Archive for the ‘Governance’ Category

In theory…we should understand a lot about boards

Wednesday, 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?

Thursday, 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?

Friday, 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

Friday, 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

Friday, 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

Friday, 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

Monday, 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

Monday, 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.”

Diary Doodles of a Distracted Blogger

Monday, January 14th, 2013

Decided that diary is the wrong word. Even though I’m chronicling my foibles and attempts at online networking, the day of the post doesn’t imply any real order. The day of posting only illustrates what oozed to the top of my brain. The Free Dictionary defines doodle as scribbling absentmindedly. Verbal doodles are more appropriate to describe my blogging.

Prior to exploring (lurking) on various discussion boards at the American Society of Association Executives (ASAE), I actually started posting some responses. A recent one discussed the appropriate/inappropriate use of social media for screening potential employees. Because I love taking the opposite view, I posited a different scenario and asked:

…finding the right fit in any recruiting and hiring situation is a two-way street. As the economy improves (albeit slowly there are signs), key employees who have the skills, experience, and knowledge that make the organization hum may choose to leave.

Potential applicants to your organization, too, can explore multiple job opportunities without personally speaking to anyone in your organization. What if a really good potential applicant decided to explore your organization’s website and social media before applying? How comfortable is it when the shoe is on the other foot?

Not only that, but it seems prudent for prospective employers to mind their Ps and Qs when using social media. Michael Wyland said:

My partner is a licensed professional counselor (LPC) and a certified senior professional in human resources (SPHR). I asked her about this issue, and she was adamant that, based on her training (including recent training), that those involved in hiring should avoid social media searches. Her opinion is that this is one of many areas of the law where the law has not kept up with technology access and capabilities.

One reason for avoiding social media searches, as has been mentioned elsewhere in this thread, is that such searches allow prospective employers to access information legally prohibited from being considered in hiring decisions. If it can be proven that a social media search was conducted, it becomes more difficult for the prospective employer to protect themselves from a hiring discrimination suit brought by an unsuccessful applicant.

The “safety valve” some employers use is to employ third-party recruiting firms to screen applicants. Some employers use temp-to-hire arrangements to allow them to see a person not *their* employee and learn all about them before making a formal hiring decision. Most of the laws and regulations protecting employment applicants envision the employer doing the hiring directly; they rarely address the actions of third parties in the hiring process.

I went to Michael’s bio and profile on ASAE to let him know about this post and realized…aaagghhh! I don’t have any Twitter or LinkedIn widgets anywhere on my own stuff! Well, maybe tomorrow.

Would you buy 30-year-old technology?

Saturday, March 3rd, 2012

The ad reads: “Car ‘phones. They’re no longer the privilege of the chosen few.” In 1982, I actually had one of these Vodaphone babies. I was climbing the corporate ladder of a Fortune 500 company in Chicago and got one installed in my company car. Yes, the company provided me with a personal car (every 50,000 miles I got a new one) and all the gas and maintenance (those really were the good old days). My employer was on the cutting edge of management effectiveness and efficiency. I was part of testing the technology.

My “mobile” car phone was the size and weight of a very large brick. And it was truly a car phone because the base was mounted to (and used power from) the car. I didn’t need to go to the gym to lift weights because the handset provided a good deal of dead weight training. Those of us testing the Vodaphone used to joke that if it quit working, it would make a great boat anchor. I’m surprised I never got whiplash from lifting the handset to my ear while driving. Okay, so yeah. If using your cellphone with your bluetooth is a driving hazard, just imagine how dangerous I was on Lakeshore Drive!

Now here’s what I carry around today: a phone that is not tethered to anything (except maybe my hand or earbuds). It’s about the weight of a pair of scissors and about the size of three packs of dental floss laid side-by-side. And it doesn’t merely connect me by voice-to-voice over cellular. It’s my personal data assistant, office manager, and personal entertainment center. It also responds to my whims. (Siri is my new love, but don’t tell my husband!)

So why do boards of all types and sizes still run with 30-year-old technology? Yes, the basics are still sound. Compare today’s smart phones with my car phone 30 years ago. Why would you choose to carry around a big, old brick that doesn’t do much versus a small, sleek device that caters to your every whim? Is your board functioning with a mindset from 30 years ago? Before you say no, consider this.  Nonprofit organizations proliferated in the 1980′s (Board Source, 2003). Much nonprofit regulation did too. Not surprising that governance structure, culture, and practices emanated from that period. Businessmen populated boards and they brought their management expertise to the boardroom. Unfortunately, management expertise does not necessarily translate to governing expertise. In the management mindset, governing is typically viewed as “management one level up” and tethers a board to the past instead of creating the future.

Why does it seem like transformational governance is still the privilege of the chosen few? Board members and executives, please throw the 30-year-old+ mindset out the window. C’mon now. Don’t say that you don’t know what I’m talking about. At association and nonprofit organization conferences, I still hear the same complaints that I was hearing 20 years ago. Here’s the chronic complaint: why does my board micromanage (i.e., get caught up in administrivia)? Because they don’t have anything more important to do. Because they haven’t found a way to delegate effectively and know their wishes for the organization will be fulfilled. Or, the board recently had a crisis that involved a major financial risk (e.g., embezzlement, lawsuit, the ED who was the “rainmaker” just left). The list goes on and on. People tend to revert to old, dysfunctional behaviors when they feel unsure or threatened or are just plain bored. Governing from this mindset is like picking up the Vodaphone and expecting to have Siri grant your next wish. Remember the implication when you expect different results from doing the same thing over and over again.

The magic of smart phone technology did not happen because Steve Jobs said, “Let’s redesign the Vodaphone!” The magic happened because Steve Jobs had a vision of something sleek, powerful, and ready to go to work for you out of the box. Why would you buy 30-year-old technology when you could have an iPhone?

Unleash the power of your board and explore how you can best use the collective wisdom of all those smart minds in the room. Don’t make them sit through one more staff report or approve one more budget until you think about why you’re asking them to do it. What is the value added? What magic could they envison if given the time?