Saturday, January 19, 2008

Role of the Board - Part III

Part I describes the importance of the Board's governing role. See Part I here.

Part II describes the qualities of a good Board Chair. See Part II here.

Part III looks into the natural tension that exists between governing and operating.....

.........so how should organizations deal with the quiet disconnect between management and the Board over the Board's role? Does it even matter?


I have a few thoughts.

First, if there is an underlying tension between the Board and management it is natural and healthy. While overall goals of the Board and management are aligned - success of the organization - at the end of the day management's role and the Board's role are different: management operates and the Board judges management's performance.

Second, Boards and Board Chairs need to be more explicit about their roles - with themselves and with management. By being more explicit - "our role is to govern and to assess management's performance" - Board's set expectations for their role that don't set directors or management up for disappointment.

Third - and Boards seem to be doing this - Board's need to get better at their governance roles. Governance in particular is not simple. While some issues are black and white, many require in-depth knowledge of law, business, policy, and decision making process. Only by stocking Boards with diverse, independent and experienced directors can consistent, timely and correct governance decisions be made.

Typically, larger business organizations are more advanced in performing their governance roles. Smaller organizations, and too many not-for-profit organizations appear to struggle with governance and seem destined to continue doing so.

Board composition is a key factor. Small company boards are frequently over-stocked with self-interested parties: investors, service providers, friends and family. Not-for-profits, even the ones that attract strong, experienced board members, frequently also attract, or are mandated to include, representatives from stakeholder groups who may have little or no Board experience.

In summary, I believe it DOES matter that Board's explicitly identify that their primary role is governance, and what that means. By explicitly defining their role, Board members and management teams get more satisfaction from their Board involvement. Everyone quickly comes to see that by providing strong governance, the Board IS making a significant contribution to the organization.

No comments: