How to Plan an Effective Board Retreat

The annual strategy session is often a board's only chance to be proactive rather than reactive, yet poor groundwork can torpedo the opportunity

Ah, the month of March. The NCAA tournament, the first flowers (at least if you live in the South), and hundreds of companies making decisions that will inevitably lead to bad board strategy retreats.

Over the years, I have attended dozens of such strategy events and have seen that most of the attending directors found them unsatisfying. Usually they were too polite to say much, but their reactions typically included: "It was useful background information, I suppose," "we just don't seem to get to the issues," "I am not sure how we are supposed to add value," and "I don't think we made any decisions."

Some CEOs probably view these comments as evidence of success. Not every CEO wants a substantive discussion with his board, much less a real challenge. But such sentiments are hardly in keeping with prevailing views of better board governance, in which setting/overseeing strategy is one of the three principal duties.

So let's assume you want an effective retreat. What are the choices you must make in early March to ensure the success of the retreat in April or May (the most common times for such events)?

Define the Purpose

First, you must tightly define the purpose of the retreat itself. It should be to address the one to three most important unresolved strategy issues facing the company (which could change from year to year). Perhaps the question is whether the company can generate attractive returns for shareholders, or whether it should be turned over to a new set of owners. Or perhaps the company is basically viable, but the question is whether to initiate a radical shift from the current strategy to capitalize on major changes in the environment. Maybe the biggest unanswered question concerns one division rather than the whole corporation.

Who should decide the purpose? Surprisingly, the best-practice answer is not the CEO. There is an inherent bias for the CEO to see the company's competitive situation as "under control," and the strategy currently being pursued as "the only logical choice." The board's strategy role includes serving as a check and balance on these very judgments. Thus, the choice of purpose is better left to the lead outside director.

Shape Strategy

Second, you need to tease out explicitly the policy-level issues that shape the strategic choice you have decided to focus on. These may or may not be obvious. For example, if the purpose of the retreat is to decide whether the company will initiate a major change in its business focus, the board will want to provide guidance about potential new directions.

That statement appears straightforward—but it becomes useful only when it is translated into more targeted questions, such as: What portions of the company actually need to change? Which types of risks are we prepared to bear, and which are we not? What are the acceptable maximum and minimum time frames to accomplish the change? What level of investment is the board willing to consider, and what temporary decline in earnings is the board willing to bear to achieve the shift?

Frankly, in most cases, neither management nor the board is very adept at crafting the right questions. Management tends to resist asking for policy guidance, preferring instead to solicit board reactions to specific proposals. Boards often descend into operational questions—because those questions are easier to formulate on the spot in reaction to management's specific proposal. (How often have you read about companies floundering because neither management nor the board asked the broader questions, or considered a broader set of alternatives?)

Therefore, you may need help from someone who has such skills and the time to cast the issues in terms that the board can deal with effectively. Don't be ashamed to ask for help—after all, the audit committee has its helpers (the external auditors), as does the compensation committee (management assessment and compensation consultants).

Encourage a Healthy Dialogue

The third planning task is to structure the retreat itself in ways that maximize the board's ability to hold open and constructive dialogues and reach the level of consensus needed. Everything about the retreat should be designed with this in mind. That is not the common practice today. Consider even the most basic of planning tools—the master schedule. Too often, the outlines of the schedule are set long beforehand, such that the business sessions are contorted to fit the timetables, location, and physical accommodations of the social agenda. (After all, the meeting planners have already picked the hotel, the meeting room, and the luncheon!)

Turn this around. You should not hesitate to wreck their plans. It should be obvious which is the dog and which is the tail here.

So revisit every piece of conventional wisdom in light of your larger purpose. For example, ask yourself about attendance. The status quo plan probably includes all of senior management. But will the sheer numbers in the room turn the discussion into a stiff "show and tell?" Will the presence of certain executives stifle the discussion?

In a similar vein, if some board members are less knowledgeable than others and this means they will be intimidated from speaking, have them come early for an optional "business overview" session. If some won't ask questions in a large group, create the opportunity for sub-discussions. If the board hates decisions, allow a facilitator to express the consensus of the group and ask for reactions rather than calling for any vote.

The annual board retreat takes up close to half of all the hours a board collectively spends directly on strategy each year. It is perhaps the only opportunity to develop proactive policy guidance rather than having policy result from the body of operating and financial decisions made throughout the year. Resolve to use the opportunity before you, and plan accordingly.

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