From Governance to Governance Leadership
By Les Wallace, PhD
“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. This article will briefly contrast the two models and indicate some of the markers your board might use to determine if they’ve arrived at the next level of governance excellence.
Policy Governance
Most boards, and especially new board members, struggle with over managing their enterprises. The members with less governance experience dive into operational detail with relish and strive to dictate tactical events of their organizations 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 the organization and letting the CEO manage.
Thousands of boards have benefitted by using this 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 across enterprise governance segments worldwide.
Conversations oat meetings of a typical policy based governing board meeting 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 the board discusses them fairly extensively. Annual cycles cue up key policy areas for the board to review (purchasing, human resources, benefits, customer treatment, etc.) Policy based governance boards also frequently reserve a weekend per year to consider the annual planning process and refresh their long-range plan.
Governance Leadership
Policy based governance offers a firm and reliable foundation for boards to follow and has been instrumental in maturing governance practice over the last couple of decades. It’s commendable how many board members from all walks of governance are literate with the model. However, 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, global implications have touched every organization, community and government on the planet and the connectedness is growing rather than retreating. As 2009 dawned, an angry economic hydra headed monster reared up, creating damage that will take a decade to heal and most likely change financial and governmental behavior for much longer. The increasing demands of customers, innovation required to compete, and duel impacts of baby boomers leaving and Millennials entering the workforce create entirely new forks in the road to navigate. Then there’s global warming and whatever our point of view we must admit it still poses multiple dilemmas for us all.
More than ten years ago, Peter Vaill (Learning as a way of Being, 1996) warned that the cycle of rapids and calm we had known before were becoming “permanent whitewater.” The implications are pretty straightforward and echoed in most every major management, leadership and governance publication around the globe.
Organizations must transform, not simply change, and we must drive transformation rather than reacting to it. We must think more strategically than ever before becoming much more sensitive sentinels of the environment surrounding our enterprises. We must anticipate leadership needs rather than hope to find it when need arises and that means creating many more leaders than followers. We must navigate these whitewater rapids with greater integrity and transparency than ever before because dishonestly and greed remain aggressive not simply opportunistic.
What are the dimensions then of this model we call “governance leadership?” In this model governance conversations focus more on strategic thinking about organizational transformation. Anticipation of the future through regular conversations about the changing business environment become prominent in every board meeting. Strategic thinking and business environment tracking consume up to 75% of a board’s meeting conversation. Traditional fiduciary and policy conversations are managed more effectively and efficiently so as to allow more strategic discourse.
In the “governance leadership” model, organizational course corrections come quickly when strategies begin to fail. Boards drive innovation rather than creative tinkering with products and business models. Transparency, both internal and external, requires different conversations, policies, and boundary management. Board leadership succession becomes a longitudinal effort pre-dating board appointments by several years. Boards demand greater development of leadership, not simply management, at all levels of the organization. Inclusive intelligence tracks customer “value” not simply satisfaction and includes the amplified voice of critics and customers on the edge of innovative expectations.
Implications for Your Board of Directors
Most of our boards are not exceptional. It’s hard work to be exceptional and when organizations are relatively successful boards can get complacent about development and 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.
A governance leadership model is driven by a “culture of inquiry”—focusing as much dialogue on thinking in the “future tense” as possible at every meeting—not simply the annual retreat. Let’s compare policy governance and governance leadership and determine the implications for your board’s governance development.
Typical Governance Leadership Board Meeting
To protect time for forward facing conversations, these boards use consent agendas to cut through standard reports (CEO’s report) and common board action (e.g. approving the updating of bank signatures). In the more advanced board there may be a “electronic” pre-meeting—live or internet recorded—where board members can review the consent agenda and other reports and approve or request an item be pulled for full board discussion. These on-line actions are then presented for formal approval during a live board session.
Many other committee or task force reports that simply update expected progress can be included in the consent agenda. Board members should be expected to read these updates and can always ask that an item or issues be pulled for full board discussion. Typically, this is unnecessary unless there are serious new developments unexpected by staff and board.
For important fiduciary financial reports (CFO, finance committee, audit committee) the committee or executive presents an “exception report” focusing on any variations from approved budget, accounting principals, or others that might not meet with the approved course of the annual budget or accounting principles. This is very similar to how boards review the annual external audit by focusing on the auditors “exceptions” or “cautions” but do not discuss the entire report (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. Only those elements that pose a significant exception the committee or officer believes must be called to the attention of the board for due diligence are reported out. The board then discusses and takes appropriate action or accepts and duly notes the report into the record. Gone are the tedious page by page scratching and sniffing of six pages of financial report numbers—you’ve delegated that to your committee. Of course, any board member who has serious reservation about the completeness of the committee’s scrutiny can call for discussion of other financial reporting items.
At this point the board has expended approximately 25-50% of their meeting time on these oversight and update matters. Progressive boards attempt to reserve 50-75% of their agenda for dialogue about how the strategic plan is going, visit new developments in their external environment, or further update higher risk innovative strategic thinking. Frequently a board will revisit one strategic initiative a meeting or the Chair and CEO will place a business environment update (external awareness) on the agenda for discussion—these are all strategic.
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), and benchmarking innovative practices in your field.
The bottom line difference is that traditional oversight conversations are refined and focused to create efficiencies that can be invested in strategic issues. Your board may be closer than you think to the time investments recommended here—look at your last six board meeting minutes and compare.
Weeds, Positioning and Discipline
Unless you’re an exceptional board, your meeting conversations frequently dig into the weeds of the CEO’s report, the new marketing plan, the financial report, etc. Assuming your operation is stable and not in operational or financial crisis, this excessive behavior is unnecessary for effective governance. Effective use of committees, external review (auditors) and focused reports to the board can effectively answer most of the questions that get unnecessary airtime at your meeting.
The future is aging faster and faster with new wild cards everyday. Many are calling this the “new normal.” Assuming reasonable operational and financial health of your organization, in the new normal, positioning and repositioning the enterprise is your most important governance contribution.
So how do you move to a more strategic “governance leadership” mode of board work? With self-assessment, purpose and discipline. We have seen boards make this move in a matter of meetings while others take a several year journey. Is your board still made up of less sophisticated members who still wish to manage the organization? With a less sophisticated board this journey will take longer and must include working on a leadership succession plan to attract more competent board members.
Having witnessed many boards struggle with maturing their governance beyond simple oversight to more future base conversations we can only say you will make no movement unless you open the conversation. Possibly this piece will serve to drive that conversation—we know it will be interesting.
Les Wallace is a leadership and governance consultant who has worked with close to 100 Boards and is a frequent speaker and consultant on 21st Century Governance Leadership.
