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Permanent Whitewater


December 2010 – Vol: 33 No. 12
by Les Wallace, Ph.D

To succeed, 21st century boards must turn from governance to governance leadership.

rafting

The signals of the early 21st century indicate a next generation of governance sophistication and practice may be necessary to help organizations keep pace with the rapid change and market disruption becoming so commonplace.

While some boards still struggle to achieve a “policy based” approach to governance, other boards are adapting quickly to the dynamics of the 21st century by moving to a “governance leadership” model. The next few pages briefly contrast the two and suggest some of the markers your board might use to determine if it has arrived at the next level of governance excellence.

Policy vs. Leadership

Most boards, and especially new board members, struggle with over-managing their enterprises. The less-governance-experienced member dives into operational detail with relish and strives to dictate tactical events of the organization rather than sticking to policy and strategy guidance. John Carver (Boards That Make a Difference, 2006) addressed this micro-managing tendency in 1990 by characterizing the Policy Governance® model to help boards focus on leading their organization and letting their CEO manage.

Thousands of boards have benefited by using the Carver model to upgrade their governance conversations around policy development, focusing on results, ethics, CEO leadership and self-assessment. While consent agendas and regular board self-assessment may still not be average fare for all boards, the Carver model is prominent in the governance literature and training programs for organizations worldwide.

The meetings of a typical policy-based board focus on fiduciary oversight of organizational performance, policy review and creation, customer/constituent satisfaction, CEO performance oversight and annual planning processes. Typical reports from the CEO and finance department are pages in length and discussed fairly extensively by the board. Annual cycles cue up key policy areas for board review (purchasing, human resources, benefits, etc.) These boards also frequently reserve a weekend per year to consider the annual planning process and refresh their long-range plan.

The signals of the early 21st century indicate a next generation of governance sophistication and practice may be necessary to help organizations keep pace with the rapid change and market disruption becoming so commonplace.

In this century the implications of globalization have touched every organization, community and government on the planet, and the connectedness is accelerating rather than retreating. 2009 dawned as an angry, hydra-headed economic monster, wreaking damage that will take a decade to heal and will likely change financial and governmental behavior for decades more. Increasing demands from customers, heightened expectations for the innovation required to compete, and the dual impacts of baby boomers leaving the workforce as Millennials enter it, are creating entirely new forks in the road.

More than 10 years ago, Peter Vaill (Learning as a Way of Being, 1996) used a river metaphor to warn that the cycle of rapids and calm we had known in the past was becoming “permanent whitewater.” He was right, and the implications are pretty straightforward. They echo in most major management, leadership and governance publications around the globe: Organizations must transform, not simply change, and they must drive transformation rather than react to it.

That means creating many more leaders than followers, and anticipating leadership needs rather than hoping to find help when the need arises. We must navigate these whitewater rapids with greater integrity and transparency than ever before, because dishonestly and greed remain aggressive, not simply opportunistic.

The governance leadership model increases conversations around strategic thinking and organizational transformation. These boards focus up to 75 percent of their discussion time at every meeting on anticipating the future through regular conversations about the changing business environment. They manage traditional fiduciary and policy conversations to allow more time for forward-looking discourse.

The governance leadership model sets the course for timely organizational corrections in the event that certain strategies begin to falter. The model helps boards drive real innovation rather than mere tinkering with products and business models.

A governance leadership model enables boards to develop higher levels of leadership, beyond simple management, at all tiers of the organization. Its inclusive intelligence tracks customer value, not simply customer satisfaction, and listens to the amplified voices of critics and customers on the cusp of innovative expectations.

It’s hard work to be exceptional; most boards are not exceptional, and when their organizations gain any degree of success, it can lull them into complacency, dull their development, and distract them from grooming the next generation of governance talent. Tom Friedman warned us (The World is Flat, 2005) that “change is hard—it’s hardest on those caught by surprise.”

Therein lies the premise behind a governance leadership model. Driven by a “culture of inquiry,” the governance leadership model is not likely to let change catch its users by surprise. The model focuses as much dialogue as possible on thinking in the “future tense” at every meeting—not simply during the annual retreat.

Looking at policy governance and governance leadership side by side may help you determine the implications for your board’s governance development.

Typical Board Meeting

To protect time for forward-facing conversations, boards using the governance leadership model leverage consent agendas to cut through standard reports (such as the CEO’s report) and common board actions (like approving the updating of authorization signatures). A more advanced board may provide an Internet facilitated “electronic” pre-meeting where board members may review the consent agenda and other reports and approve or request an item be pulled for full board discussion. These online actions are then presented for formal approval during a live board session.

Many other committee or task force reports that simply update expected progress may be included in the consent agenda. Board members should be expected to read these updates and can always ask that an item or issue be pulled for full board discussion. Typically, this is unnecessary unless there are serious new developments unexpected by staff and board.

For important fiduciary items like financial reports, the committee or executive presents an “exception report” that describes variations from the approved budget or accounting principles, for example. This is similar to the way boards review the annual external audit, focusing on the auditors’ “exceptions” or “cautions,” but not discussing the entire report (presuming they have read it after all).

There is no need for a full and complete review of the balance sheet and budget variations at every meeting. Gone is the tedious, page by page, scratching and sniffing of six pages of financial report numbers—that job should be delegated to a committee. Only those elements the committee or officer deem a significant exception must be called to the attention of the board for due diligence. The board then discusses and takes appropriate action or accepts and duly notes the report into the record. Of course, any board member who has serious reservation can call for discussion of other financial reporting items.

At this point the board has expended approximately 25-50 percent of its meeting time on oversight and update matters.

High Performance Board Meetings

High-performance boards attempt to reserve 50 percent to 75 percent of their agenda for strategic action and discussion, such as taking stock of their strategic plan, visiting new developments in their external environment, or stretching their strategic thinking toward higher-risk innovations. Frequently a board will revisit one strategic initiative per meeting, or the chair and CEO will place a business environment update (for external awareness) on the agenda for discussion.

Other forward-facing conversations include leadership succession (discussed at least twice a year), customer value tracking data (discussed two to four times a year), board self-assessment and development issues (again, forward-facing).

The bottom-line difference between typical boards and high-performance boards is that progressive boards refine and focus traditional oversight conversations to create efficiencies that can be re-invested in strategic issues.

Your board may be closer than you think to the time investments recommended here—look at the minutes from your last six board meetings and compare. However, consider not simply the time spent in board action, but also the time spent in board dialogue, or what one expert calls “generative thinking” (Chiat, et. al., Governance as Leadership, 2005). Governance leadership comes alive in the give and take among board members.

If this generative dialogue is relegated to a stopwatch type mentality or, worse yet, filled by staff and consultant PowerPoint presentations that limit time for questions and board dialogue, then your board is missing the 21st century benchmark.

Positioning and Discipline

Unless yours is an exceptional board, the meeting conversations you typically have could benefit from refinement and focus. Assuming your enterprise is stable and not in operational or financial crisis, this behavior is excessive and unnecessary for effective governance. Effective use of committees, external review (auditors) and focused reports to the board can answer most of the questions that take up airtime at your meeting. And many of these can be read and digested in advance of board meetings so oral “report-outs” are not necessary.

The future is aging faster and faster, tossing us new wild cards every day. Many experts are deeming this chaos the “new normal.” Assuming reasonable operational and financial health of your organization in the new normal, your most important governance contributions are positioning and repositioning the enterprise and your board.

So how do you move your board work to a more strategic “governance leadership” mode? With self-assessment, purpose and discipline. We have seen some boards make this move in the span of a few meetings, while others make a journey over several years. The boards that made the transition quickly recognized that their less sophisticated members, the ones who still wished to manage the organization, were holding them back. They developed a strategy for leadership succession to attract more competent board members.

You might check your progress using the set of “High Performance Governance” indicators (not a member of the Center for Credit Union Board Excellence? Sign up for a free trial). Good luck.

Les Wallace, Ph.D. is president of Signature Resources Inc. in Colorado, author of A Legacy of 21st Century Leadership, and a frequent speaker and consultant on high-performance governance. He can be reached at les@signatureresources.com.

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