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Musings About Governance
When I ask non profit executives about those activities where they spend most of their time, working with their organization’s Board of Directors almost always rises to their top two or three priority focus areas (along with fundraising and directing their organization’s strategic agenda).
Yet, despite the time, money, and energy that many executives devote to their boards, I often hear a remarkable degree of anxiety, frustration, and sometimes resignation when executives talk about their boards. If there is an over-riding concern or theme, it is that executives struggle to engage their boards to productive ends. “It’s like herding cats� is a common complaint. Some executives perceive their boards as a tremendous resource; others experience their board as “a necessary evil.� Remarkably, the same executive will have run the experience-and-opinion gamut over the years.
One talented executive friend of mine (who must remain anonymous for obvious reasons) says careful recruitment matters significantly, but so does luck: “Sometimes you have a great board and sometimes the wrong people get on and things get bad for awhile. Getting the right people - especially the right executive committee - makes all the difference in the world. In any event, you can’t know who you’re working with until you’ve worked with them for awhile. Sometimes, you just have to put up with an ineffective board until you can rotate the bad apples out.�
In priority terms, the relative importance of working with the board compared to other priorities reflects the balance between 1) the executive’s operating style and philosophy, 2) the urgency of the organization’s current policy and fundraising agendas, and 3) the organization’s historical governance culture.
In some organizations — for example in strong founder-led organizations — boards play a relatively subservient leadership role, especially when in comes to establishing and communicating vision. The opposite is often true in organizations that have emerged organically from a volunteer culture. Absent disaster or scandal, organizational history and culture create role patterns that sustain and reinforce themselves. Inertia is powerful among governance cultures, too.
Board function and role vary dramatically from one organization to another, and so does the relative effectiveness of boards. Some organizations derive enormous value from their boards of directors. Others gain little, if anything. Why? What is the difference that makes a difference?
As I’ve reflected on the value-creation process as it relates to boards of directors, I’ve considered the raison d’etre for boards, especially among non profit organizations.
Non profit and for-profit boards differ, both in substantive and process terms, but the most significant difference is that non profit board members are implicitly, if not explicitly, expected to prioritize fundraising above governance and management oversight. Further, non profits value and promote their volunteer directors more according to their fundraising prowess than by their governance contributions or strategic insights.
Many cultural sector executives might not argue that fundraising should be prioritized above governance, but they act as if they believe it, and not necessarily for bad reasons. Board members bring a lot to the fundraising process: prestige, position, contacts, clout, and often their own deep pockets. Competition for contributed resources is increasingly fierce; the costs of mission delivery relentlessly march upward. Executives daily stare down the maw of an insatiable beast. For these and other reasons, board members find themselves increasingly called upon to fulfill a fundraising role, even if they suspect that they might make a much more important contribution in other aspects of the organization’s agenda.
I had a telling conversation recently with a Board Chairman of a major art museum in the Southeast United States. The first thing that struck me about this gentleman was how young he is. In my experience, aside from the rare scion of American elite philanthropic families, there aren’t many young men who have risen to lead boards of this stature. This man told me, “In this town being on the right board matters when it comes to business. I tell young guys my age that they can get on any board in town. All they have to be willing to do is raise money and work hard at it.�
This reward-recognition dynamic, though somewhat subtle, is powerful. People respond to reward and recognition dynamics. They underpin organizational culture. Any organizational development expert will tell you that organizational culture is first and foremost a behavioral control mechanism. It follows, then, that if an organization wants strong governance in addition to strong fundraising, they must create reward systems that reinforce it.
Among for-profit boards, the governance role is much more robustly defined than it is among non profits. The important work of governance extends well beyond ensuring operating and financial propriety. Private sector directors are recruited then tapped for their strategic competencies. Corporations want judgment and brain-power in addition to position and clout because corporate boards must concern themselves with those strategy and value decisions that impact shareholder value, drive innovation, and create profitability. An incessant need to develop resources doesn’t steal focus from making the right strategic decisions — a function that is, at the end of the day, what governance is really all about.
It seems to me that it is the duty of the non profit executive to develop strategies that ensure that the Board of Directors adds value to an organization’s ability to deliver on its mission. Clearly, the ability to fundraise effectively empowers mission delivery; raising money is literally adding value. However, ensuring that an organization is making effective strategy choices that are 1) value-consistent and 2) mission-focused is of equal importance.
If one believes the observations of some of the most important management thinkers of this last century, most executives are clearly failing in this duty. Peter Drucker observed, “There is one thing all boards have in common....They do not function." John Carver, perhaps the nation’s leading authority on Board operations and governance wrote, “Boards tend to be, in fact, incompetent groups of competent individuals.�
These condemnations of governance effectiveness do not represent a minority opinion in the non profit sector today. Many sector leaders worry that non profit governance is broken — not so much corrupt as ineffective.
My experience working with boards has led me to conclude that governance processes represent the single highest leverage opportunity that non profits have. Thus, while poor performance in governance effectiveness may not set an organization back, it certainly hinders advancement. Poor governance processes result in significant opportunity costs. If you want to really accomplish something in an organization, there is no place like the boardroom.
When I listen to executives describe what they actually do in working with their boards, the language that is used is revealing. Very often, I hear executives speak in terms of “managing� their Board or “leading� their board.
While there is nothing wrong with “managing� or “leading,� both words imply an internally inconsistent dynamic where the executive operates from a superior control position. This control dynamic, while it might be real, isn’t effective.
An organization’s board constitutes and creates the authorizing environment for the executive. At least in theory, the board of directors are charged with the stewardship of the organization’s mission, values, and assets. That charge is bullshit if it is not accompanied with both authority and responsibility. These things come into play when an organization must make choices between strategies.
Executives fear that their boards — who are composed primarily of lay people — are incapable of grasping the complexities involved in making strategy decisions so they reserve as much decision-making power to themselves as possible. Maintaining control, while often counterproductive, is a risk-aversion behavior, but it is also extremely risky to the Executive. Sharing decision-making power results in distributing the risk (and the rewards) among the decision-makers.
What’s more important is this: when Boards are harnessed to consider and choose strategy, they become better and smarter with time and experience. Plus, when board service involves important decisions and interesting debates about policy and strategy, personal engagement on the part of Directors increases.
As I have pondered these dynamics over the last several months, I have repeatedly come back to the language that many non profit executives use to describe how they work with boards. While “leading� and “managing� are not wrong per se — good governance processes require both — I believe that they miss the point.
Just like the rest of us, boards are most effective when their focus is on the right things. This is much more difficult than it seems. Working closely with the Board leadership, it is the CEO’s job to establish that “focus agenda.�
The best CEOs don’t so much manage or lead their boards as they do harness their power. The last thing any Board Member wants to feel is that they are superfluous or marginal. As accomplished and competent individuals, most Board Members have a keen sense of whether or not they are adding value or just taking up space.
Ensuring that Directors play a meaningful role in an organization’s life requires that the Executive develop strategies that ensure that the Board adds value — one Director or Trustee at a time. That value should be measurable in organizational and personal terms. The value should be measurable, both quantitatively and qualitatively. It’s not just what the organization gets from the Director that matters, but how the Director feels is also important.
In closing, I would offer one additional observation. My experience tells me that the most engaged Board Members also give or get the most money when it comes to fundraising. Engagement breeds passion, commitment, conviction, and energy. These things can turn an analytical and taciturn person into a powerhouse of persuasion.
If you’re trying to decide how to focus your board so that they add the most value to your organization, thinking in “choose-one� terms of strategy versus fundraising is wrong-headed. Don’t choose one. Choose both.
Posted on January 26, 2007 09:38 AM | Permalink
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Comments
Hi Neill, always appreciate those...on that matter, I believe that the
choice of chairman is critical in board governance success. Also, i find it works well/better when chairman and executives - managing and artistic - are in tune and in charge of
the lead locomotive...
As I often say to my staff, chairpersons are like wine, some years are better than others...
Have a great day! Eric