Foundations of Board Leadership and Economic Development
Foundations of Board Leadership and Economic Development
What are some of the most significant challenges faced by board members?
What would you change about board service?
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Let’s chat…
» Name, board experience, current board service
Remember your role…
Message Number One…
Board governance affects organizational performance...
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Example:
and community performance (especially rural communities)
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Message Number Two…
Strengthening accountability is one approach that can strengthen board governance…
and can also create a culture that supports the development of trust among members
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Board Decisions Affect Organizational Performance
Accountability &
Trust
Social PrinciplesOrganizationalPrinciples Healthy Governance
The Journey AheadThe Board DefinedFundamental Board Duties
What Makes a Healthy Board Healthy?Case Study Exercise
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Board membership is often …a surprise
Being a board member for any organization is a little like getting married. First you get on the board; then you realize what you’ve done!Source: Oklahoma State School Board Association, 2004.
Incomplete contracts and board serviceAdverse selection risk (pre-contractual)
The risk of recruiting a person who will not accomplishboard expectations of service.
Moral hazard risk (post-contractual)
The risk of recruiting a person who, initially, you believedwould accomplish expectations but does not meet expectations for some reason.
Implications for Board Service
Adverse selection risk (pre-contractual)
Develop a solid recruitment plan that outlines the type ofservice required to minimize transaction costs initially.
Moral hazard risk (post-contractual)
Choose performance metrics of service that are easy to monitor, a low transaction costs feature.
What Is a Board?Managerial control system
Team
Social system
Bottom line: “It’s not rules and regulations. It’s the way people work together” (Sonnenfeld, 2002)
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What Are the Basic Duties for Board Members?
Duty of Care—always follow the right process to make decisions.
Duty of Loyalty—be active and protect the organization.All information in meetings remains “in the room” until publicly released.
Duty to Add Value—obligation (not legal liability) to add value to the performance and standing of the enterprise.
Source: Berman, H. “A Great Board: Building and Enhancing Nonprofit Boards”. Health Research and Educational Trust: Chicago, IL, 2003.
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What Makes A Healthy Board Healthy?
An appropriate organizational structure includes…
Regular attendance
Adequate involvement
Skills/talents
Age of board members
Understanding of CEO succession management
Appropriate inside/outside ratio
Board size
Appropriate incentives—no conflicts of interest
Source: Sonnenfeld, J. “What Makes Great Boards Great”, Harvard Business Review. September, 2002.
What Makes A Healthy Board Healthy?
An appropriate social structure includes…
Create a climate of trust, and candor
Foster open dissent, not disloyalty
Use a fluid portfolio of roles
Ensure individual accountability
Evaluate board performance
Link organizational and board performance to measurable factors—get the strategy right
Source: Sonnenfeld, J. “What Makes Great Boards Great”, Harvard Business Review. September, 2002.
Board Governance BehaviorA Healthy board…
A Dysfunctional board…
Source: Oklahoma State School Board Association, 2004.
-Works through the properly appointed authority structure-Functions as a policy-forming board rather than administrative-Becomes familiar with the problems of the organization-Voices opinions frankly in board meetings and votes for whatis best for ALL stakeholders
-Divulges confidential information-Accepts gifts from suppliers or contractors-Interferes with day-to-day operations-Has developed a clique within to control board activity and strategic direction
Board Governance Determines Performance
Accountability &
Trust
Social PrinciplesOrganizationalPrinciples
Healthy Governance
Some Final Thoughts…
Four “Healthy” Habits of Healthy Board Members
You MUST accept the consequences of your decisions.
You MUST be convinced about your decisions.
You MUST understand it is more important to be respectedthan popular.
You MUST understand how your decisions will affect the people around you and the organization as a whole.
Top Ten Commandments for a Healthy Board Member
-Thou shalt honor thy community-Thou shalt be honest and fair to those who serve you
-Thou shalt not forsake thy job for political gain
-Thou shalt evaluate fairly those who serve you
-Thou shalt be an informed, active member
-Thou shalt not micro-manage-Thou shalt keep thy mouth shut about closed sessions
-Thou art only one board member, not the big cheese
-Thou shalt be prepared for all meetings
-Thou art not infallible. Thou can learn new tricks
Source: Oklahoma State School Board Association, 2004.
And, remember the people in the trenches…
Some Additional Board Management Resources
Harvard Business Schoolhttp://harvardbusinessonline.hbsp.harvard.edu/b02/en/home/index.jhtml?_requestid=7516
MIT Sloan Management Reviewhttp://web.mit.edu/smr/
Boardsource.com
QUESTIONS?
The Connection Between Governance and Organizational Performance:
The Brady Memorial Hospital Case
THE CASE STUDY
Situation
The Anonymous Letter
The Case Exercise Format
Team assignments & read case
Team answers case questions
Discuss case questions
Some Case Facts
Serves a large mix of Medicare patients (62 percent)
About Brady Memorial
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About the board
Estimated 65 percent of local population use larger hospitals nearby
Quality problems at the hospital exist; multiple lawsuits filed
Recruiting of nurses is difficult because of low wages and benefits
Hospital employs 107 people in community; it is the second largestemployer
Case Discussion Questions
Does this board exhibit an “appropriate” organizational structure?
Does this board exhibit an “appropriate” social structure?
Based on your consulting team, identify two strategies that couldbe used to improve this board.
FINAL THOUGHTS
Management team temporarily replaced but not fired
Board training (financials, governance)