Lazy Board Syndrome: A Governing Board is a Special Form of a Team

A client board's chairman has become a pretty good friend over the last 2 years or so. He was complaining he was having difficulty getting board members to carry out their agreed tasks between board meetings and be prepared to report or provide the product of the task to the board at the next board meeting. (This is a Policy Governance board.) I told him it might be due to lazy board syndrome. Boards get used to passive governance - years of just showing up and reacting to reports, giving advice and/or critiquing. Then go home. So when the board switches to Policy Governance, they start to have governing responsibilities, and that accountability is a new experience. Using Patrick Lencioni's model of the high performance team (see his book, The Five Dysfunctions of a Team)  - the board must learn to hold itself accountable in a gracious but firm way.

What is the Effect of the CEO also being Board Chairperson?

There is an active discussion around corporate governance right now on a LinkedIn group, debating the issue of insiders (especially the CEO) being a voting member and chairman of his or her board. The consensus of the participant professionals seems to be that a separate chair is “better.” (I agree). But, the problem is that research, which uses stockholder value as the outcome indicator shows very little, if any, effect between an independent board and one where the CEO is also the chairperson.

Here is the dilemma as I see it, especially viewed around the issue of perhaps one of the most dangerous risks for an organization—denial, the inability to face the truth when threatened. The danger of denial is enhanced when we are in the trees and cannot see the forest AND, we also grew the trees, we are also vested in the trees (activating the “sunk cost” bias in our thinking). This is the case with insiders on a board. They are among the trees and know them and like them. It is well accepted that both being in the trees and invested in them—having a stake in the trees such as “it is your project” (think Bay of Pigs, or Kodak)—militates against a dispassionate view of the facts when they are in opposition or threatening.

Distance helps perspective, one argument for an independent board. However, with governing boards, the dilemma with distance (i.e., independence), is lack of sufficient information to compete with insiders. It is the insiders (including the CEO) who have by far the most information, have the time and resources, spent time on it, and think they have considered every angle to rationalize and support their conclusions. The poor outsiders haven’t a chance with that asymmetry of information!

Distance works when there is parity of information all around. The big picture combined with no bias helps greatly in avoiding denial. However, in the current constructs we use for board governance, the two seem mutually exclusive —more of one results in less of the other, a perverse and unfortunate “system” indeed, to the detriment of the ownership.

HBR Article on the Three Rules for Making a Company Great & the Application to NPs

The April issue of the Harvard Business Review had an article on Three Rules for Making a Company Truly Great, looking at fundamental, value-based principles behind the strategies of corporations that have accomplished sustained success exceeding others (on an ROA comparison basis) over a long period of time through thick and thin times. The three rules are 1.) Better before cheaper, 2.) Revenue before cost, and 3.) There are no other rules.

In other words, the core focus and, therefore, competency of these organizations is that they first got good at building better products and successfully retaining that position. They worried about pricing second. If, as an organization, you understand and apply the improvement sciences, you will become very good a creating product (material or human service) with quality at, or below, competitors' costs, because part of the quality skills is elimination of waste (streamlining) while progressively getting better and better.

The second rule or fundamental principle is in the domain of financial strategy, paying attention first to your financial strategy and getting good at maintaining revenue over cost (creating and sustaining margin). Again, if you think about it, the core competency is understanding and applying the ability to get better and better, i.e., more savvy, but this time in the realm of  understanding what creates your margin, especially without jeopardizing sufficient revenue to assure the margin your strategy requires.

In both rules you must become a learning organization and translate that learning into getting better and better—one, in creating product or service quality, and two, in managing your financial strategy wisely with the primary focus on revenue, not cost-cutting. (A cost-cutting mentality leads to parsimony and is invariably expensive and potentially fatal.)

I believe these rules can be applied to nonprofits and ministries; except you aren’t selling product, your revenue flows from those who love your mission and your ability to achieve it. See the connection? Get good at creating the Ends, and revenue is easier. But never lose sight of how your revenue is generated. Quality (excellence) and revenue are coupled. Understand that.

Board Member Term Limits: Good or Bad?

I responded few days ago to a query on the BoardSource LinkedIn discussion group concerning what people thought the appropriate length of terms and term limits should be. This is what I said:

“There is a principle regarding one’s vision, when on a board, (and commitment to it) that a person's vision usually does not extend beyond their expected likelihood of being around. Six years create a very short memory and learning span. The usual reasons for advocating short limits don't hold water, including the "new blood" argument. We say, "Good ones (that we just lost due a limit) can come back on the board after the year off." but they don't. They are snatched up by another board or lose their interest. (I've served on 30 or more boards). If you are deeply attached to the idea of term limits, do what an excellent hospital board that I served on did - make it 12 or 15 years. That permits grooming of board leadership through committee service, committee chairmanship, officership, etc. There is still plenty of coming and going, by the way, simply due to life's vicissitudes. Getting new blood is a non-issue.

Creating a two term limit automatically creates nothing but freshman and lame ducks, be it city councils, county councils, legislatures, or boards.”

The “expert” advisors responding to this LinkedIn group discussion seemed, in the main, to be married to the idea of a limit of 2 terms of three or four years. My view is that term limits (not terms), especially single digits, more likely damage board performance for a number of reasons, and my comments addressed a couple of those. I wanted the readers to think more critically about their instinctive mantra of term limits. A couple did, but most continued to circle thoughtlessly around a two term limit in spite of its foolishness. It is such a popular idea that it is hard to think otherwise, even when the illogic and imprudence of it is staring you in the face.

Now if you are not interested in optimizing board decision-making, but have another trumping priority such as affording a lot of association members a chance to serve on the board, then admit it, and worry less about board performance. This latter priority will drive the organization toward being a staff driven board and organization. We have all been there. 

Another common reason I hear for term limits is to “get the dead wood off the board.” Come again? If you’ve got dead wood, have the courage and integrity to deal with it! And a bylaw provision regarding lack of attendance resulting in automatic removal doesn’t help.