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Aug 13, 2014

McKinsey Urges Board Focus on Strategy

It has long been obvious that nonprofit boards should spend much time on the nonprofit mission and its continued relevance to the community. I have called this a strategic board and its primary duty is to ensure that resources are laser-focused on mission priorities.

This look-ahead view is critical in the for-profit world too, according to a recent article by McKinsey consultants Christian Casal and Christian Caspar. They support the renewed focus of for-profit boards on governance issues, but emphasize “governance suffers most…when boards spend too much time looking in the rear-view mirror and not enough scanning the road ahead….Directors still spend the bulk of their time on quarterly reports, audit reviews, budgets, and compliance – 70 percent is not atypical….”

They advocate a re-balancing of board time away from yesterday’s news and toward laying the path for the company three years from now. For a nonprofit, the path involves how the needs of the community may evolve, what other nonprofits are doing locally and nationally, and the changes in programming, skills, and resources necessary for the organization to remain strong and relevant.

While Casal and Caspar recommend achieving this by significantly increasing the time commitment of paid for-profit board members, nonprofits are limited in the time commitment they can expect from their volunteer, usually unpaid, board members. My observation is that significant time is often spent listening to reports in nonprofit board meetings. By sending reports in advance to be read offline, I think many nonprofit boards would free up enough time to add new topics to their meeting agendas. (For a good discussion of strategic board meetings, see Chapter 11 in Linking Mission to Money, Second Edition and for a wide-ranging discussion of board effectiveness, see Chapter 1 in More Than Just Money.)

The authors suggest that a forward-looking focus is best developed by spending more board time on four topics: strategy, competition, board education, and board composition.

Strategy should become a routine portion of every meeting agenda, not an annual approval of a management-developed strategic plan. They suggest that the board specify several combinations of resources and risks and ask management to prepare options for each combination. The board’s role is to start the process with a broad set of strategy options, help winnow the list down to the best options, and finally approve an implementation plan.

Comparisons with competitors should be on the agenda at least twice a year. “Directors should…compare performance data with those of their competitors across a range of key indicators.” Nonprofits have a ready tool to do this with the low-cost Financial SCAN(SM) report available through GuideStar.org.

Casal and Caspar note that “many directors…don’t know enough about the fundamentals and long-term strategies of their companies to add value and avoid trouble.” They recommend at least three times per year the agenda should include educational sessions by outside experts on relevant external topics, such as technology, regulatory matters, and economics.

A strategically focused board should ensure that it always has the talent and expertise relevant to its strategy. For that reason, the authors recommend that two times per year the agenda should include a discussion of the skill and experience composition the board should aspire to have in three years. They note, “a willingness to look ahead expands the number of candidates with appropriate skills and heightens the likelihood that they will sign up if and when they become available.”

Board meetings will have greater value and board members will be more engaged when meetings focus on the future. Adopting an annual cycle of forward-looking topics is an effective way to achieve that focus.