516 Making Key Strategic Decisions
board meetings may be held at company plants or other facilities; this also is a
valuable educational device.)
The meeting itself and the informal activities that usually are associated
with it are also educational. Directors have an opportunity to appraise both
company officials and their own colleagues. Judgments about these individuals
may be valuable if the board is required at some time to deal with a crisis
situation.
Setting Standards
Partly through written policy statements, but primarily through their atti-
tudes, directors communicate to management the standards that they believe
should govern the organization’s actions. There are two general types of stan-
dards; they might be labeled economic standardsand ethical standards,al-
though neither term is precisely correct.
With respect to economic standards, the directors communicate the over-
all goals they believe the company should attain: the relative importance of
sales growth, earnings per share and return on investment, and the specific
numbers that they believe to be attainable. The board also indicates the rela-
tive importance of short-run versus long-run performance. In the final analy-
sis, board members generally rely on management’s recommendations, but the
enthusiasm, or lack of enthusiasm, with which they support a given recom-
mendation conveys an important message to management.
Ethical standards are nebulous. Written policy statements are always im-
peccably virtuous, but directors’ actual expectations are revealed in the way
they react to specific ethical problems. How does the company deal with its fe-
male and minority employees? What happens to an employee who has a drink-
ing problem? Does the company have a policy concerning support for the
communities in which it operates? These and many other issues are loaded
with ethics, and the manner in which the board reacts to them establishes the
real policy, regardless of what is in a written statement.
It is easy to rely on counsel ’s answer to the question, Must we report this
unpleasant development to the Securities and Exchange Commission? The an-
swer depends on the legal interpretation of the regulations. It is much more dif-
ficult for the directors to agree, and to convey to management, that certain
policies or practices, although perhaps within the letter of the law, should not be
allowed or sanctioned. Examples include environmental considerations, employ-
ment practices in Third World countries, and involvement in political issues.
STRATEGY
A company should have a set of strategies that are well thought out and clearly
understood by all managers. Strategies include the industry in which the com-
pany has decided to operate, its product lines within this industry, the price