I’m a bit jaded when it comes to the roles of boards of directors. My experience in both for-profit and non-profit organizations has been less than positive. So I wasn’t surprised to see the recent Wall Street Journal article, ‘Board Doctors’ Help Supervise the Supervisors, by Joann S. Lublin, describing the growing practice of hiring outside consultants to assess the boards of directors of for-profit organizations.
According to Ms. Lublin, 19% of public U.S. companies hired a board consultant in 2013 (up from 17% in 2010), and as many as 35% of major companies could follow suit within five years. My experience with for-profit boards of directors is that they have a close relationship with the CEO, hire outside compensation firms to increase their respective compensation packages (both board and CEO), and are obsessively focused on short-term financial performance. If something goes amiss with any piece of that equation, board members find themselves in a difficult situation. So turning to external advisors makes some sense. I thought the comment from Ms. Lublin in her article was most illuminating – “The experts often enable board members to make tough choices they are too squeamish to do on their own.”
But the role (and performance) of boards of directors in for-profit organizations is relatively simple compared to the multiple agendas of non-profit and governmental agency boards of directors. At least on the for-profit side there is an overarching alignment around making a return for investors. For-profit organizations expect their board members to prosper personally if they are successful – and to work actively to assure the marketing and financial success of the organization.
That type of clarity is not possible for most non-profit boards. My concern is that the current framework for governance by non-profit organizations is not up to the task of managing in the current environment. In many cases, there is a lack of sophistication in framing the “mission” of the organization in terms of strategy – and a lack of sophistication in operationalizing that strategy. This can be a fatal flaw in a very turbulent market that is requiring many organizations to “reposition” themselves and to adopt more effective and efficient management processes.
The challenges for non-profit boards of directors starts with the very fundamental definition of what the organization is doing and how. Is the organization a social enterprise or a charity, or both? Assuming both for the moment, what are the services that should make a profit, which should be partially subsidized by charitable contributions, and which should be subsidized in total? When it comes to governance, what is the expectation of the CEO around charitable fundraising? Around planning? Around management? And, what is the role of the board members?
This is a frequent topic of discussion with my colleagues at OPEN MINDS. Paul Neitman offered an interesting perspective:
The “board of directors” is an ongoing conundrum for many non-profit CEOs – giving board members too little information and responsibility diminishes the skills and abilities they have to offer. The fear is that giving them too much information and responsibility invites micromanaging. To me, the successful managing of this balancing act with the Board is a primary responsibility of the CEO, and often times distinguishes strong non-profit organizations from those that struggle, especially in times of organizational stress. Board members, particularly those from the business world, need to understand the difference between operating the non-profit organization with good business practices; versus operating it “like a business.” The public’s expectation is to be good stewards of private and public resources, while always keeping the mission paramount.
Howard Shiffman put the responsibility squarely on the organization’s chief executive, noting:
It’s the fault of the CEO if his or her board is not up for the task of governing in this new health care environment. CEO’s must take the time to educate their boards about the national and state trends that will affect their organization, as well as the strategies needed to thrive. Non-profit board members need to understand how to help the CEO to position for competitive advantage and market positioning; they need to be tech savvy and understand the need for metric management and data analysis as tools to inform management and treatment practice. Lastly, boards today need to be flexible, willing to take some risks on pay-for-performance contracts, and willing to see their organization partner and even entertain the notion of a merger.
While I have been confused about being too linear when it comes to these governance issues, I have always believed that it is hard to get any organization (or any person) to succeed if you can’t define success. Answering these questions are essentials for setting the stage for organizational success in the current health and human service market. In the Wall Street Journal article, the fees for “board doctors” ranged from $25,000 to $250,000 a year. If you think your board needs a tweak, my advice is before you invest in a consultant see if you can facilitate a discussion to answer these fundamental questions. To that end, we have some great resources in our OPEN MINDS Industry Library:
- What Do Board Members Need To Know?
- What Governance Model Is Right for Your Non-Profit Organization? The Options (From Operational to Advisory) Available to Health & Human Service Organizations
- Managing Your Boards Of Directors: Strategic Advice For CEOs
- Keeping Your Board “On Board”
- Improving the effectiveness of your board
- Quick Overview of Governance Models
And, if you’re looking for a team building experience for both your executive team and your board members, join me September 22-25, 2015 in historic Gettysburg, Pennsylvania for The 2015 OPEN MINDS Executive Leadership Institute. Our focus on historical leadership case studies and sessions on strategy are designed to fine tune the effectiveness of organizational leadership.