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Leadership Acumen: Issue 11, August, 2003
© Banff Executive Leadership Inc. &
Doug Macnamara
Making
Time For Good Governance
Today's
standards for Governance just aren't the same as in the past,
and many of our Governing bodies are struggling to change their
processes and approaches in recognition of these new demands.
Unfortunately they take time - time that those in governance
roles are struggling to find.
I remember
as I grew up in my service on Boards, the oft repeated advice
from my elders:
"The
most important job of Board members
is to hire a good CEO, then support him/her
to do a good job."
While this
clearly is sage advice, it certainly isn't enough to properly
discharge my duties as a Board member, Council member, or Governor
these days. Good Governance has become a much more demanding
endeavor.
Good
Governance
=
Exerting Good Judgment & Decision-making in a more networked
world
+
Empowering of Management toward clearly established Vision
+
Effective Oversight via establishment of Outcomes Measures &
Accountability Reporting
+
Public Communication, Engagement, and Access
+
Proper Discharging of your various Duties
These demands and the governance 'work' required to meet them
is taking more time than in the past… Time that many feel
they don't have to give; time that hasn't been properly built
into Governance agendas; time that isn't often identified when
we recruit new Board members. Governance today simply requires
increased (non-management) Governance work than ever before.
Understanding Implications for today's Governance Expectations
In observing and working with a variety of governing bodies:
health region Boards, corporate Boards, civic government Councils,
crown corporation Boards, condominium Boards, post-secondary
institution Governors, food marketing Councils, professional
association Boards, church Boards, federal/provincial government
Cabinets, charity Boards, district school and social services
Boards, and more; I am struck by several paradoxes:
- How can
a Board that meets 3 - 4 times a year know enough about what
is going on in the organization and the industry/community
it operates within to exert good judgment? Yet, how can they
gather more frequently based on busy schedules?
- How does
a Board comprised of individuals with little or no executive
and/or industry experience "empower" the CEO? Yet
how do we ensure independence of Directors, representation
of community, and diversity of perspective?
- How does
a Board exert oversight without establishment of clear outcomes
and values for the CEO/Management Team to report against?
Yet how do Governors really know what is important to measure
given only a very part-time attention to the 'business'?
- How does
the Board exert effective public communication, community
engagement, and 'access' if everything is delegated/handled
by a corporate communications department reporting to a CEO.
- How does
an individual with the title "Chairman, President and
CEO" avoid conflicts of interest?
- How do
we get enough time from Directors/Governors/Council/Cabinet
members to actively fulfill their:
- Duty
of knowledge
- Duty
of care
- Duty
of skill and prudence
- Duty
of diligence
- Duty
of trusteeship and investment
- Duty
of management/delegation
- Fiduciary
duty
- Other
duties
(For a more complete description, see CSAE's publication
Duties and Responsibilities of Directors of Non-Profit Corporations)1
in a world
that is increasingly more complex and fast-paced?
If we think
that the only time required discharging these duties and providing
good governance is the time spent attending Board meetings,
then we are mistaken. However, simply dividing up the tasks
doesn't necessarily work either, as much of the duties are common
accountabilities of every Board member. Particularly
important to avoid is the situation where the Board Chair (either
by default or by design) ends up spending a lot of their time
working on Board aspects to the exclusion of other Board members.
We must
be able to find Board members, who are able to learn, stay informed,
prepare for meetings, and carry out activities outside Board
meetings. We must allocate resources in the organization's budget
to support the important governance work, without expecting
the CEO or Corporate Secretary to support the Board in doing
its own job. [These can take the form of a part-/full-time Board
Secretary or the new 'trend', Corporate Governance Officer (CGO).]
We must find Board members who can handle complexity and also
work into their schedules necessary time, under the realization
that governance expectations today go far beyond just acting
with the best of intentions. This may mean into the future,
that those who serve, serve on fewer governance bodies.
Thus there
are several important points to address:
- Today's
legislated and/or community expectations of Boards are rising
quickly and far beyond the traditional. This is happening
without the attendant realization of what challenges this
presents in the recruitment of effective Governors. Regardless,
Directors must respond.
- As we
approach the looming "succession" requirement for
a new generation of Board members, we need to be developing
appropriate expectations for service. We need also to build
a recruitment and 'farm team' approach that will ensure sustainability
of the Governance body with competent members.
- As we
download more and more responsibility to community levels
and voluntary Boards, we need to be developing community capacity
to serve on Boards at the same time. [See the work of Altruvest.]2
- Liability
levels seem to be increasing even for well-meaning and community-minded
individuals serving on Boards. Thus, we must explore new mechanisms
to inform, develop and assist people in discharging all of
their duties instead of just doing their best with good intentions.
So how much
time does it take to "do" good governance? Of course,
that depends on the type of organization you govern and the
complexity of the industry/community in which you operate.
But, let's
assume that you are attending the meetings you need to and are
reading all the preparatory documents in advance. Let's also
assume you serve on at least one Board committee (i.e.: Audit,
Compensation, Governance, or Quality). You are probably averaging
2-3 days per month for a mid-sized corporation or not-for-profit
organization under traditional expectations. Now let's look
in more detail at the rising expectations for discharging your
other duties as governor/director/politician.
Duties in Detail
These duties have both legal and general community frames of
expectation. In most jurisdictions today, the general community-level
of expectations has superceded the existing legal precedents.
Therefore it is important for those in governance roles to attend
to both the legal minimums and the changing social standards.
Duty
of Knowledge
A Director
is expected to know more than the
"common person" about the corporation/organization
and its "business". This includes knowledge of the
governing by-laws and the operating bases of the business or
government or association or charity.
Governors
must also understand the marketplace and/or community in which
it operates and how the organization delivers its products and
services. This might require regular reading of newspapers,
web-reports, and/or industry journals. For Council members or
Cabinet Ministers, this means clearly understanding what their
government programs actually do, and the kinds of clients and
contractors used. It also means understanding how they might
affect the various inter-regional or international trade agreements
in place. For these and non-government situations, this duty
likely requires regular interaction with other communities,
own community members, clients, other stakeholders, etc. so
as to understand the value their organization provides and how
they are seen in the community/marketplace.
This does
NOT mean doing the work that the CEO/Management is hired to
perform. It DOES mean understanding the dynamics, issues, trends
surrounding the organization and its products/services so that
appropriate vision, mission, outcomes measures can be established
by the Board and acted upon by Management and staff.
This "work"
of a Director can take an addition hour or so every couple of
days, and perhaps even involve a dedicated block of time every
few weeks to formally interface with community elements - members,
chambers of commerce, clients, special interest groups and clubs.
Duty
of Care
Generally
this duty centers on the concept of prudence.
In some cases, both the elements and standards of "care"
are being defined and re-defined regularly in our communities.
Toronto Stock Exchange recommendations, Institutes of Chartered
Accountants Guidelines, Corporations Acts, The Sarbanes-Oxley
Act, World Bank/IMF standards, Ratings Agencies, and Media Access
to Information requests, are examples of ever rising expectations
for this duty of care of governance.
Recently
publicized examples of imprudence and malfeasance have been
featured in media around the world. Increasingly, ethical practices
expectations, transparency practices, community/public engagement
and others are considered important work of those in the governance
role - separate from management - to evidence the fact that
the organizations are truly acting in good faith and in the
best interests of both the organization and the wider community.
An excellent
example of the new work and effort required to meet these newly
evolving standards, is the 2002 Annual Report and Proxy Circular
of Abitibi Consolidated.3 These exemplary documents were not
achieved with "traditional" time allocation and processes
at the governance table. However, they were done with a view
to evolving regulation, new recommendations, changing expectations,
and the personal reputations of several professionals on the
Board.
An important
aspect of this duty is the realization that professionals such
as lawyers, accountants, consultants, etc. are usually held
to a higher standard of care than regular Board members; and
regular Board members are held to a higher standard of care
than the average citizen. [By community as well as law.]
The amount
of time required to fulfill this duty also obviously varies;
however this is one area where the rapidly rising "bar"
of expectation is requiring more and more time and effort by
those in a governance role.
Duty
of Diligence
This speaks
to the requirement of Directors working
to be as fully informed as possible about the various aspects
of the organization: operational, financial, political, risk,
etc. Here the duty addresses the integrity of both Directors
and the Organization itself, and their overall reputations.
Traditionally
this includes, but is not restricted to:
- preparation
for Board meetings
- being
active in dialogue both inside and outside Board meetings
- regular
attendance at Board and Committee meetings
- voting
in a knowledgeable way
- ability
to exert good decisions on the issues and challenges faced
by the organization
Recently,
increased Governance expectations have started to create a "dynamic
tension" between Board members and Management; between
Political leaders and Civil servants.
The CEO,
management and Staff are paid to look after the organization
24/7/365 (24 hrs a day/7 days a week/ 365 days a year). These
professionals will obviously have a more thorough understanding
of the organization than those in governance. However; Board
members must work to understand the "business model"
or "professional model" or "political model"
that applies. They must also work to be informed enough to ask
good questions of management that will help the governance body
truly understand the risks and opportunities faced by the organization.
Finally,
Board members must be able to assess and ensure that the CEO/Management
is not acting/recommending things that are illegal or likely
to negatively affect the reputation and future sustainability
of the organization. This can be tough!
Depending
on the issues and challenges being faced by the organization;
proactive time spent by the governing members is preferable
to the "clean-up" time required if the issue gets
out of hand. Aspects such as Ethics policies, Values statements,
and Issues briefs may be important investments of time on top
of the traditional expectations.
Duty
of Management/ Delegation
Ultimately,
responsibility and accountability for all acts
of the organization rests with the Governance body.
Practically, we delegate responsibilities and authority to the
CEO, who in turn further delegates these to others who will
guide and manage the organization on a day-to-day basis.
In return
for these delegated responsibilities and authorities, the Board/Council/Cabinet
must also establish accountability and reporting mechanisms.
Further, the Board will often establish policies and/or limitations
to guide the CEO/Management. I regret to say that even these
basics are not common practice today (in a concrete and criteria-referenced
manner), and leave many Governance bodies open to significant
problems.
Most important
to effectively fulfilling this duty is the joint establishment
(between Board and Management) of Outcomes Measures to guide
the success of the organization; plus the institution of mechanisms
to measure and report on the activities of the organization
towards these goals.
In some
not-for-profit organizations of limited financial means, the
work of governance has been blended with the voluntary day-to-day
implementive work to keep the organization functioning. This
needs to be cleaned-up in both form and function. It is a rare
individual that can mentally separate their governance work
from their voluntary operational work. What's more, the focus
on the day-to-day work, inevitably takes away from the individual's
ability to accomplish their governance work. Thus, it is advisable
to separate out the Governance role and body, from the other
implementive volunteer roles, committee structures, and members
that do the implementive work of the organization.
Finally,
the Directors must establish policies and mechanisms to hold
themselves accountable to shareholders, members, stake-holders,
and community in an increasingly transparent manner.
Governance
without Outcomes Measures and Accountability structures is fast
becoming unacceptable in almost every jurisdiction in the world.
This is
important and time-requiring work for those in the governance
role. However, done properly, it should help avoid conflicts
of interest, nepotism, corruption, and malfeasance, plus set
the bases for effective transparency.
Addressing the Governance Time Crunch
With today's governance time demands more clear, we need to
consider how to handle them more effectively.
For Politicians
and Corporate Directors that are paid and for whom their paid
governance work represents a significant portion of their earnings,
then this additional time demand is similar to the increased
complexity and time demands of full-time executives. They have
to "get to" the extra work and improve their capacity,
attention, and comprehensiveness of their jobs. Perhaps added
support resources to provide research and facilitate briefings,
meetings, and community engagement will help. That said, these
Governors must also avoid the trap of working to be paid per
diems, instead of efficiently and effectively handling increasingly
complex governance demands.
For those
who do governance work as part of their organization's community
outreach, for a small honorarium, or as their personal volunteer
contribution to community, the demands are actually threatening
the supply of good competent directors for needy organizations.
At the very time that some corporate executives are being exposed
for questionable ethics or corrupt practices, causing communities
to demand that the Governance members of almost all organizations
re-establish credibility and contribute to increased insight,
oversight, and strategic thinking; good governance people are
turning away from this kind of service. Others that are used
to contributing their governance services in traditional approaches,
do not always see/understand the need for more in-depth and
comprehensive governance contributions.
Unfortunately,
there are no easy solutions to this evolving Governance time
challenge. On one hand we have the need for more thorough Governance
practices. On the other hand, more and more individuals are
time-pressed in their personal and professional lives, and are
becoming more uneasy with the amount of time required to fulfill
their Governance duties.
Perhaps
as individuals we should take on fewer select Governance roles,
and give them the time and attention they now deserve to do
them well. This will necessitate the recruitment of a whole
new group of Directors, Governors and Councilors to take up
the slack. Perhaps we can find them from non-traditional, yet
highly capable sources: students, untapped communities, and
different social groups. I do find that many people want to
serve and put-back into community. Many will make a great contribution
if they can see they can make a difference and see some support/recognition,
but turn away if they sense getting bogged down in bureaucracy
or petty politics.
Governance
today is an important service to community, no matter what form
it takes. It may well be one of the most crucial areas of leadership
to address in our own country and around the world in the next
few years. In this regard, Governance should be seen as a desirable,
though not easy, leadership contribution - well supported with
training, guidance, and support resources. And, we need to work
together to find ways to make the time demands more reasonable
and attractive to those we involve, yet still fully execute
our duties.
I would
be grateful to those readers who have found solutions to this
pressing dilemma if they would share their ideas with me so
we can feature them for others benefit in a future article.
Banff Executive
Leadership Inc. offers public and customized programming to
improve Board Governance and Executive Leadership Practices.
We also provide coaching and consulting services to Boards and
Executives to help enhance their leadership practices. Please
contact us if we can be of further assistance.
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