Boards of directors are increasingly focused on long-term strategic planning. While boards have always been involved in the annual planning process, most of the attention has been on a detailed 1 year plan with a high level 3 year "outlook". The objective was primarily to establish target sales and spending levels to be communicated to shareholders and used for incentive compensation purposes.

Boards have come to realize that the "strategy sessions" had become "budget meetings", resulting in a short-term focus. In addition, many CEOs and boards are formally evaluated, and one of the topics usually covered is whether the CEO and board are working together to establish an aggressive long-term strategy and specific objectives to achieve the strategy.

In order to devote the necessary time to long-term planning, many boards are now holding a 2-day off-site meeting. The planning meeting should be held away from the company headquarters, where the pressures of daily business can distract the management team, and be distinct from a scheduled board meeting which can be crowded with an earning release or operating decisions.

The objective of the off-site meeting is answering the questions:

• Where do we want to be in 5 years?
• How do we get there?

While these may sound like simple questions, they are actually quite complex. There are no right or wrong answers, and the board and management team need to work together to set aggressive, yet attainable, goals.

Before plunging right into the long-term goals, the off-site meeting is an excellent time to update the board of directors on management's view of the industry dynamics and the company's competitive position. This also has the advantage of leveling the playing field, or knowledge base, between the management and the board, so everyone is working with the same information.

Goals are often established in financial terms since boards are focused on increasing returns to shareholders. Examples of 5 year targets are:

• Increase sales 15% per year
• Achieve operating margins of 15%
• Double the stock price

The board and management team may differ about whether these should be stretch goals or more easily attained, and the board should expect negotiation on these items.

Once the long-term goals are established, the board and management need to discuss the high level plan to achieve the goals.

• What will contribute to the target of 15% sales growth/year over 5 years:
• Growth from existing businesses
• Acquisitions
• Can the company achieve its target 15% operating margin or does it need to:
• Cut manufacturing costs/outsource non-core processes
• Reduce its overhead
• Divest non-performing businesses
• Stock price is a function of many variables, but the company should consider:
• Is it communicating its long-term strategy effectively to shareholders?
• Can the company achieve a higher P/E ratio if it increases its growth rate?
• Does the company have a financial strategy to raise any outside capital required to meet the goals.

Finally, management and the board need to discuss a very difficult issue:

• Can the present management team achieve these goals, or
  • Has the company outgrown some managers.
  • Are additional people with new skill sets required.

The long-term planning process should invigorate both management and the board of directors. The objective is to have everyone leave the off-site meeting with an understanding of the game plan for the next 5 years, which will be updated at an annual off-site planning meeting.