage.