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Developing a strategic perspective in the boardroom: rethinking the role of the agenda.

The future of any business is never assured. Aggressive competitors, changing markets and slow or overly cautious responses can all lead to organizational failure. Numerous observers are now sounding this warning to the electric utility industry. We know that threats are emerging from all sides:

* From industrial customers who can self-generate or seek other suppliers

* From regulators who want increased competition in the energy marketplace

* From environmentally conscious consumers who will continue to raise questions about the impacts of power generation on the environment and about the possible health risks associated with transmission and distribution

* From other utilities and municipalities seeking to expand their service territories or to acquire us outright

There is growing consensus that these threats represent not a temporary obstacle to be overcome, but a permanent feature of the rural electric landscape. In this environment, our survival must be based on our ability to respond quickly. As generally smaller utilities, our competitive advantage lies in being nimble, and this requires learning about and responding to new issues as they arise.

We are writing to suggest a new approach to assist boards in achieving this goal. This approach requires rethinking the board agenda. Traditionally, the agenda has consisted of the sequence of items discussed or decided at each board meeting. Most rural electric boards meet monthly, and most meetings tend to include the same items: the manager's report, reports from the statewide and G&T representatives, outage or operational reports, a safety report, a review of unusual or large purchases, and an extensive review of the Form 7, Financial and Statistical Report. In general, the typical board meeting focuses on internal and operational issues that happen each month.

The weakness of this approach is that strategic issues are not addressed. As management expert Peter Drucker has said: "The board is the place where short-term and long-term imperatives must clash--and boards usually focus on the short-term. The only survival is for the general manager to be proactive--to take the initiative in thinking through the role of the board."

As Drucker implies, long-term strategic issues cannot be effectively discussed and explored when numerous other issues are also on the agenda. A true strategic discussion requires an intense allocation of time and effort. Further, there is an innate human bias to deal with short-term operational issues because they appear so much more real in their immediate consequences. As a result, strategic issues wind up on the back burner, never getting fully addressed.

This problem is further compounded when we consider that directors have only an "episodic" involvement with the rural electric system: they generally deal with utility issues only a few days every month. As Figure 1 suggests, if the typical manager spends 100% of his or her time thinking about utility issues, the director can spend only 10% of time, while the typical consumer might be said to spend only 1% of his or her time thinking about electricity. The question is, can we devise an approach whereby the 10% of available director time is concentrated on the most important long-term issues?

The answer is to look at the meeting agenda. The agenda should be seen not only as a description of each individual meeting, but as a way of planning, organizing and assessing the effectiveness of the totality of all twelve board meetings held each year. In other words, the meeting should be planned on an overall basis and not as isolated events.

Contrary to our initial stereotypical description of board meetings, there are two well-established models for what we are proposing. The first is the annual review of the manager's performance. This involves a board meeting specifically devoted to a review of the manager's performance during the past year in comparison with the expectations that were conveyed to him at the beginning of that year. A manager appraisal is successful when all of the questions, concerns and judgments of every director about the CEO's performance are brought into a group consensus and communicated.

The second model is sometimes called the board planning retreat. This is a meeting--which may be held in addition to the regular monthly meeting--in which the system's external environment is discussed and in which key issues are identified. A strategic planning meeting is successful if key issues are accurately identified and prioritized and then effectively communicated to staff so that organizational initiatives can be developed in response.

Notice that these meetings are successful (when they are successful) because sufficient time is devoted to allow all directors to participate and, working together, to form a consensus judgement. It is the ability to focus enough time that is critical.

We are proposing a comparable approach for dealing with the many other strategic issues faced by rural electric systems. This involves rethinking the agenda so that each meeting of the board includes adequate concentration on a specific strategic issue. We are not proposing that nothing else be discussed at meetings, and we have suggested at least four reports that can be included at every meeting. But the overall goal is to reallocate time so that strategic and not just operational issues can be reviewed, discussed, understood, and responded to.

The agenda of board meetings presented below is not claimed to be the only agenda schedule, since different systems face different strategic issues. But the general framework is one that we think may be correct. According to this framework, boards might plan the following sequence of meetings every year:

January The Annual Manager Appraisal: See above. Included also is a review and assessment of results achieved since the previous strategic plan.

February Environmental and Legislative Update: A review of current environmental concerns and questions being raised by consumers; a review of environmental initiatives; a statewide legislative update.

March Policy and Bylaw Review: A detailed review of policy and bylaw issues and revisions.

April Power Supply Report: A presentation by the G&T on power supply and transmission plans and issues.

May Financial Planning Review: A review of the 10 year financial forecast, and issues involving equity management, rates, and capital credits.

June Customer Service Review: Analysis and discussion of customer service issues; possible review of attitude surveys; discussion of initiatives and outcomes of efforts to improve customer service.

July Strategic Planning Update: Formal review of last year's strategic plan, progress made, revisions required.

August Compensation and Employee Issues Update: Wage and salary contract review.

September Marketing and Economic Development Update: Review of marketing initiatives; review of economic development opportunities and initiatives.

October The Annual Board Appraisal: Review by the board of its own effectiveness. Preparation of the annual schedule of board meetings for the following year.

November Capital and Operating Budget Review

December Competitor Analysis: A detailed discussion of what is known and not known about key competitors, including the neighboring investor owned utility. Discussion of IOU strategies and initiatives. Discussion of neighboring municipal systems, including opportunities.

Monthly Manager's Report
 Statewide Report
 G&T Report
 Safety Report

As we note above, neither the topics nor sequence of topics here presented are specifically recommended. That determination must be made locally in response to local issues and threats. There can also be partial implementations of this concept; for example, every third meeting could be devoted to a single strategic issue. But we believe the overall approach is correct. As we note above, we face a world of increasing complexity and boards must find time to deal with this complexity in an organized way.

We invite responses from Management Quarterly readers about this approach. We hope it stimulates thought and discussion. We consider the threats and opportunities faced by our industry to be sufficient to justify such a rethinking of the board agenda.

* Greg Boudreaux has been an employee of NRECA's Management Services Department since 1984. He currently serves as Principal of Board and Management Development, and is responsible for NRECA's curriculum-based courses for directors, managers and supervisors and for developing customized on-site training. He is also manager of RECNET, serving as executive producer for all televised programs offered by the Rural Electric Cooperative Network, an award-winning private network that produces training programs for rural electric utilities.

Prior to joining NRECA, Greg was an assistant dean of the graduate school of the University of Maryland and as a resident graduate professor for the University of Maryland in Tokyo, Japan. Boudreaux holds a master's degree from LSU and a doctorate from Duke University.

* Martin Lowery is the Principal of Consulting Services Division of NRECA's Management Services Department, which provides a full range of consulting services to rural electric systems and allied organizations, inducing strategic planning, management audits, market research, compensation planning, financial management, organizational studies, policy development and board audits. Lowery joined NRECA as assistant manager of the Computer Services Division.

Prior to joining NRECA, Martin was the manager of the engineering and technical services division of a management consulting firm in Washington. He earned a bachelor of arts degree cum laude from DePaul University, and a doctorate from Duke University.
COPYRIGHT 1993 National Rural Electric Cooperative Association
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Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Author:Bordeaux, Greg; Lowery, Martin
Publication:Management Quarterly
Date:Mar 22, 1993
Previous Article:Meeting the new paradigm challenges through total quality management.
Next Article:Yesterday's gone: the risk associated with tomorrow's electric utility infrastructure.

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