Boards That Make a Difference

A New Design for Leadership in Nonprofit and Public Organizations

John Carver

• Publisher: Jossey-Bass
• Year: 2011
• ISBN:
  9781118046708
• Edition: 3
• Topic: Betriebswirtschaft
• Subtopic: Non-Profit- & gemeinnützige Organisationen

In this revised and updated third edition, Carver continues to debunk the entrenched beliefs and habits that hobble boards and to replace them with his innovative approach to effective governance. This proven model offers an empowering and fundamental redesign of the board role and emphasizes values, vision, empowerment of both the board and staff, and strategic ability to lead leaders. Policy Governance gives board members and staff a new approach to board job design, board-staff relationships, the role of the chief executive, performance monitoring, and virtually every aspect of the board-management relationship. This latest edition has been updated and expanded to include explanatory diagrams that have been used by thousands of Carver's seminar participants. It also contains illustrative examples of Policy Governance model policies that have been created by real-world organizations. In addition, this third edition of Boards That Make a Difference includes a new chapter on model criticisms and the challenges of governance research.

1

Leadership by Governing Boards

A Vision of Group Accountability

The vision I have for boards aims for far higher quality in the boardroom than has been common. My aim in this opening chapter is to broadly describe that vision, setting the stage for more detailed description in the following chapters. To begin, I look at ways of classifying boards in order to then limit the scope of the book to governing boards. Next, I describe the peculiar market circumstances that justify grouping nonprofit and public organizations together. I then step back to view the difficulty all boards—business, nonprofit, and public boards alike—have in fulfilling their opportunities, difficulties so prevalent as to require radical reform in governance thought. I summarize the normal prescriptions for board ills along with the reasons that these existing answers are insufficient, including those associated with the recent international flurry of corporate governance codes. I make the case that governance deserves special attention apart from other elements of organization. The chapter concludes with an argument for a new model of governance and the contributions this model should make to boards’ capacity for strategic leadership.

The Vision

This book is not about making incremental improvements in boards. It is written primarily not for boards in trouble but for the best of today’s boards. It describes and urges nothing less than a transformation in the practice of governance and, more important, in how people think about governance. My intent is to explain a compelling logical, philosophically founded yet completely practical approach to every governing board’s job, one that renders it impossible to ever think of boards the same way again. Undertaking that aim is recognition that—analogous to Kant’s compromise between extreme rationalism and extreme empiricism—governance theory without practicality is empty and governance practice without theory is blind.

Although this entire book is devoted to detailing my vision, I can give a broad-brush preview here of the kind of governance I have in mind. Boards will truly be leaders—not by invading territory best left to management but by controlling the big picture, the long term, and the value-laden. Boards will delegate powerfully yet safely to those who carry out the work of the organization, empowering them to the maximum extent that is consistent with maintaining the board’s own accountability. Boards will seek diversity and inclusion but will express their decisions with one voice, not with the multiple voices of individuals. Boards will be grounded in an allegiance to a base of legitimacy that I will describe as tantamount to shareholders—that is, owners of the organization. In fact, the importance of the owners-to-board link is so great that the proper board job is best described as ownership one step down rather than management one step up. This concept alone completely changes the nature of governance.

This vision of board leadership applies equally to all governing boards, whether new or old, whether large or small, whether operating charitably or for profit. In the words of Adalberto Palma Gómez, senior partner of Aperture, S.C., a consulting firm in Mexico City, the Policy Governance model “provides a new vision for boards in all kinds of institutions, from governmental to private and nonprofit ones.” In a similar vein, Sir Adrian Cadbury, the father of corporate governance codes, opined that the Policy Governance paradigm “is all embracing; it can be applied to any type of board or organization” because it is “a unifying theory of governance that covers both the corporate and voluntary sectors.”

The vision I will describe here goes to the heart of why a governing board needs to exist by identifying the irreducible number of principles that apply to the task. Doing so enables the construction of a model or paradigm or theory or operating system—each of these words will work—that applies to any governing board of anything anywhere. I will deal with the deceptively appealing but ill-informed one-size-fits-all objection to this universality as the story unfolds.

In much the same way as it has been said that management is management is management, I will defend the idea that governance is governance is governance. Prospective board members, executives, and consultants who learn the basics of such a universal governance theory can then apply it to any board situation in which they find themselves. Such a claim, of course, calls for great integrity in the fundamentals—an integrity of design I hope to explain to the reader’s satisfaction.

It is important to note that the governance framework presented here is just that, a framework. It could be called a foundational technology of governance in that many other techniques can be adopted if kept within this framework. That is, as long as the principles of the paradigm are preserved, others’ methods of problem solving, prioritizing, or interacting—for example, various problem-solving approaches, Myers-Briggs interpersonal dynamics, mind mapping, force field analysis, affinity diagramming, and other methods—can be very useful. If rigorously framed by the discipline of Policy Governance, good board work can be assisted by adapting all or parts of the great amount of study that has been devoted to decision makers. (Caroline Oliver’s analogy of an operating system that is able to run many programs is fitting.) But since such aids—regardless of how good they are in themselves—were likely not developed with Policy Governance principles in mind, they can harm governance if not used judiciously. For example, the most sophisticated problem-solving techniques are useless if they are applied to the wrong level of problems.

I deal with governance as it shows up in nonprofit and governmental organizations in this book, leaving governance in equity corporations to the more specifically targeted Corporate Boards That Create Value: Governing Company Performance from the Boardroom, which I wrote with Caroline Oliver in 2002. (The reason for omitting detailed discussion of profit-oriented boards here is not that the same fundamentals do not apply but that the language and owner intentions are so very different. My reason for this exclusion will be explained more fully in this chapter. But a very brief treatment of equity corporations can be found in Resource A.)

Moreover, because it is so critical that boards fully understand the new ideas or, at least, the new way in which old ideas fit together, this book is not a “how to” text but one of principles and concepts. Although practical implementation is not overlooked in these pages, much of the detail on implementation is left to Reinventing Your Board: A Step-by-Step Guide to Implementing Policy Governance, which I coauthored with Miriam Carver in 1997, the revised edition of which is scheduled for publication in 2006.

In other words, I present a radically modernized way to think about governance, a conceptual coherence on which all real-world specifics and tailoring must be based. But before I can even begin to fulfill my intention to describe my vision for governance integrity and leadership, it is necessary to carve out some distinctions and to demonstrate the need for change in the first place.

Varieties of Boards

At one end of the decision-making scale, decisions are made by individuals and by small groups such as families or associates. At the other end, decisions are made in plebiscites and elections. In between, decisions are made by empowered bodies called boards. Two considerations delineate those bodies to whom my commentary directly applies: (1) the organizational position of the board and (2) the economic nature of the organization.

Boards Considered by Organizational Position

Governing board. The most important kind of board is that of ultimate corporate accountability—the governing board. The governing board is always positioned at the top of the organization. Corporate board, board of directors, board of trustees, board of regents, and similar titles denote groups that have authority exceeded only by owners and the state. The governing board is as high in the formal structure as one can go. Its total authority is matched by its total accountability for all corporate activity.

Advisory board. There are also boards whose function is to give counsel, not to govern. Advisory boards may advise the governing board, the CEO, or other staff. They can be positioned anywhere in the organization, as long as they formally attach to some proper organizational element. Advisory boards are optional and have only as much authority as the authorizing point within the organization chooses to grant. In some fields, it is common to find advisory boards that have been given extensive authority and whose advice is virtually certain to have an effect. As long as some position within the organization can retract the group’s authority, it is not a governing board. An advisory board’s authority can be curtailed only by the advisee, by law, or—in the case of membership organizations—by the membership.

Line board. Considerably more rare is the line board. The word line describes a heretofore unlabeled board type. Management literature has paid little attention to this form, except for the modified form discussed by Ackoff. The line board is not advisory, for it wields definite authority over subordinate positions. But it is not at the top of the organization and does not, therefore, qualify as a governing board. It is merely a group inserted where a single manager might have served.

Workgroup board. Sometimes people speak of a “working board” when they simply mean a board that stays busy. Hence, a governing, advisory, or line board might be a working board. My term, workgroup board, however, denotes a governing board with little or no staff. It must govern and be the workers as well. Frequently, boards that confine their role solely to governing began as this type of dual-function group.

Very small organizations, such as civic clubs, often have boards in this dual position. The group is incorporated, so a corporate governing board exists. Absent enough funds to pay a staff, board members are the only workforce in sight. This kind of board is not a true type in the way that governing, advisory, and line boards are; it is merely a governing board with another set of responsibilities. The organizational position of a workgroup board is not only at the top but everywhere else as well. It is very important for such boards to remember that they have two different, simultaneous roles and that they can best perform those roles by keeping them clearly separated.

Boards Considered by Economic Nature of the Organization

The power and responsibilities of advisory and line boards are determined by the specific organization rather than by a commanding generic principle. The foregoing discussion serves only to distinguish governing boards as the sole subject of this text. Throughout this book, I deal only with boards in their governing role.

It has long been common practice to differentiate the vast and disparate array of organizations governed by boards into three groups: profit (equity or, loosely termed, business), nonprofit, and governmental. Additional characteristics distinguish subgroups of each of these three main groups. For example, equity corporations are grouped as public (publicly traded) and private (no public trading). Nonprofits are also divided into public (directly related to government, sometimes quasi-governmental) and private (related minimally or not at all to government). Nonprofits range from purely charitable to trade or professional associations whose aim is to serve the interests of their members. Governmental organizations include not only the jurisdictional governance of cities, townships, counties, provinces, and states but also districts for water supply, schools, pollution control, and a host of other authorities. For the present discussion, I ignore the subgroups and concentrate on the three major types: profit, nonprofit, and governmental.

Profit boards. Equity corporations engage in trade in order to produce a return for shareholders. These companies ordinarily compete in markets that range from free markets to markets that enjoy considerable governmental protection. Governing boards in business range from the obligatory figurehead board of an entrepreneurial business to a highly formalized, paid group representing diverse stockholders.

Nonprofit boards. Corporations chartered for charitable purposes (or, at least, not for return on equity) have no stock ownership, though statutes may require a formal membership as a stockholderequivalent. Internationally, such organizations are often referred to as nongovernmental organizations (NGOs). In the United States, the term private voluntary organization (PVO) is frequently used to describe international nonprofits. NGOs and PVOs are included among nonprofit agencies.

Although nonprofit corporations may accumulate surpluses, their accounting systems have no place for profit. They differ from other corporations in that they are exempt from certain taxes and are unable to distribute their surpluses to holders of equity. (In the United States, this exemption includes not only the familiar 501(c)(3) but several other categories of preferred tax status.) Nonprofit corporations frequently receive a large proportion of their revenues from funding from other organizations and donations from individuals rather than from sales of a product. Obligations of nonprofit governing boards under the law, however, are similar to those of boards of other corporations.

Governmental boards. Governmental boards, elected or appointed, are bound by more legal requirements in both their composition and their process than are the foregoing types. Governmental organizations are like nonprofit organizations with respect to profit and distribution of earnings. Governmental boards may be quasi-governmental (for example, boards for water systems or airport authorities) or fully governmental (for example, city councils). They may...