Below is an article in the Harvard Business Review which asks the equivalent question in respect of a board of a company, but in NZ local councils are legally described in Section 12 of the Local Government Act as corporations (“a local authority is a body corporate”).
The practical difference is that council boards are elected by stakeholders (the residents) rather than by shareholders, and on the basis of one vote per person rather than one vote per share: but the principle is much the same.
The major difference in purpose is that a council is a branch of government and operates on public, not private money; it does not need to keep its stakeholders satisfied to legally demand money from them in the way that a business has to keep customers satisfied to keep them from going elsewhere.
Section 10 (1) of the Local Government Act:
The purpose of local government is—
(a) to enable democratic local decision-making and action by, and on behalf of, communities; and
(b) to meet the current and future needs of communities for good-quality local infrastructure, local public services, and performance of regulatory functions in a way that is most cost-effective for households and businesses.
Does the KCDC do this? Yes, but poorly and certainly not in a “cost-effective” manner as we’ve seen.
What “strategy” is required for a council? This is set out in sections 93-97 of the LGA: a council needs to have both a long term plan and an annual plan, basically what is needed do the things expected as per 10 (1) in the immediate future and several years hence. That’s not rocket science in the case of a council: essentially: A. What must the district have; B. What would it be non-essential, but nice for the district to have. In the latter category decisions need to be made based on cost.
There is also expectation in the LGA of public consultation (“effective public participation in decision-making processes”) in formulation of the plans, but as we’ve seen in the KCDC’s case, such consultation is a sham.
by Roger L. Martin
A friend who serves on a number of consequential public company boards came to my office not long ago to ask my opinion on something that had become a contentious issue across his boards. The question: What is the proper role of a board with respect to company strategy?
On some of my friend’s boards, the prevailing view is that strategy is their job and they insist on having board strategy retreats during which they set strategy. On other of his boards, the prevailing view is the extreme opposite: their job is to wait for management to come forward with its strategy and to either approve it or not. The others lay at varying points in between. He wished for some clarity and consistency.
The answer is easy at the end of the spectrum at which the board claims it should do strategy. If the board feels it needs to do strategy for the company, it is prima facie evidence that it should fire the Chief Executive. If a board that meets just a few days a year can do a better job of setting strategy than the CE who is in the business 24/7, then the board has the wrong CE. That fact is even clearer if the CE accepts that it’s the board’s role to do strategy. That means the board and the CE are in full agreement that the CE is actually the Chief Operating Officer. Any self-respecting and competent CE would understand and resign before being fired because a real CE is in charge of strategy – or is not actually the chief executive.
What about the other extreme where the board simply declares “yea” or “nay” to the CE’s strategy? That is less bad, but renders the board largely useless in strategy. The strategy comes to it fully baked and all it can say is either: “Yes, we agree” or “No, we don’t.” The latter is, plainly and simply, a no-confidence vote and leads directly to the same place as above: the board should fire the CE, if the CE doesn’t resign first. In the former case, the board has not added a whit of value to the development of the strategy – so it is largely useless on the most important matter in the entire company.
Instead of these extremes, the right approach is an iterative process in which the CE is in charge, because it is the CE’s job to formulate strategy, but the CE wisely gets the maximum amount of advice from the board – assuming that the board has useful insights. If it doesn’t, its members should be fired or choose to resign.
Practically, this iterative process can be done in three simple steps.
First, at the start of the process, the CE should seek the board’s input on the challenges that the board thinks the strategy should address. Most disconnects that I have witnessed developing between boards and CE’s are the product of the CE’s strategy attempting to address problems other than the ones that board thinks are most critical. To avoid this, just have a conversation about them at the start. Directors may feel the strategy needs to address the emergence of new competitors, the slowing of growth, technology disruption, or an increasingly bloated cost structure. Whatever the specifics are, the CE has the opportunity to both gain important insights from and align with the board. And even if there is not total agreement, the CE can incorporate the board’s areas of concern from the very beginning of the process.
Second, in the middle of the process, the CE should come back to the board with strategy possibilities – alternative approaches to deal with the challenges laid out in the first step. Note, the CE isn’t asking for ratification of a particular approach, but rather seeking advice and feedback on the potential solutions – which resonate more, what concerns remain outstanding, how possibilities could be modified, etc. Done right, this step can provide exceedingly helpful input to the process of coming to a strategy recommendation to the board.
The third and final step entails the CE presenting the desired strategy choice to the board. Clearly, this has echoes of the one extreme end laid out above: coming to the board with a fully baked strategy. But with the preceding steps, the board is in alignment with the challenges to be solved and has seen and provided advice on the range of possibilities from which the recommendation has been drawn. It can more easily make a great decision: either the CE has taken the advice and come back with a better strategy still, or the CE has failed to take the advice and come up with something uncompelling.
In the former case, the board can happily and intelligently affirm a strategy that it intimately understands and to which it has meaningfully contributed. In the latter case, it knows without question that it needs a new CE.
A CE clearly in charge with a board helping to provide sage advice is the perfect combination for boards and strategy.