Five Strategy Conversations Every Board Should Have

Five Strategy Conversations Every
Board Should Have

Bob Frisch
Managing Partner
The Strategic Offsites Group

Silicon Valley Chapter
National Association of Corporate Directors

Rock Center for Corporate Governance
Stanford Law School

January 17, 2013
v9

Directors Consider Strategy A Top Priority
Strategic planning and oversight 65%
Corporate performance and valuation 42%
Risk oversight 36%
CEO succession 30%
Executive talent management and leadership development 26%
Director recruitment/succession 15%
Financial oversight/internal controls 14%
Board effectiveness 14%
CEO compensation 10%
Board and director evaluation 10%
Relations with shareholders 6%
Board leadership 5%
CEO evaluation 5%
Board culture (openness, respect, action orientation, CEO relations) 4%
Board meeting processes (agenda, committees, etc.) 3%
Director education and development 3%
Crisis oversight 3%
Disclosure (transparency of financial and other info.) 2%
Info. Management (ensuring directors receive right amount, type, format) 2%
Director compensation 2%
Corporate social responsibility 0%
0% 10% 20% 30% 40% 50% 60% 70%

*Respondents were asked to select three topics of highest priority
Source: NACD Public Company Governance Survey 2012-2013 n=957

©2013 The Strategic Offsites Group®, Inc. All rights reserved. Proprietary and Confidential. 2

The Average Board Spends A Quarter of Its Time on Strategy
30%

25% 24% 24%

20%
20%
17%

15%

11%
10%

5%

0%
Strategy Execution Performance Core governance Talent management
management and compliance
(i.e. development, (i.e. prioritizing key
analysis, and prioritizing initiatives against (i.e. development of (i.e. nominations,
of strategies that strategy, approval of metrics, incentives, compensation, audit,
maximize shareholder M&A transactions) monitoring, tracking of disclosure, Sarbanes-
value) performance) Oxley Act )

Source: McKinsey Global Survey 2008 n = 586 “Other”=4%


A Quarter to a Third of Board Members Report Having ‘Limited or no
Understanding’ of Critical Strategic Issues

70%

60%
58% 58%
54% 55%
50%
50%

40% 36% 34%
32%
30% 26%
21% 22%
20%
14% 16% 14%
10%
10%

0%
Your company's Your company's How value is Risks your Dynamics of your
financial position current strategy created in your company faces company's
company industries
Complete understanding Good understanding Limited or no understanding

Source: McKinsey Quarterly Survey 2006 n = 1,597


The Most Common Response is to Spend More Time on Strategy
Percent of directors indicating they would like to spend more ‘time and focus’ in the coming year
than in the past
80% 75%
68%
70%
57% 59%
60% 54%
50%

40% 35%
30%
30%

20% 16%
10%

0%

Source: PWC Annual Corporate Directors Survey 2012


SVNACD Members Also Report Wanting to Spend More Time on
Strategy
How satisfied are you with the amount of time your board spends on discussing
strategy?
50%
45%
45%

40%

35%

30%
29%
24%
25%

20%

15%

10%

5%
2%
0%
0%
We don't spend We should spend a We spend the right We should spend a We spend too much
nearly enough time bit more time on amount of time bit less time time discussing
discussing strategy. strategy than we do discussing strategy. discussing strategy. strategy.
today.
Source: SVNACD Survey 2013 n=66


This Morning is About Improving the Quality, not the Quantity, of
Strategic Conversations
How satisfied are you with the current quality of strategic conversations among members
of your board?
60%

50%
50%

40%

30%
30%

20%

12%
10% 6%
2%
0%
We do not discuss We do not have the Our strategy I'm satisfied with the Our strategy
strategy as a board. kind of strategy conversations could strategy conversations
conversations that use some conversations we represent a best
we need to. improvement. have today. practice among
boards.


Two Dimensions of Strategy Conversations: Among the
Board…


…And Between the Board and the Management Team


Directors are Less Satisfied With the Quality of Strategy Conversations
With Management Than Among Themselves
Q3. How satisfied are you with the current quality of strategic conversations between the board and the management team?

40%
36%
35%

30% 27%
26%
25%

20%

15%

10%
6%
5%
5%

0%
The board and the We discuss strategy The strategy I'm satisfied with the The strategy
management team with management, conversations with strategic dialogue conversations
do not discuss but we don't have the management between the board between our board
strategy together. the kind of team are adequate, and the and the
conversations that but could use some management team. management team
we should. improvement. represent a best
practice.


Five Strategy Conversations Every Board Should Have

•  Are We Working at the Right Altitude? Are We Clear on The Board’s
Role vs. Management When it Comes to Strategy?

•  Are We Aligned Around An Aspiration?

•  Are We Aligned Around the Walls and Fences That Bound the
Business?

•  Are We Getting the Information We Need To Do Our Job?

•  Is The Board Involved in Setting The Strategic Agenda?


These Five Conversations Help Set the Stage for Even More Focused
and Productive Board Strategy Conversations

25%
22%22%
20% 18%
17%17%

15% 14%
12%

10%
9% 9% 9%
8% 8% 8% 8%
6% 6%
5%
5% 3%
0% 0%
0%
1 2 3 4 5 6 7 8 9 10
(Strongly (Strongly
Disagree) Agree)
My board's strategic conversations are focused and productive.
Strategic conversations between my board and the executive team are focused and productive.


ARE WE WORKING AT THE RIGHT ALTITUDE? ARE
WE CLEAR ON THE BOARD’S ROLE VS.
MANAGEMENT WHEN IT COMES TO STRATEGY?

Are We Working at the Right Altitude?


SVNACD Members Report a Wide Variation in Board Altitude
My board debates and decides on strategy together with the executive team, rather than simply reviewing
plans developed by the executive team.

20%
18% 18%
18%

16%

14%
12% 12%
12% 11%
10%
8%
8%
6% 6%
6%
5%
4% 3%
2%

0%
1 2 3 4 5 6 7 8 9 10
(Strongly (Strongly
Disagree) Agree)


Different Boards Play Different Roles In the Strategy Process
Which of the following roles does the board of directors (or equivalent) play in your company’s formal
strategic-planning process?
70%
64%

60%
52%
50% 48%

40% 37%

30%
25%

20%

10% 6%

0%
Approves final Challenges Monitors Identifies key Helps develop Not involved
strategy emerging performance strategic issues strategy's
strategy against strategy content
Source: McKinsey Quarterly Survey 2006 n = 796


Is Our Board Working at the Right Altitude? From the NACD
Point of View There’s no Single Right Answer…

“Boards should be constructively engaged with management to
ensure the appropriate development, execution, monitoring and
modification of their companies’ strategies.

The nature and extent of the board’s involvement in strategy will
depend on the particular circumstances of the company and the industry
or industries in which it is operating.”

Source: NACD Board - Letter to Congress recommending ten governance practices - May 3, 2002


… Except That Each Board Needs To Be Explicit About Their
Respective Roles

“Management and the board should jointly establish the process the
company will use to develop its strategy, including an understanding of
the respective roles of management and the board”

Source: The Role of the Board in Corporate Strategy - 2006 Report of the NACD Blue Ribbon Commission


At One Board Directors Had Very Different Views of Their Role

How would you describe the board’s role in the strategy process vs. Andy and the
management team?

“Review” “Scrub and “Help to “Help
vet” supplement management
management generate
expertise, fresh
e.g. thinking”
marketing”

N=7


At One Board We Worked With Directors Had Very Different
Views of Their Role

How would you describe the board’s role in the strategy process vs. Andy and the
management team?

“Review” “Scrub and “Help to “Help
vet” supplement management
management generate
expertise, fresh
e.g. thinking”
marketing”

The problem isn’t that different boards do it differently. It’s when different
members of a single board have a different view of the board’s role, or
when the board’s view differs from management.


Coca Cola Enterprises Board Guidelines

“The Board will assess the Company’s business strategies, goals and
objectives annually, to determine their effect on long-term shareowner
value, and to discuss with management the results of that
assessment.”

Source: Coca Cola Enterprises Board Guidelines


Our Firm’s Experience Is That ‘Increasing Time’ Alone Won’t Solve
the Underlying Problems Caused by Lack of Role Clarity
60% 56%
53%
49% 49% 49%
50%
45%
43%
41% 40%
39%
40%

29%
30%
23%
21% 21%
20%
14%
12%
10% 8%
6%

0%
Monitoring Developing Approving key Evaluating Developing Challenging
performance short-term strategic options for long-term existing strategy
against strategy strategy initiatives short-term and strategy
long-term
strategies
Increase Hold Steady Decrease
Source: McKinsey Global Survey 2008


This McKinsey Framework We Saw Earlier is an Example of a Starting
Point for a Discussion About Roles
Which of the following roles does the board of directors (or equivalent) play in your
company’s formal strategic-planning process?
70%
64%

60%
52%
50% 48%

40% 37%

30%
25%

20%

10% 6%

0%
Approves final Challenges Monitors Identifies key Helps develop Not involved
strategy emerging performance strategic issues strategy's
strategy against strategy content
Source: McKinsey Quarterly Survey 2006 n = 796


ARE WE ALIGNED AROUND AN ASPIRATION?

The Overall Level of Strategy Alignment Almost Always Bears At
Least Some Degree of Improvement
How well do the following groups understand Company X’s overall strategy:
The Board Andy and the Executive Committee
4
5
Some newer Board
members rated
themselves lower than
the overall Board”
2
2

1

n=6 1 2 3 4 5 n=8 1 2 3 4 5
Not at all Completely Not at all Completely

SVP Level Executives and Above Wall Street Analysts

3

2 2
2 2

1 1

n=6 1 2 3 4 5 n=7 1 2 3 4 5
Not at all Completely Not at all Completely


SVNACD Members Saw an Opportunity to Improve Their Boards’
Levels of Alignment
How would you assess the level of alignment regarding a view of the company in three to
70% five years…

60% 58%
52%
50%

40%

30%
24%
20%
20% 17%
11%
10% 8% 6%
5%
2%
0%
Not at all aligned Somewhat aligned Completely aligned

...among your board?
...between members of the company's board and its executive team?


The Starting Point of Strategic Alignment is Having a
Common Aspiration

1. Aspiration
“Our Board Members and
Management Team don’t have
a strong shared view of what
the corporation is trying to
accomplish or what we could
become.”

5. Resources 2. Strategy
“The organization may not “I’m dissatisfied with
have the resources, skills our strategy’s ability to
or physical assets to Sustained achieve our aspiration.”
implement the strategy and Organizational
achieve the aspirations.”
Success

4. Organization & 3. Alignment
Processes “It seems like the organization
“We may not have people or doesn't’t understand the
processes structured strategy, doesn't’t support it,
appropriately to implement or both.”
the strategy.”

©2013 The Strategic Offsites Group®, Inc. All rights reserved. Proprietary and Confidential.
28

Boards and Management Teams Typically Hold Too Broad
Views of How To Define Success
How do you think about success for Company Y? If we were meeting at the end of FY2017, and we were
looking back at another tremendous 5-year run for Company Y, what would have happened?
Qualitative:

•  Gone into new businesses
•  Grown good businesses
•  Become recognized as an industry leader
•  Moved from a product approach to a solutions approach
•  Met the needs of our customers seamlessly
•  Be identified as a major INDUSTRY firm
•  ‘Own’ MARKET A - become the dominant player in MARKET A
•  Have a coordinated Company Y strategy
•  Launched a successful NEW SEGMENT ENTRY

Quantitative:

•  Double MEASURE OF SCALE to $2.6 trillion
•  Enjoy a 20% unit cost advantage over competitors
•  Number of new customers
•  Market share vs. LARGEST COMPETITOR
•  Margin 17-18%
•  Retention


It’s Not That The Aspirations Are Wrong In Any Way - It’s That
There Were Multiple ‘Most Important’ Goals Among 7 Directors
How do you think about success for Company X? If we were meeting at the end of 2013,
and you looked back at a successful 3-year period for the company, what would have been
accomplished? How would it be measured?
Grow Sales (5)
•  “The only measure that matters to a retailer is revenue growth”
•  Consistent sales growth and comp store growth
•  “Generating organic growth = 3% comp store sales growth”
•  “Boost sales per square foot across the chain (not just existing stores)”
Grow Shareholder Value (4)
•  “As a director I work for shareholders – market value is the #1 measure”
•  “Total shareholder return in the top quartile of the industry group”
•  “Provide shareholder value relative to macro environment“
Grow Profitability (4)
•  “Get back to level of profitability of several years ago“
•  5 - 20% EPS growth
Grow Number of Stores (3)
•  Overall growth of stores
•  “Expand presence through a new concept or acquisition”

n=7 for the first, 6 for the second, 5 for the third success factor


ARE WE ALIGNED AROUND THE WALLS AND
FENCES THAT BOUND THE BUSINESS?

Walls and Fences - Defined

•  Walls are the boundaries around any business that are assumed to be
immovable – so much so that executive don’t even bother to approach
them

•  But by challenging these assumptions teams discover that the walls are
sometimes actually fences – boundaries that can in fact be moved,
opening up strategic space for the company to grow

©2013 The Strategic Offsites Group®, Inc. All rights reserved. Proprietary and Confidential.

Walls and Fences – Company Z

1.  Operate in the U.S.
2.  Communications company
3.  Subscription-based revenue models
4.  Controlling group of shareholders
5.  Conservative, Investment Grade rating
6.  We would never take any actions that would challenge our core ethical and
moral principles
7.  Expand by entering ‘near adjacent’ spaces – leverage what we know
8.  Buy and hold – would not buy a business and sell 4-5 years later
9.  Every deal justified on DCF – no ‘strategic’ investments

.


ARE WE GETTING THE INFORMATION WE NEED TO
DO OUR JOB?

There’s Generally Good Data Provided to Boards, But It Could Bear
Improvement

70%

59%
60%

50%
43% 42%
40%
34% 34%

30%
29%
25%
20%
20%

10% 7%
4% 5%
1%
0%
Excellent Good Satisfactory Below acceptable levels
Corporate performance Strategy Risk management

Source: NACD Public Company Governance Survey 2012-2013 n=957


Some Directors Report That Critical Elements of Data Are Missing
How well informed are you as a board member on the industry, competitive, market and strategic context of the company? Are
you provided with the background you need to have a rigorous discussion of strategy?

50%
44%
45%

40%

35%
29%
30%

25%
20%
20%

15%

10% 6%
5% 2%
0%
Our board is not well We get some The information we I'm satisfied that, as a The information I am
informed on the information, but there are provided is board member, I am provided with as a
strategic context of are critical elements adequate, but could provided with the board member
the company. we as a board don't be improved. information I need to represents a best
know enough about. have a rigorous practice.
strategic
conversation.


Better Access is Provided to Financial and Operational Information than
Strategic or Industry Information

90% 85%
80%

70% 67%
61%
60%

50% 45%
40%
28% 26%
30% 23%
20% 19%
20%
12% 10%
10% 3%
0%
Financial information Operational information Strategic information Leading indicators on
about company about company relevant to company direction of industry,
(e.g. key performance sector, company
indicators linked to
company's strategy)
Good/optimal access Adequate access Insufficient/no access

Source: McKinsey Global Survey 2008


The Board Should Inventory the Information Provided Over the
Past Year and Validate That It’s Adequate To Do Your Job

•  66% evaluate external benchmarks and data to independently corroborate
management’s assumptions/assertions

•  53% consider alternative strategies to those presented by management

•  66% of directors are happy with the customer satisfaction research management
provides

•  72% of directors are comfortable with information about employee values and
satisfaction

•  A number of boards do not receive any information about either customer or
employee satisfaction (20% and 16%, respectively)

•  21% of directors are dissatisfied with the information management provides on
competitors’ initiatives and strategy

Source: PwC’s Annual Corporate Directors Survey 2012


IS THE BOARD INVOLVED IN SETTING THE
STRATEGIC AGENDA?

Boards Generally Don’t Set The Agenda of Strategic Topics in a Given
Year
Who sets the agenda for the strategy-related topics the board discusses?

50%
45%
45%

40%

35%

30%
26%
25%
21%
20%

15%

10%
6%
5% 2%
0%
The CEO The board as a The non-executive The board as a The non-executive
whole in chairman or lead whole chairman or lead
consultation with director in director
the CEO consultation with
the CEO


Prior to the Meeting To Set Strategy Topics Board Members
Completed an Interview and Subsequent Online Survey

Pre-meeting activities:

Interview Aggregate and
Collect Additional
Subset of Synthesize
Written Input from
Board Interview Results
Board Members
Members and Written Input

Key Outcomes:
•  18 potential board level strategy topics (beyond specific growth opportunities)
•  15 specific potential growth opportunities
•  11 walls and fences


We Determined Which Strategy Topics (Beyond Specific Growth
Opportunities) Will be Included on the Board’s 18-Month Agenda
The board kept 13 strategy topics from pre-offsite …. added two topics…
data gathering with slight modifications… 19. How can we accelerate our study/execution of what we
1. White space opportunity analysis decide to do?
3. How should we define growth (i.e, profitable growth, not just 20. How do we ensure the analysis is done in an objective
growth)? fashion?
4. Can/how we improve operating margins in the XXX
business?
5. Can/how we reverse the revenue decline and maintain …. and deferred discussion on five individual
profitability in the YYY business? topics. (2)
6. Why is our EBITDA multiple so low? 2. Analysis of growth opportunities within existing lines of
business
7. Will S-shares prove to be an effective acquisition tool as
planned? 11. How can we ensure that we delight our customers?
8. Can/how we strengthen our position versus national 12. What are our options for improving our position with
competitors in ZZZ? REGULATORY AUTHORITY and Congress?
9. What should we do about MARKET A and MARKET B? 13. What is required to ensure platform interoperability as
10. How do make our business stronger (i.e. What if one or technology moves quickly?
more big players attack our core markets)? 17. Should we change our corporate definition from “AAA”
14. What is the long term role of the YYY business in our to “BBB”?
portfolio?
15. What is our management succession plan (especially at The board did a similar validation/
DIVISION A)? edit of the potential growth
16. Should we acquire 100% of QQQ? opportunities
18. How should Board members shape the strategy?


We Further Set Priorities For The Board Level Discussion Topics, and
Identified Areas Where Further Analysis is Required
Board-Level Discussion Topics
(Priority vs. Readiness)

3 15 18 19 5
discuss
Ready
to

4 20

1 6 7
14
Requires

analysis
further

8
10
16
9

Now Soon Later
NOTE: Client data has been altered, as has positioning in the matrix, for confidentiality purposes
Legend: Board Level Discussion Topics
1. White space opportunity analysis 9. Market A and Market B 20. Ensure analysis is objective

3. Definition of growth 10. Make core business stronger

4. Operating margins in the XXX business? 14. Long term role of YYY in portfolio

5. Profitability in YYY 15. Management succession plan

6. EBITDA multiple 16. Acquire 100% of QQQ?

7. S-Shares as an acquisition tool 18. Board members shape strategy

8. Strengthen position vs. national players in ZZZ 19. Accelerate study/execution of what we decide to do


For Some Top Priority Topics, The Board Identified Areas of Analysis
to Inform the Discussions
Topics to be Analysis Required /
Considered Now Other Notes

•  Analysis of existing markets:
- What are our top 15 markets? What is our market share?
White space
- Why are we strong in our top markets?
opportunity
- Who else competes in these markets? How do we compare?
analysis
(1) •  Analysis of white spaces (Businesses operations in which we do not currently compete):
- Identify lines of business that would accelerate our ROC, revenue/EBITDA greater than on a
standalone basis

•  How/can we Improve operating margins in cXXX? What are our existing and potential
markets (e.g. 6 specific urban markets)? Can we grow and achieve acceptable returns?
•  How/can we strengthen our position versus national players in YYY?
•  What is the growth strategy for the XXX business? What is the role of MARKET A and
Analysis of the MARKET B?
XXX business - How much have we invested to date? What are the projected future investment requirements?
What are the related tax costs?
(4, 8, 9)
- What are the potential scenarios for (minimum) 5 year operating results?
- What are the costs of transfer (including impact on other parts of the Company)?
- What are our strategic options and associated economic projections (e.g., How strong would a
turnaround have to be in MARKET A or MARKET B to justify leaving our “recoverable” capital in
these markets)?


Five Strategy Conversations Every Board Should Have

•  Are We Working at the Right Altitude? Are We Clear on The Board’s
Role vs. Management’s When it Comes to Strategy?

•  Are We Aligned Around An Aspiration?

•  Are We Aligned Around the Walls and Fences That Bound the
Business?

•  Are We Getting the Information We Need To Do Our Job?

•  Is The Board Involved in Setting The Strategic Agenda?


Strategic Offsites Group at a Glance

•  A Boutique strategy consulting firm founded in 2002

o  We work around the globe with CEOs, senior executive teams and boards across
industries on their most important strategic issues and opportunities

•  We specialize in the design and facilitation of strategy processes and discussions to
help executive teams make better decisions and convert those decisions to
measureable actions

•  Through our thought leadership, SOG offers new ways of approaching strategy
processes and decision making

•  We do not work for direct competitors

•  We operate from a single office in Boston with a seven-person team


How We Serve Our Clients

•  Whether engaged for a single meeting or a multiyear change initiative, our role is to
help design and manage critical strategic discussions

•  The common denominator underlying our work is expertly facilitated and prepared
workshops and processes designed to achieve organizational, executive and board
alignment

•  Beginning with setting clear objectives, we help clients maintain a balance of process,
content, and conversation to ensure that strategies gain and hold momentum

•  We collect and synthesize relevant data that inform objectives and frameworks to drive
management teams to actionable outcomes


For More Information

Bob Frisch
Managing Partner
Strategic Offsites Group

Rfrisch@StrategicOffsites.com
www.StrategicOffsites.com
+1 617 266-8711

@OffsitesGuy


Bob Frisch, Managing Partner, Strategic Offsites Group
For the past 31 years, Bob has worked with executive teams on their most vital strategic and organizational
challenges, both as a consultant and a corporate executive. He is considered one of the world’s leading strategic
facilitators, having conducted executive offsites in fifteen countries with companies ranging from Fortune 10
multinationals to German mittelstand family businesses. Bob’s work has been featured in publications ranging from
the Wall Street Journal to the Johannesburg Business Report, and he is the author of three Harvard Business
Review articles: Off-Sites That Work, When Teams Can’t Decide and Who Really Makes The Big Decisions in Your
Company?. When Teams Can’t Decide was recently named one of HBR’s ‘10 Must Read Articles on Teams’.

Bob’s first book, Who’s In The Room? How Great Leaders Structure and Manage the Teams Around Them, was
published by Jossey-Bass/Wiley in January 2012 and is now in distribution in 12 countries. Bob is a frequent
keynote speaker has been a guest lecturer at Harvard, Yale, the University of Chicago, Northwestern, Stanford and
Brandeis.

Before founding Strategic Offsites, Bob was a Managing Partner of Accenture, where he helped create
the Organization and Change Strategy practice. Bob joined Accenture from Cap Gemini Sogeti, where he created
the firm’s global capability in corporate vision and growth and led the Strategy practice for the Americas.
He began his career at the Boston Consulting Group, where he helped found the Los Angeles office.

Bob’s executive roles began when he went to work for a client, running planning and business development for
The Dial Corporation. Bob went on to become the youngest Division President of this Fortune 500 company. A
decade later, he took another leave from consulting to head corporate strategy for Sears, Roebuck and Co.

Bob is a magna cum laude graduate of Tufts University and earned his MBA at the Yale School of Management.
Bob lives in Newton Centre, Massachusetts with his wife Iris and their four children.

Dangerous Company, a best-selling book on the consulting industry, says of Bob: "He has been there, small
company and big, strategy and operations. He has lived much of his professional life on the road or in the corridors
of power of huge institutions. In the game of business, he is equipped to be the perfect coach."


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