As the financial services landscape grows more unpredictable, the margin for error becomes less forgiving. In this environment, boards have a unique opportunity to transcend their advisory and oversight roots and become decisive architects of strategic priority. The Code of Federal Regulation's § 701.4 codifies the board's role as "responsible for the general direction and control." However, moving beyond "general" to effectively declaring and framing what is, and what is not, strategically important is the critical governance challenge of boards today.
To enhance their governing impact, boards must flex further into their strategic responsibilities. Below are five charges and strategic dialogue stimulants for boards' concentration, development and alignment with management to enhance the strategic deployment of precious and finite resources.
1. Have a finger on the pulse of the competitive marketplace.
First and foremost, boards must understand the current dynamics at play within the marketplace. Grounded and meaningful positioning information will better enable the strategic decision making process.
- What are our members' behaviors? Where are they engaging or not engaging with our value proposition? How are they unique or similar to the broader market?
- Who are our competitors (current and potential) and what makes them attractive to prospects? What are their strengths and vulnerabilities?
- What does and does not differentiate us from our peers and competitors? How satisfied are we with those realities?
- What is our realistic and satisfiable growth potential within our defined market?
Boards need to be able to accurately articulate the nuances of their organization's "economic engine" before prioritizing shifts and enhancements. Consider the metaphor as the net sum of the organization's operating model, inclusive of differently sourced, managed and deployed parts (core competencies, infrastructure, performance of talent, etc.). The model might have been built for sustainability (predictably execute the basics and dependably perform) yet the desired state is high speed (flashy features that promise exponential results). There's inherent risk in every model and shifting it could be risky (and bring rewards). The more refined understanding of the model, its relevance and potential, the clearer future priorities (and what to avoid) become.
- What are the specifics and nuances of the economic engine's efficiency and friction points? What are the planned resources and timeline to enhance it?
- In which future reality does this economic engine not work in our favor? What would have to shift to better position us for different realities?
- What are we choosing not to prioritize or enhance with our model given finite resources?
- What would it take for our competitors to diminish our competitive advantages?
Boards should be ready to defend the strategy (e.g., the results of deploying member equity) to the regulators, themselves (future boards) and the members. This is especially relevant when the strategy intentionally or unintentionally draws attention. This requires boards to meaningful review progress, digest the intended trajectory and weigh what is at stake. No organization is perfect and it's easy for boards to dive into operational details when things go awry. The challenge then is for boards to continually put the strategic variables in the foreground and attend to those outcomes.
- What is the organization's North Star (overarching operational and strategic vision, beyond "member service")?
- How well are our most consequential strategies performing?
- What are we choosing to prioritize? What did we choose not to prioritize?
- What are we willing to risk and what is our exit strategy for initiatives?
It is easy to confuse strategy, long-term planning and having a 50,000 foot perspective. These are mutually exclusive concepts yet are often present during strategic visioning events. Requesting operational details can be seen as being in the "weeds". However, if it is relevant to the manifestation of a strategy, it may be extremely informative to long-term planning. Also, being strategically inclined does not guarantee proficient execution or above-average results.
This was most apparent when the chair of one of the highest performing credit unions in the industry asked their CEO, "But what is our long-term strategy? Where are we going as an organization?" and the CEO stopped in their tracks and replied, "I don't know what we're doing six months from now. We're just executing on what we know works." To the outside observer, the CEO was very short-term and operationally focused. Yet, in reality the CEO had a proven, even if undocumented, strategy. It is possible to strategically address a near-term situation just as it is possible to tactically orient for the long term.
Lastly, the reality is that strategic conversations take time. Setting the context, outlining the framework and digesting consequences can be challenging to satisfyingly complete during efficiently conducted board meetings. These settings might be more conducive to strategic updates versus meaningful strategic dialogue. The charge is for boards to discern and ensure they are in the right conversation at the right time in the right place.
- How can we structure our meetings (regular board meetings and strategic planning events) to ensure we are appropriately fulfilling fiduciary responsibilities and stepping further into our strategic charge?
- What prework would we be willing to consume before live meetings, minimizing "reporting" and maximizing "speculative" conversations?
- What is the depth and breadth of documentation and reporting on our current strategies? How satisfied are we with how built out they are?
- How could we enhance our self-policing habits to ensure we are exceptionally well prepared and stay in the right conversation?
It is easy to overly simplify strategies and outcomes into phrases like, "$5 billion in five years" or "$10 billion in 10 years." There's value in having something catchy yet there may be unintended consequences and misunderstandings downstream with the staff and at the board level. For example, a board's ambitious pursuit of a singular goal, such as asset growth, may come at the erosion of the broader economic engine. The base-level of financial acumen present directly informs (enables/inhibits) the sophistication of strategic dialogue. The point is for boards to understand and hold themselves, as well as the CEO, accountable to the results of their strategies. Statistically speaking, 25% of credit union boards are in charge of the general direction of the lowest performing 25% of organizations. When these boards learn of their organization's low performance, they are just as surprised as they are culpable for the outcomes. Having appropriate board-level and CEO oversight accountability mechanisms in place becomes increasingly important as organizations become evolutionarily more sophisticated.
- To meet the future needs of the governance body, what needs to evolve with our board accountability practices? Where does our board succession planning and development practices need to shift to ensure the right functional domain expertises, perspectives and representation are contributing to the strategic direction of the organization?
- What is our governance response pattern, with the CEO, to a consistently under/average/high performing organization?
- What is the board's strategic framework for mergers and acquisitions (as that may be a viable option to best serve our members)?
- Where might the governance structure be unintentionally inhibiting the CEO's ability to execute the needed strategy?
Each of these charges, although listed in ordinal fashion, are inextricably linked to one another. The representation of one creates an opening and encourages another. They will enhance a board's ability to strategically vision possibilities that others may not. For some boards, the hardest part may be to remain disciplined when things go extremely well ("We're doing great. Do we have to keep all this rigor up?"). What boards can bet on is that high performing, great CEOs and executive teams thrive with a strategic visioning board.
Beyond their advisory and oversight duty to be "responsible for the general direction and control" of the credit union, a forward-thinking board's role in strategic planning is to become the decisive architects of strategic priority by focusing on the five charges outlined above.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.