Strategic board decisions are what can make or break an organisation. Good governance is the key. It is defined as “pertaining to the direction, control and accountability of an organisation”.
Key Strategic Board Decisions
While not every small or medium business has a formal board, someone within or, sometimes, a small group within will effectively act as a board. Within the Not-for-Profit (NFP) sector, the concept of strong organisational governance, is now becoming increasingly critical. As more organisations deal with the complexities introduced by ongoing change in the sector, strategic board decisions are key to sustainability. With change and uncertainty, clear guidance from a board is key to survival and success.
Defining the Role to Enable Strategic Board Decisions
With any successful organisation, there is a solid distinction between governance and management. A strong board is responsible for setting the broader roadmap. In contrast, the CEO and senior management will implement the plan itself. Decision-making is based on financial intelligence. This balance can sometimes create a difficult and tenuous situation when board members, appointed due to their experience in defined areas, are not fully versed in the complexities of finance.
In a small business, the owner may function as both board and CEO but it’s still useful to separate the roles and think of the needs of each. Looking at your business from a board perspective is different to that of the CEO. It requires the longer-term, more strategic focus. This is why many successful small businesses work with an Advisory Board, something less formal and less involved than a board of directors but able to give a different view of the business and hold the CEO to account.
The beauty of a solid CEO/Boardroom relationship, balances the lack of direct knowledge with robust internal reporting. This delivers key information which is easily understood. It can be actioned to maintain commercial directives. It’s the responsibility of management to present the board with the reports they need to make decisions. Keep note not to overwhelm them with unnecessary detail.
Stepping Up
Changes to funding methods in the Not-for-Profit sector, especially with the implementation of the NDIS, has pushed many towards a complete overhaul of their organisational systems. The traditional handballing of financial data from the board to the company accountant or a single board member (with financial acumen) is now being questioned. With a growing understanding that effective membership of a board requires members to attain much higher levels of financial literacy. The board, as a group, holds the ultimate responsibility to ensure that the organisation remains sustainable and most of all avoids trading while insolvent. This is true whether we are looking at a business or an NFP. A key board responsibility is ensuring the organisation survives.
The growing commercial requirements within not-for-profits means that they need to operate much more like a business. This doesn’t mean abandoning the aims of the organisation and focussing solely on cash. It does require strategic board decisions. And, as a whole, the board is to possess at least a minimum standard of financial literacy.
The underpinning knowledge encompasses the understanding of the following financial documents and their components:
The Balance Sheet
- Assets
- Liabilities
- Equity
- Reserves
The Statement of Cashflows
- Operating activities
- Finance activities
- Investment activities
The Income Statement
- Income
- Expenses
- Profit
Strategic Board Decisions to Getting it Right
The emergence of performance driven organisations is a new and interesting phenomenon. The opportunities available for NFPs under changing funding models can present avenues of expansion. These may not have traditionally been available under the old block funding model. The delivery of strong financial results can be directly attributed to a strong boardroom, backed up by communicative and pro-active management. As with most successful ventures, it falls to the CEO to ensure engagement at all levels of the organisation is maintained.
Geelong based service provider Leisure Networks, is a shining example of an organisation willing to take an honest look at their internal systems. They also made effective and proactive decisions in order to ensure their sustainability and future growth. Governed by an open-minded and literate board, backed up with a strong executive team and committed managers, this organisation has successfully transitioned from a history of block-funding to actively embrace a fee-for-service delivery under the NDIS. A testament to their success over the past decade, Leisure Networks have expanded into other regional areas. This was achieved while constantly reviewing and adapting their internal systems under the close scrutiny of the board and management team. Their growth was very much founded on key strategic board decisions.
If you are interested in some ideas on strategic board decisions, you will get a glimps from the Leisure Networks Story.