For building product manufacturers, a good board of directors can play a catalytic role in supporting the successful creation and implementation of strategy.
A group of individuals elected to represent shareholders, a board of directors establishes policies for corporate management and oversight, makes decisions on major company issues and provides valuable input on corporate strategy. Used mainly by public companies, boards of directors can also be valuable tools for private building product manufacturers (BPMs) that want to balance their firms’ success with the interests of its stakeholders.
While many businesses have a board of directors in place, relatively few businesses utilize their boards for anything more than legal compliance. The question is, can a board of directors play a catalytic role in supporting the successful creation and implementation of strategy. This article summarizes the common challenges BPMs face when developing and utilizing boards for strategic planning, how boards can be more effectively developed, and, finally, when maximized, how boards can engage with management to improve strategy.
Addressing the Common Challenges
Multiple industry factors contribute to the underutilization and relative underdevelopment of boards—hence diminishing their influence on an organization’s strategy. The factors include:
Common Challenge #1: The CEO/majority owner chooses to utilize a board to simply fulfill its minimum statutory legal requirements.
Likely result: The board never officially meets and is composed of “insiders”—either employees or family members—who merely approve meeting minutes to catalog in the corporate records and provide no input to the strategic planning process.
Common Challenge #2: The CEO is concerned that inviting a board to advise on strategic plans will result in his or her losing organizational control and influence.
Likely result: The board is used primarily to rubber-stamp the strategic plan that is presented by management (rather than offering deep insight, questioning or value).
Common Challenge #3: The CEO and leadership team are emotionally attached to a set of strategic initiatives and not open to feedback, questioning and potential modification.
Likely result: Leadership shares only carefully chosen content and presents that content to the board in an overly orchestrated fashion that limits the board’s depth of engagement.
Common Challenge #4: Board membership is limited to internal directors who also serve as employees of the business. In this scenario, the board strongly resembles a subcommittee of the organization’s leadership team.
Likely result: A lack of external perspective results in little additional value when weighing in on a strategic plan. In this case, the directors lack motivation to ask the hard questions necessary to enhance strategy.
Common Challenge #5: The board digresses into operational issues (especially when dominated by internal directors) rather than focusing at the strategic level.
Likely result: The board meeting is consumed by “deep dive” tactical concerns, frequently devolving into micromanagement and second-guessing of managerial decisions.
These problems are likely to surface when senior leadership and board members lack a fundamental understanding of how fully developed boards can truly accelerate strategy. They also surface when closely held companies form groups that will say “yes” to anything (versus true boards). In other words, the board itself becomes the supporter of the BPM firm’s leaders, saying yes to everything they ask for or suggest. This defeats the core purpose of having a board in the first place.
FMI recently worked with a building products manufacturer where the board was comprised of:
- The owner of the company
- The executive VP of marketing
- The executive VP of sales
- The company’s banker
- The company’s insurance representative
Put simply, no board members would come forward and tell the owner the truth, nor would they bring something new to the table or prompt him to tackle the difficult questions. No one was challenging the feasibility of his business strategies, talking to him about company growth, discussing strategic acquisitions or even hitting on key points (i.e., whether the firm was compensating its sales organization in a way that drives the right behaviors).
Without objective, honest insights, this particular board was ineffectual. Overcoming this issue would mean installing new, fresh faces and voices on the board to replace the existing five members. It would also mean creating metrics that align with corporate strategies and then holding the company accountable to achieving those metrics.
Using a Board to Boost Organizational Strategy
To improve the impact of organizational strategy, BPM firms can start with the following six practical steps to leverage and engage their boards more effectively:
1. Set up the expectation that strategic planning must include meaningful input from the board.
Improving a Board’s Effectiveness
A board of directors can, and should, be deeply involved in strategy. By focusing on the organization’s strategic direction, the board has an opportunity to drive and refine a company’s strategy. And yet, to offer real value in this process, the board must have the appropriate focus. Related to strategy, FMI has found that high-performing boards, alternately called “Peak Boards,” primarily focus in the key areas shown in the following Exhibit:
Exhibit 1. FMI’s Peak Boards Model
Source: Model is based on in-depth industry research.
For many organizations, this represents a significant cultural and procedural shift in strategic planning. To put a strong strategic plan in place, senior leaders must embrace strategic collaborative engagement so that the focus will be on the right issues—those that directly support achievement of the organizational vision and a plan that is influenced by diverse perspectives. Chip Andrews, former chairman of FMI, notes, “The number one thing I am looking for is for the board to own strategy… [a great] board takes the strategic recommendations, the strategic analysis that the executive team does, it questions, it debates, it considers and eventually owns that strategy.”
This process may be uncomfortable for CEOs who seek to be celebrated for their successes, but a true leader is open to feedback and willing to commit to a participative, dynamic, strategy-centered engagement with the board. To get a board involved in the strategy conversation, set expectations for both the directors and the organizational leadership regarding this direction. For board members, this means clear directions around strategy involvement in the onboarding process and reinforcement during any subsequent training. In addition, meetings must be managed in a way that carves out time to dive deep into strategy.
2. Synthesize data from a variety of sources relative to market dynamics, buyer behavior, competitor analysis and external trends in pursuit of the optimal strategy approach.
Board members need to think critically about strategy and, specifically, about what information sources are utilized to develop their underlying assumptions and conclusions. To what extent does management tap into external resources? Does the research involve accessing publicly available information only, or is it original research to more deeply understand key markets, construction services buyers and/or influencers? Or, alternately, does the business’s senior leadership rely primarily upon on its collective experiences and anecdotal knowledge of the market to craft the strategic plan?
A board culture that promotes learning and development will support the insightful analysis of trends and issues facing the firm. Establishing and reinforcing this culture is key. A growth-oriented culture welcomes new and potentially conflicting ideas, while a more insular culture feels threatened over the prospect of a different way of viewing the marketplace.
3. Encourage board diversity to bring new perspectives, ask questions and debate.
We’ve seen that outside directors working actively together to influence the company generate great value for the business. One board-related study found that in family-held businesses, directors external to the organization created higher shareholder value as well as greater EBITDA. Conversely, companies where the founding family made up an overwhelming percentage of the board, compared to outside directors, achieved significantly lower returns.
Creating a balanced board that includes both external and internal members, and one that brings together expertise from different sectors, will support the breadth and depth of debate through integrating different perspectives. Andrews notes on board membership, “I’m looking for diversity.” Strategic plan quality is a function of diverse perspectives and critical debate. Thus, the more diverse the board, the better-equipped it is to add real value to an organization’s strategic plans.
4. Ask hard questions and bring a “what are we missing?” mentality to the boardroom.
Hugh Rice, senior chairman at FMI, says the main role of outside directors is to “force people to think about things they do not normally think about.” The board—and especially outside directors—is uniquely positioned to challenge convictions, business proposals and strategic plans, and should bring diverse perspectives and expertise to do so effectively. One recent industry CEO recalls an interaction with his board of directors early on in his executive tenure:
“The board that tackles the hard questions shines a light on executive blind spots. Whether asking hard questions about potential opportunities (i.e., new ventures or geographic expansion) or challenging the feasibility of a strategy, a high-performing board of directors ultimately increases the likelihood of a CEO and management team being well-informed in their decision-making and improves the odds of success.”
5. Establish and monitor performance metrics that are consistent with strategic direction.
High-performing boards ensure that progress metrics are measured and tracked appropriately when strategies are in place. For example, an organization that wants to differentiate itself in the market through customer satisfaction should be considering these metrics:
- Existing customer satisfaction
- On-time and/or within-budget project completion
- Communication and engagement by staff
- Speed of resolution of customer-related problems
- Client lifetime value
- Percent of annual client “spend” captured
- Year-on-year revenue growth of existing clients
- New client acquisition
- Net promoter score
- Social media efficacy (e.g., Twitter, LinkedIn, Facebook)
Using these metrics, leadership can, and should, actively inform boards on strategic priority progress.
6. Make strategic matters the core of the agenda.
While it is easy for the board to become mired in operational details, it must also be able to step back and maintain its focus on strategic monitoring of the company. To maintain strategic engagement, consider the cadence of board meetings as well as the agendas for those meetings. Annual reviews are often not enough. Ensure that strategy issues are consistently raised and that there is time for deep discussion as well as ample follow-up. A great board spends 60% of its meeting time on matters directly related to the strategy of the business; any lower than that points to a board drifting into the realm of management. Board committees are often used to keep things moving on targeted strategy initiatives between meetings of the full board.
Leading Your Firm Into the Future
When developing your own board of directors, look carefully at the key trends and marketplace drivers that are impacting your organization, and then find individuals who can help leverage those trends into opportunities. Steer clear of yes people who will say what you want them to say and avoid stacking your board with individuals who are beholden to you (i.e., your accountant, banker and insurance rep).
To derive optimal performance from your board, populate it with individuals who will become the ambassadors for specific strategies and then see those initiatives through to completion. Utilize metrics to measure that performance, make the necessary adjustments and tweaks, and focus on developing a high-impact board that guides your company’s current strategies and leads it into the future.
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