December 2010 Issue 6
BoardWorks International
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Determining the ‘Governance’ Perspective

In Issue 5 we examined the ‘line’ between governance and management (Where is the line?) primarily from a constitutional and conceptual point of view. One of the challenges inexperienced board members often have, however, is to determine and apply a practical way to decide what matters might (or might not) be of board interest.

In the current tough global economic environment we are noticing that this is a challenge even for experienced board members. When an organisation is under stress, board members are often tempted to divert into operational solutions when things, from their point of view’, aren’t working. There are two common negative consequences when directors divert from the boardroom to the ‘engine room’. Firstly, they undermine the board’s ability to hold the chief executive accountable for organisational operational performance. Secondly, they divert their attention and energy away from the governance perspective that only the board can provide.

The purpose of this article is to explore a range of practical questions that can help determine whether something justifies the board’s attention and, if so, the appropriate angle of approach.

1. What is the ‘governance’ interest in this matter?

In other words, why should the board be bothered about this at all? This is perhaps the most fundamental and powerful question in those situations where it looks like the board (or an individual director) is inclining to ‘meddle’ in matters delegated to management. A very common scenario occurs when board members form a view that the chief executive is not tackling something the way they would. Giving voice to that conclusion is a temptation many can’t resist. In a recent example, a director decided that the chief executive was not managing the executive team according to ‘best practice’ and attempted to promote the idea of an independent review. As could be predicted, the chief executive was not particularly open to this perceived interference. Board and management alike became distracted by the tension that ensued.  

In comparable situations, ‘what is the board’s interest in this?’ is a question that can be asked quite innocently by directors and executives alike. It can stimulate a very valuable discussion. In the situation referred to it turned out that one of the director’s concerns was that the chief executive was rotating the role of chair of the regular weekly executive team meetings. The anxious director saw this as a weakening of the chief executive’s positional authority and ability to direct her team. The chief executive’s rationale was quite different; it was a key part of her strategy to develop the individual and collective leadership capacity of her senior executives. Asking the question gave the board the opportunity to clarify and understand these two contrasting perspectives. It also gave the board the opportunity to explore a legitimate governance interest in senior executive succession planning.

2. What is the board's ‘value-add’ in relation to this matter?

A very useful supplementary question.  It enables the board to home in on just whether and how it might be able to contribute to a desirable outcome.  For example, a board was recently asked by its chief executive to make a final decision on which architect to use for a new building project.  Until that point there had been an extensive, executive-driven process to brief potential architectural firms and to evaluate their proposals. Key stakeholders (including the building’s intended users) had also participated in the evaluation process.  As it happened, two strongly favoured proposals had emerged. In effect, the board was being asked to make a decision that was proving difficult for the executive team.  However, the board quickly determined it had no value to add. Except for setting budget parameters it had not been involved in the planning and evaluation process and would only have a subjective basis for choosing between the alternatives. It declined to make the final decision and referred the matter back to the chief executive.

Looking at board members as individuals might, however, come up with a different answer. They often have specialist knowledge or experience that can be useful to the management team.  For example, in the final selection of the architectural proposal referred to previously, it is possible that one of the board members might have been an experienced building project manager.  He might have been able to cover bases that none of the previous executive or stakeholder participants could.  It might, therefore, have been a desirable option for the chief executive and her team to consult with that board member before making their final decision.  What is fundamentally different in this scenario is that the individual board member has no governance authority. He is simply another adviser acting at the initiative of, and being accountable to, management.  To have involved a director –off-line- in this way might have helped the staff without contradicting the board's conclusion that, as a collective governance decision-making body, it had no value to add. 

3. What board policy or position statements justify the board’s involvement in this?

No board has the time to involve itself in, willy-nilly, in any old issue that attracts its attention.  The board’s interest and engagement in a matter (particularly when a decision is involved) should always be on the basis of some prior policy or position statement.  This might be as broad as a previously stated strategic priority or as narrow as an explicit prescription or proscription.  The basic question at issue here can be restated as "what is the board's reference point?" Alternatively, "what can we hang our hat on here?"  If there is no clear reference point to guide or frame the board's interest or decision it is quite likely that the board has no legitimate reason for becoming involved in the matter. 

4. Who is the interpretation/implementation of this policy (etc.) primarily delegated to?

This question provides a further avenue for defining the governance perspective.  For example, the interpretation and implementation of this policy (or equivalent) may be a matter that has been delegated to the chief executive.  The board's interest is, consequently, in monitoring the outcome of the delegation. (1)

Often, however, the situation will not be quite so black-and-white.  For example, the original policy-making may have been quite vague and the question of decision-making rights for its implementation, left hanging.  That would create a real need for the board to discuss this further in order to provide greater clarification of the extent and nature of its interest.

When further clarification by the board is the appropriate response, three further questions may be helpful.

5. Is it clear what the board expects to be achieved in relation to this matter?

This is really going back to basics but it is surprising how often boards have to remind themselves that they should always start with the end in mind.

6. Is it clear what risks the board anticipates and expects to be managed/mitigated in relation to this matter?

This is also a fundamental question which naturally follows the previous one.  If we are agreed what we want to achieve here, what might be the situations or circumstances that would get in the way of a successful outcome?  To what extent, and how, does the board need to influence the management of those risks?

7. Is the board clear about the information it needs to monitor the handling of this matter and, if relevant, compliance with the board’s expectations/

Experience would suggest that, if the board gets this far down the list of questions, the answer to this is ‘no’.  Consequently, posing this further question provides a helpful double-check that the answers to the earlier questions are clear.  It is a matter of fundamental logic that unless the board’s policy and delegations are clear, attempting to specify the information needed for monitoring those policy and delegations can be little more than ‘a stab in the dark’.

Conclusion

These questions underline the need for the board to maintain a high level of consciousness about the type of conversation it should involve itself in and the appropriate ‘angle’ it should adopt.  Whether these questions are directly used by your board or not, at least make sure that you routinely take the opportunity to determine the most useful (and valid) governance perspective.

(1) Note that this concept is explored further in a related article in this issue: Ensuring You Can See the Wood for the Trees: Criterion-Referenced Monitoring). 

 

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