FUNCTIONS OF STRATEGIC

LEADERSHIP
 KEY STRATEGIC LEADERSHIP 2

ACTIONS
• Determining Strategic Direction
• Involves specifying the vision and the strategy to
achieve this vision over time
• Vision is a picture of what the firm wants to be and in
broad terms what it wants to ultimately achieve
• Strategic direction is framed within the context of
the opportunities and threats over next 3-5 years
• Includes a core ideology and an envisioned future
• Should serve to motivate, “push”, and guide the
organization
‘NESTED BOWL’ , JOHN CARVER
 ROLE OF LEADERS
• Ensuring that there is strategic planning process and that both
management and board member know the steps involved in the
process
• Ensuring that someone from the board or management is
accountable for each of the steps of the strategic planning process
• Monitoring the progress of the planning process.
 ROLE OF LEADERS
The meaning of participation:
• Spending time as board to define (if necessary) review (annually) and
articulate (clearly) the vision, mission, and core values of the
organization (primary responsibility of any board)
• Spending time through committees or as an entire board, reviewing
outputs from strategic planning process, understand what is being
developed, and approving the strategic direction that is ultimately
determined by the organization.
• Spending time on a regular basis to receive updates on how the plan
is being executed and whether expected outputs are being realized.
 DETERMINES AND REVIEWS THE
COMPANY’S OBJECTIVES TO MATCH
THE COMPANY’S MISSION AND VISION
• The premise for such is to understand developments in the economy as well
as the industry and its key partners.
• Further a review of progress made in previous years should also be
established (where necessary) to establish the gap for which objectives are
then set.
• The board must also ensure that such objectives are adequate and relevant
in view of the organisation’s mission and vision and also trends in the industry
in particular and in the economy generally.
• Objectives cover a number of areas among which areas include profit,
productivity, human resources, financials, etc.
• To that end, objectives must cover all circles included in the ‘nested bowl’
alluded to earlier.
 DETERMINE AND ENFORCE COMPANY POLICY
•Policies represent the general guidelines and such
must be designed for all important performance
areas
•Covering among others finance, human resources,
production
•The board must ensure that such policies are
observed as failure in implementation may affect
realization of the vision of the organization.
 REVIEWS AND EVALUATES PRESENT AND FUTURE
OPPORTUNITIES, THREATS AND RISKS
• The board here is required to, from time to time make an assessment of the
business’ future.
• Such an assessment is premised on developments taking placed in the
organisation’s environment.
• Developments therein represent opportunities and threats depending on the
direction they take.
• These have to be anticipated to allow the organization to develop
contingent measure to minimize impact of threats as well as take advantage
of whatever opportunities that may emerge.
• Risk exposure of the business has from time to time be evaluated so as to
also establish mechanisms of dealing with such and so keep the overall risk
exposure within acceptable levels.
• Risks range from financial to business and have the capacity to reduce
performance of the business by reducing its capacity to raise additional
working capital or even existence in the short to medium term.
 REVIEWS AND EVALUATES PRESENT AND FUTURE
OPPORTUNITIES, THREATS AND RISKS
• At board level, corporate governance code calls for the
establishment of a risk committee given the inherent threat
to the business needing focused attention.
• In its discharge of its mandate, the committee will liaise with
the CEO, Financial Director and Risk Officer specifically and
others generally depending on the source of such risk
exposure and establish mitigatory measures.
• To this end, the board and senior management help create
stability in operations and so enhance the chance of
strategic plans being realized as planned. (See principle 4.3
and 4.4. of King 3 Report).
 REVIEWS AND EVALUATES PRESENT AND FUTURE
OPPORTUNITIES, THREATS AND RISKS

• The board must establish the risk tolerance levels.

• The biggest source of risk to an organization is systemic as
this reside in the chain of the organisation’s business
• Systematic risk may represent a threat to survival of not only
the industry but a whole range of related industry.
• It is also now a requirement of stock exchanges for
companies to disclose its risk tolerance and risk
management process in the financial report.
 DETERMINE CORPORATE AND FINANCIAL
STRATEGIC OPTIONS
• The board and senior management must establish the direction of the
business and its financing.
• Corporate direction can be looked at as either diversification or
concentration.
• It is therefore the responsibility of the board to establish such direction
as a way of ensuring long-term value for stakeholder and in so doing
reduced insider trading in the short term.
• The board must establish the overall policy of the organization on how
it is to finance its operations and where borrowing is to be used
• Establish limits beyond which approval has to be sought from
shareholders.
 DETERMINES BUSINESS UNIT STRATEGIES
AND PLANS
• Must match the Corporate strategies
 MONITORING THE EFFECTIVENESS OF
CORPORATE PRACTICES AND MAKING CHANGES
AS NEEDED
• This involves assessment of internal structures of the company to ensure that
there are clear lines of accountability for management throughout the
organization
SELECTING, COMPENSATING, MONITORING AND
WHEN NECESSARY REPLACING KEY EXECUTIVES
AND OVERSEEING SUCCESSION PLANNING
• According to OECD, the board is responsible for appointment of key executives
and also for their dismissal where this becomes necessary due to performance
problems.
• It is also the board’s responsibility to ensure the existence of a properly constituted
succession plan at both the board level as well as management level.
• Board members should not be retired at the same time but such retirement must
be staggered to ensure continuity of operations.
• The same also should go for senior executives.
• Potential replacements must be identified and prepared for assumption of
increased responsibilities in advance.
• This can be achieved through establishment of membership programmes as well
as training and development programmes.
 ALIGNING KEY EXECUTIVES AND BOARD
REMUNERATION WITH THE LONGER TERM
INTERESTS OF THE COMPANY AND ITS
SHAREHOLDERS
• The board must develop remuneration policy for both the
board as well as management.
• Such policy statement must as of necessity establish the
relationship between remuneration and performance
including measurable standards that put emphasis on the
longer run interest of the organization.
• Policy statements generally tend to set conditions for
payments to board members for extra board activities, such
as consulting.
ENSURING A FORMAL AND TRANSPARENT BOARD
NOMINATION AND ELECTION PROCESS
 ROLES AND RESPONSIBILITIES OF SENIOR
MANAGEMENT
• It is generally argued that management must speak for the company. The
roles can thus be classified as networking and netweaving.
• Networking, as coined by Bob Little (2005) involves building bridges of trust
by listening and helping others first. It allows for sharing of ideas, opinions,
and experiences among participants.
• Netweaving eventually helps members become experts at building lifelong
personal and business relationships
• It is thus argued, senior management must network and netweave i.e.
create relationships within and outside the organization which are beneficial
to the same.
• These networks and netweaves allow for exchange of information which in
turn lead to improved performance of the organization.
• Starting with the CEO, he/she is responsible for appointment of senior
management as well as the work that they in turn carry out for the
organization.
SELECTION AND NOMINATION OF STRATEGIC LEADERS
 FACTORS TO BE CONSIDERED
• Strong management experience, ideally with major public companies with
preferably multinational operations.
• Other areas of expertise or experience that are desirable given the
company’s business and the current make-up of the board. This is important
if the board is to retain the balance of skills, essential for effective running of
the organization, e.g. if the outgoing board member was a lawyer, it follows
that the replacement must be a lawyer
• Desirability of range in age, so as to facilitate effective succession planning
and also stagger retirement to permit replacement of directors of desirable
skills and experience in a way that allows for continuity.
 FACTORS TO BE CONSIDERED
• Independence, as defined by the board. Generally, however, the
candidate must not be working for a company with other business relations
with the focal organization. According to the King Report (2009) while
referring to board chairperson, independence means one must be free of
conflicts of interest
• Diverse perspectives must be represented on the board as necessary. This
allows for debate and discussions that are beneficial to the company
• Knowledge and skills in accounting and finance, business judgement,
general management practices, industry knowledge, leadership and
strategic planning, etc.
• Personal characteristics matching the company’s values, such as integrity,
accountability, financial literacy, and high performance standards
 ADDITIONAL CHARACTERISTICS
• Willingness to commit the time required to fully discharge their responsibilities
• Reviewing the material supplied before each meeting
• Ability and willingness to represent stockholders’ long and short-term interests
• Awareness of the company’s responsibilities to its customers, suppliers,
regulatory bodies, and the communities within which the business operates.
• The number of commitments to other entities especially public company
boards on which the individual serves. According to the corporate
governance framework for SEPS (2010) a candidate should not serve on
boards of more than one state enterprise or parastatal at any given time.
 CEO AND DIRECTOR NOMINATION
• Fredrickson et al (1988) was quoted by Daily (1991) saying CEOs are
widely regarded as influencing the director nomination process by
selecting directors with whom they would be most comfortable
working with.
• Rehfeld (2000) reported that the CEO he replaced had hand picked
all the directors and assumed the chair of the board.
• At the early stages of the CEO tenure, the CEO is employed by a
board of directors whom he had no hand in selecting.
• It is the board of directors who select the CEO they think they may be
able to work with.
 CEO AND DIRECTOR NOMINATION
• Daily (1991) further noted that directors nominated by CEOs
tend to rubber stamp the CEO’s decisions which is not the
case at the early stages of the CEO tenure.
• At this stage, the board is forced to perform its duties and
roles with very little allegiance to the CEO.
• It is a perfect board and CEO relationship.
• The CEO is forced to work very hard to convince the board.
• Waelchi (2008) noted that uSwiss law, nominating authority
for new directors lies in the hands of incumbent board
members and large shareholders, and open dissent at the
meeting of shareholders is rare.