Why Every CEO Needs This One Piece of Paper To Nail Down Expectations

1. Introduction:

Boards play a critical role in advising CEOs on how best to navigate strategic opportunities and pitfalls. Boards should expect a clear strategy from the CEO that explicitly shows the rationale of product, market and capability choices being made that will propel the company to its EBITDA targets. Conversely, CEOs should receive a clear set of parameters or boundaries to use in setting the strategy.

In practice this Board / CEO exchange on strategic planning is often assumed and murky. The impact is Board Members and CEOs end quarterly meetings with more questions than answers.

To side step this expectation gap (and this gap, if left unchecked can have an enormous detrimental impact to EBITDA performance as well as speed and quality of decision making), we suggest a one page document called Strategic Latitude that every CEO and Board needs to co-create and audit.

2. Strategic Latitude – What is it?

It is a one-page document that asks and answers:

What parameters, boundaries and expectations must be adhered to in both setting the strategy and achieving results?

The format should include objectives (with relative weights), metrics, targets and data sources for each of the parameters being set forth by the board. In practice, this is an iterative exchange and is best for the board to provide this assignment to the CEO and executive team at the start of a strategic setting process because its helps to narrow or widen the strategic alternatives being considered. Most importantly, it points out gaps and areas of alignment that can be shored up to avoid future disconnects.

3. Questions and Categories to Create a Study Strategic Latitude Document.

A simple way to facilitate the creation of this document is to ask:

When we set the strategy for company ABC co – what are the stakeholder…

Requirements to fill?
Risks to Avoid?
Problems to Remove?
Restrictions to Uphold?

The output of these questions typically uncovers these types of the objectives that should be weighted on a relative scale 1=low to 10=high):

Strategic Time frame
Scale on Exit
Cash Flow
EBITDA Per year
Capital Available for Projects
Growth by Product Line or Market (or both)
Inorganic Spend for Acquisitions
Product / Market Concentration and Change
Core Competencies to Maintain
New Competencies Built to Drive Margin or Scale Advantage
Risk Tolerance (probability and impact profile of decision making that is acceptable)