In theory…we should understand a lot about boards

February 15th, 2017

But we don’t. Over 15 years ago Brown (2005, p. 317) concluded, “…much work remains to be done to establish the nature and…direction” of the relationship between governance behaviors and organizational success. We still don’t have a body of knowledge on the subject. Despite much theoretical study, there is a lean body of empirical work on boards, their processes, and how their decision-making impacts organizational effectiveness. Studies that adhere to a “gold standard” of research, i.e., large-scale representative studies of research are sparse. Because research is sparse, there is no conclusive evidence on the links between board processes and organizational performance. Far from drawing any conclusions, scholars point to a complex and indirect relationship between board decision-making processes and organizational results (Forbes & Milliken, 1999). Four years ago Ahrens and Khalifa (2013) described governance processes research as a “black box” and concluded that little is known about “the key processes that can make corporate governance effective” (p. 5).

Carver (1990) was the first to propose a framework of governance that can help a board define the distinct and separate roles of governance and management called the Policy Governance® (PG) model. Carver posited the board’s role as having the ultimate authority and accountability for organizational performance. A key principle of Policy Governance is the clarity in which the board delegates the means of organizational performance and operational authority to the CEO through policies. Another core concept is that organizational performance is equivalent to CEO performance (Carver, 1990).

Carver pointed out barriers leading to ineffective performance or problems in board governance. For example, boards often do not delegate effectively to management (i.e., CEO) — see John and Miriam Carver on PG — nor do boards have an effective system for monitoring management performance. Often the board’s focus is on administrative — rather than governance — issues. Carver’s work stimulated a good deal of discussion and literature on governance systems and processes. No matter what your position on Policy Governance or Carver’s work, we owe Carver thanks for opening up the discussion about what constitutes effective board behaviors and what may actually make a difference in organizational performance.

Note: There are four predominant theories about governing board behaviors: agency theory, stewardship theory, resource dependency theory, and stakeholder theory (for explanations and analysis of these four theoretical perspectives, go to the National Center for Biotechnology Information website).

References:
Ahrens, T., & Khalifa, R. (2013). Researching the lived experience of corporate governance. Qualitative Research in Accounting & Management, 10(1), 4-30. doi:10.1108/11766091311316176

Brown, W. A. (2005). Exploring the association between board and organizational performance in nonprofit organizations. Nonprofit Management & Leadership, 15(3), 317-339. doi:10.1002/nmi.71

Carver, J. (1990). Boards that make a difference: A new design for leadership in nonprofit and public organizations. San Francisco, CA: Jossey-Bass.

Forbes, D. P., & Milliken, F. J. (1999). Cognition and corporate governance: Understanding boards of directors as strategic decision-making groups. Academy of Management Review, 24(3), 489-505. doi:10.5465/AMR.1999.2202133

What’s the Right Size for a Board?

March 17th, 2016

A few governance consultant colleagues and I are experimenting with Blab. Blab is a terrific forum for group video broadcasting and live chat combined. On our last Blab, we had some discussion about board size. I made a comment about “doing the math” regarding board size and length of meetings. Most boards do not have enough time for everyone to participate fully. One of my colleagues challenged this comment because not all people want to talk on every topic. My simplistic example was not meant as a prescriptive way to determine board size. What I wanted to illustrate was the issue of being intentional about providing opportunities for gathering collective wisdom among a diverse group.

Larger representative boards can be effective. During the Blab, we discussed the problem of coordination and getting everyone together. A smaller group cuts down on the severity of the problem. Also, collective and diverse wisdom is a board member selection issue. What boards need to seek is diversity of thought and heterogeneity in board composition. However, diversity can yield to adverse affects if the group is too large, e.g., stalemate or lack of mutual trust among members.

“Rich information content must be balanced against the capacity to pool members’ varying types of expertise in an effective manner,” (Krause & Douglas, 2013, p. 147). Krause and Douglas also noted that smaller boards tend to cultivate rich information content by exploiting diverse sources of information. A larger board can be effective if there are ways to ameliorate the social uncertainty of large, diverse boards. That, too, was something we explored — using technology as a way to keep a larger group engaged and involved. We talked a bit how technology can also be a barrier to good dialogue and engagement. If you want to hear the whole thing, it’s here.

Reference

Krause, G. A., & Douglas, J. W. (2013). Organizational structure and the optimal design of policymaking panels: Evidence from consensus group commissions’ revenue forecasts in the American states. American Journal of Political Science, 57(1), 135-149. doi:10.1111/j.1540-5907.2012.00614.x

What is a worthy organization?

March 4th, 2016

“…ethical values are a
foundation for achieving integrity, defined herein not only as incorruptibility but as
a total commitment to the highest standards of behavior” (Strickland & Vaughn, 2008, p. 233).

Strickland and Vaughn assert that integrity in an organization is built on foundational values, such as accountability.

In a series of essays, Robert J. Ballantyne explored how an organization achieves worthiness or fulfillment of potential as described by Strickland and Vaughn. To capture in one place the wisdom generated through working with and leading a number of nonprofit organizations, Robert and I collaborated on a book, The Worthy Organization. You can also see Robert and I in a series of videocasts on Blab discussing the contents and purpose of the book.

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Strickland, R. A., & Vaughan, S. K. (2008). The hierarchy of ethical values in nonprofit organizations. Public Integrity, 10(3), 233-251. doi:10.2753/PIN1099-9922100303

Accountability and nonprofit boards

March 4th, 2016

Expectations of nonprofit boards – and of those who serve on them – are established by tradition and maintained by the status quo (Carver, 2002).

An expectation of nonprofit boards is they are accountable to achieve something on behalf of the community that created them. How do boards establish what is expected of them?

Last night, I was struck by the ethical issues at the Wounded Warriors nonprofit. In the CBS News report, a long-time supporter and major fundraiser was asked if the board of directors should be held to account for the scandal that is now emerging. Without hesitation, the supporter said “Yes.” (You need to note that a CBS executive serves on the Wounded Warrior board.)

But what is accountability? How does a board know to whom it is accountable? How does the board know for what it is accountable? How do people in the community know that they are accountable to ensure the board is truly representing them? How does the board know what their community really thinks?

Over a period of several months, the Xylem Group has explored these questions with academics, nonprofit leaders, and elected government leaders. What we’ve been hearing and learning are being brought to a broader audience on Blab.

Look for more on Blab and join us when you can!

Carver, J. (2002). John Carver on board leadership. San Francisco: Jossey Bass.

The disconnect between corporate leadership and employees

June 6th, 2014

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In the May 30, 2014 New York Times Sunday Review | Opinion, Schwartz and Porath discussed why Americans hate work. The authors cited a 2013 Gallup report that 70% of Americans do not feel engaged at work.

So what?

Schwartz and Porath point to research that shows the correlation between engagement — defined as “involvement, commitment, passion, enthusiasm, focused effort and energy” — and corporate performance (i.e., higher profits).

The authors asked senior leaders how much they invest in helping employees feel more energized, valued, focused, and purposeful. They reported being met with what I call “orphan Annie stares.”

Scott Adams’ brilliant cartoon strip illustrates the disconnect. Most, many, nearly all U.S. corporate executives (the so-called “leadership”) continue to expect employees to “do more with less” and demand more and more from fewer and fewer human resources. All in the effort to earn more profit and meet the expectations of shareholders. But does it work?

As Schwartz and Porath pointed out, there’s a reason Costco is more profitable than Walmart. Wall Street didn’t like the Costco business model that makes a huge investment in employees. Yet, Costco keeps beating Walmart.

The C-suite of corporate America and Wall Street need a wake up call!

Here are just a few more voices on the importance of this issue:
Fast Company
CNBC
TED
Daily News article citing the Gallup poll

Go ahead and Google it or Bing it yourself. The list goes on and on….

Policy Governance and Tone at the Top – When Nonprofits Fail

May 23rd, 2014

Nonprofits are failing at a high rate (e.g., Flanagan, 2012; Nonprofit Trends, 2014). Despite strategic planning and fund development, supporting resources are not available to many nonprofit organizations. You and I may be familiar with the relentless begging of most nonprofits. Yet, if the organization’s mission is compelling and the business model is sound, why do nonprofits have problems attracting resources? If organizational leadership (i.e, the board of directors) cannot determine the underlying cause of business failure, then the problem may be the process of decision-making or making judgment. Are decisions based on intuition or reasoning? Can Policy Governance provide boundaries for rational or reasoned decision-making that underlie better business outcomes for nonprofits?

Yes, IF the board is committed to using their policies and following PG principles. John Carver provided a framework of governance that can help a board define its job and the job of management. PG is built on what are comfortable and known – organizational values. Organizational values are expressed in policy and policies are organized around the work that needs to be done. However, PG is far more than creating a new set of policies. The PG model goes beyond the boardroom and applies it to everyone in the organization that touches the population or consumers served. PG means that everyone in the organization has a commitment to achieving the desired future state or Ends. Everyone in the organization is aligned with organizational values and constantly seeking better ways of attaining the Ends. That alignment and commitment is what attracts resources to an organization.

In my 23-year career of either working for boards or counseling them, I’ve never seen Policy Governance® (PG) fail. Conversely, what fails is the board process. Board process refers to the culture of interactions in the boardroom. Policy Governance creates a framework for sound decision-making and robust assessment for making judgments. What it doesn’t do is dictate culture or how a board should interact. Think about it. Ground rules in any social interaction make a difference but they don’t work if people don’t commit to them or follow them. PG also takes practice, practice, practice. PG is powerful. But a board needs the skill that comes through practice to use it to its fullest effect.

PG works. But only if the board has the will to make it so.

See Flanagan (2012)
See also Nonprofit Trends (2014)
See Carver & Charney (2004) The Board Member’s Playbook

Boards that add value are accountable for a healthy organizational future

March 3rd, 2014

When a board spends most of its time reviewing what happened in the past (e.g., monthly reports or budget reports), it is merely responding or reacting to something it cannot influence or change. It takes little skill or wisdom to review a report and pronounce judgment as acceptable or unacceptable. What does take skill and wisdom is the act of looking at disparate factors in the environment, seeing patterns, and determining how those trends in the changing environment affect the future health of the organization.

Boards demonstrate accountability for looking out for the investments of owners — not when they are merely pronouncing judgment on past performance. Yes, past performance can be an indication of whether or not organizational initiatives are working. But where the real value lies is in interpreting performance in the context of a rapidly changing world. Are boards willing to be accountable for envisioning a future for an organization? Or do boards believe that shareholders and stakeholders only want immediate return-on-investment and short-term, incremental gains? It is, perhaps, a chicken-and-egg discussion.

Consider this McKinsey report on building forward-thinking boards. What do you think?

Corporate accountability – blah, blah, blah

May 13th, 2013

This morning, The Xylem Group had a very interesting teleconference. We discussed the debates and dialogs going on over corporate governance, the focus on profits, doing more with less, and accountability. Accountability to whom? That’s the big question.

Friday, The New York Times reported the average carbon dioxide reading surpassed 400 parts per million at Mauna Loa on Hawaii. Carbon dioxide is the heat-trapping gas that scientists believe is responsible for global climate change. The operative word is “average”. Readings have exceeded 400 PPM before, but now the readings of 400 PPM have reached an average daily level. Many countries (with the notable exceptions of the U.S. and China) have adopted a maximum target level of 450 PPM. At that point, we’re likely to experience some major changes that we humans may not be able to adapt to very well. If the scientists are right, without some major limiting efforts we will reach that level within 25 years.

Our children and our grandchildren will be living through the effects of global climate change. What will they see?

Rising temperatures mean significant climate change and implications for fundamentals like water and crop production. People can live without a lot of things, but not without food and water for very long. How will humans cope with long-term droughts in major crop-producing areas throughout the globe? The UN says that nearly 1 in 10 people don’t have clean water. Despite reduced birth rates in the developed nations, the population continues to grow. With over 7 billion people on the planet, the demand for fresh water continues to grow. Shortages of water mean shortfalls in crop production. In areas that are already suffering from dearth of water development projects and lack of food (where we already see major conflicts and human suffering connected with a winner-take-all mentality), how will the additional stress impact those people?

Rising sea levels will put billions of people in harm’s way. Where will they go?

How will all of this change global economics?

My colleague Robert Ballantyne has long been pointing to the unbridled power of our global corporations and lack of accountability. In a recent tweet, he said “Our systems of government, money, and corporations were developed when unlimited growth seemed possible. Those systems are obsolete.” Similarly, I have long lamented the “taking” mentality of financial institutions. John Bogle created my awareness of this issue. When you consider the amount of money that the financial sector takes out of our economy and never puts back (it is called asset management), what is the value of digital wealth? You can’t eat it and you certainly can’t drink it. With all of that power, the state that empowers creation of corporations requires some body of people (the board) to be accountable. What’s missing with many of our corporations is clarity about accountability, don’t you think? If (for example) a corporation board believes their only accountability is to the bottom line profits (shareholder ROI), what might be sacrificed in that pursuit? We see it happening all too frequently (JP Morgan Chase, Wal-Mart, Enron, garment industry and Bangaladesh).

Same is true for non-profits. In their non-ending quest for money (there is never enough), often the boards fail to recognize how resources could be better leveraged or possibilities for partnerships/collaborations. In other words, constantly focusing on the means does not ensure successful achievement of the Ends. In the larger scheme, how many more people could be served with better quality and at a reasonable cost to society (the commons) if boards took a holistic view of their existence/accountability?

Maybe a different dialog about accountability can start small with cities or municipalities, but it needs to start somewhere. Without incentive to change, nothing will change. A protest here, a shareholder reaction there, none of it is working.

Protests and government penalties? It’s like water off a duck’s butt.

I love the settlement the major banks made with our US government. The average homeowner who was wrongly or illegally evicted from their home will receive $300 on average. Oh, and by the way. The checks bounced. Great. Was that fair compensation for uprooting a family and forcing them to rely on relatives, friends, and the community to help?

As much as financial institutions want to blame the homeowners for poor financial judgment in taking out loans they couldn’t afford, it’s no wonder those same institutions believe it’s okay to shift the blame for their own lack of lending judgment to the rest of us. Oh, and yes, they made us responsible for the consequences, too. Notice how their fingers are pointing everywhere else? No accountability here! Dear banks: when you point at someone else, remember that three fingers are pointing back at you.

What is the board’s responsibility for a fair economic and environmental exchange? Is it fair for Wall Street to hoard billions and banking institutions to lend only to those who have demonstrated economic success? I’m not against people having money. I’m for the idea of creating institutional accountability for what is taken out of our resources (yours, mine, everyone’s). I’ll close with one of Robert’s tweets, “We, humans, have the power of change and transformation. We now need to create the organizational skills to be responsible stewards.”

Workforce planning – Do it now

March 29th, 2013

In the public sector, I found that leaders knew the perfect storm of a labor shortage was coming. What they didn’t understand was that the tomorrow they feared is today.

Are you neglecting workforce planning?

A workforce plan is more than a headcount. It encompasses recruiting, performance management, learning and development, succession planning, and compensation. Along with job descriptions, your organization needs to understand its human resources business drivers (e.g., roles, talent requirements). A strategic workforce plan is clearly aligned and integrated with the organization’s business plan and HR business drivers.

The workforce plan includes internal and external analysis along with a future workforce forecast. The internal analysis includes reviewing and understanding core capabilities, pivotal roles, and skill set changes needed in the emerging and future environment. The external analysis includes industry trends, demographics, and workforce supply and demand factors. Following internal and external analysis, the future workforce forecast is developed (i.e., by skill set, by job role, numbers, and timing of recruitment and hiring).

Professional associations can be a major force in helping educate your members about developing a workforce plan and a catalyst for industry-wide planning.

I work with my local community college to develop curricula to meet upcoming business needs. The college is responsive to requests, but is also dealing with funding cuts. College administrators need to have clarity on the knowledge, skills, abilities, and other vocational training your industry needs in order to plan for curricula development.

Here’s a link to a RAND process for workforce planning. Or you can copy and paste this into your browser http://bit.ly/10ga3zx

Classic NPO mistakes in hiring a CEO

March 25th, 2013

I recently got this question from one of my professors in I-O Psychology:

“Have you noticed that non-profit organizations tend to write vague job descriptions, even when looking for an executive director? Perhaps it is due to the fact that most non-profits operate with limited funds.

Recently I found out about an executive director position for a local non-profit. When I read the description, it was lacking detailed information especially important interpersonal characteristics. Although these characteristics are important to the executive director role, the job description lacked these characteristics and it was vague. As a result of this, the organization generated over twenty-five candidates. Before they started interviewing candidates, the search committee ended up sifting through all of the applications to narrow down the list. However, what would have happened if the interim director had decided to write a more detailed job description, including interpersonal characteristics. Do you think they would have generated fewer and more qualified applicants?”

NPOs are my area of expertise and I have several answers to this question. Let’s begin by understanding the context. Often board members’ tenure is shorter than the CEO (e.g., they don’t have the institutional history or understanding that the CEO does). The long-term CEO often could not begin to describe in detail what he/she does (e.g., growth and development over time led to professional or personal changes that she/he has not devoted conscious thought to). Priorities can shift with the economic conditions. Depending on the type of organization (e.g., charitable, trade association, foundation), culture often dictates desired characteristics. Also depending on the type of organization, board member volunteers vary in expertise, background, and skills. Even the most gifted human resources person or bank manager will not have the depth of understanding to write the job description that will lead to hiring an effective NPO CEO. Volunteer board members tend to want to adapt what they know about hiring and employment to hiring a NPO CEO. It is not the same situation.

One board I worked with was faced with the retirement of a long-term CEO. When I asked what attributes or characteristics they were looking for, the chairman said (in all seriousness), “We don’t know, but we’ll know what we’re looking for when we see it.” Good thing I kept listening. I had to suppress my astonishment because I almost laughed and asked if that was a joke. The next comments left no doubt that the board intended to go on a fishing expedition. That’s likely why the NPO my professor asked about got what they got. Classic mistakes by NPO boards in hiring a CEO:

1) Hiring on the rebound. Like a recent breakup, losing a long-term CEO is a gut-wrenching affair. Boards inevitably will try to hire someone as quickly as possible to avoid the pain of loss. Rather than think through strategically what type of leader is needed for the future, the board seeks to replace what was lost. Bad idea. I’ve seen these rebound hires time and again. They never last (usually not past six months). Just like dating on the rebound, the board can never replicate what they once had. Besides, organizations change. What the organization needed in a leader 20 years ago is likely not the same as what the organization needs today.

2) Hiring someone from the board ranks. Familiarity and cameraderie with a person is never a good reason to hire that person for the top job. Boards think it a great/smart idea because they don’t need to wrestle with messy stuff like job descriptions and interviews and background checks. Yuck! However, the relationship changes the minute the person goes from “peer leader” to “employee”. Intimacy and trust turn to fear (and sometimes loathing) when expectations are not made clear. Another problem is when new members come on the board, they may not be so enamored with the other board members’ good buddy…I’ve seen this happen at least a dozen times. None but one worked out.

3) Going on a fishing expedition. This is what the board client I already mentioned did. Boards end up writing a job description that in no way resembles what the board needs and/or only vaguely describes what it wants. This one is classic because it’s similar to writing an RFP for services without thinking through what outcomes one expects and articulating those into specific skills or experience needed. One small staff (3) organization board thought they wanted a great financial manager because of increasing revenues and organizational complexity (investments and such). They got one. Only one teensy problem: this is a community entity that also needs a charismatic leader who will interact with the public and members. The new CEO is an introvert. Not gonna happen. But the books and investments are in great shape! Which set of skills/characteristics would have been easier to outsource — charismatic leader or introverted financial guru?

What do I think about writing a detailed job description? Do it. But hire someone who can be objective and ask critical questions to help. My favorite saying is, “What will end up biting you in the butt are the things you don’t know you don’t know.” No one knows everything and not even the smartest collection of board members will know everything. A healthy dose of outside perspective can cause light bulbs to light all over the boardroom.