Monitoring a Newly Hired Chief Executive & in Growing Low Trust Situations

An important principle of board governance, Policy Governance included, is that when trust in the CEO's performance is low, monitoring in some form is ramped up. The Policy Governance board’s values, and hence its policies, don’t change, but frequency and immediacy of monitoring increases. This behavior occurs typically under two conditions: a newly hired chief executive (whose competence is not yet demonstrated), and secondly, where there is a growing concern about compliance concerning a specific policy.

The former situation might result in monitoring those policies indicative of the health of organizational culture and of financial performance. They tend to be more directly and immediately impacted by the executive’s behavior in the first case and his grasp of financial leadership in the second, competencies of which the board needs early reassurance.

If the board is not a Policy Governance board, a board style typically reflective of low trust will result—questioning and probing increases and becomes more intense (often coupled with advice). This dynamic does not necessarily reveal the board members’ underlying values (which may vary between them, but never expressed) nor why the particular questions are being asked, reasons which the CEO must infer.

A board’s careful, more frequent monitoring of a new CEO is appropriate, but as demonstration of competence and reliability grows, monitoring frequency can be backed off to an annual frequency (except for financial management indicators).

How Does a Governing Board Pick Up on Lack of Operational Discipline in Its Organization?

The risk management literature includes as a significant risk, (leading to many other risks), the lack of organizational operational discipline. Operational discipline is the ability of management to see to it that organizational processes are maintained such that deadlines and milestones are met with the appropriate quality, payables are paid, financials are recorded, records kept, projects are on time, calls and inquiries responded to, etc.

The inability to do this spells not only accumulating problems, but slipping even further behind and, eventually, the failure to do something, or many things, that are critical, e.g., filing a key report, submitting a proposal, or paying a tax on time. If the lack of discipline is due to fundamental administrative ineptness in the leader, there will eventually be a meltdown. The governing board must detect this early and change leadership (quickly). This failure of operational discipline, one is tempted to think, is unusual, but when one realizes that about 50% of NP chief executives are barely competent, or frankly incompetent, (unable to successfully run the organization for a sustained period), it should not seem surprising. Consequently, a board must be vigilant.

How does a board pick up on this and diagnose it? First, a board must have written standards of performance, i.e., policies, of key operational indicators, boundary requirements, such as timely receipt of monitoring and financial reports, the paying of obligations, and filing of required reports. If it is a Policy Governance board, these will be in the policies, and if they are not, get them in! Secondly, it must monitor for assurance of compliance.

However, as things slip and don’t get done, management will always have reasons for not getting things done on time—excuses that sound like reasons, blaming being a common one. In a NP, ministry, or a church, the board always wants to be “nice,” even kind; so the board is inclined to cut management slack—and it is usually too much slack. The board will procrastinate doing anything perceived as negative. In fact, management will get good at keeping the board at arms length and, as things get worse, eventually resorting to hiding the situation—not fully divulging the true state of affairs. As the board attempts to press its questions a bit more, it will be resisted and diverted. How long will the board acquiesce? It should not at all! This behavior is a very dangerous sign.

The board must promptly discover the true state of things, and the root cause. Typically, in small to medium sized organization it will be the executive. The board must investigate, (preferably via an independent assessor), and act promptly. Boards often freeze at this point, procrastinating even more. But, the situation is fundamental and is not temporary, nor self-rectifying.