Building & Enhancing Your Organization’s ROG* (*Return on Governance)?
© 2019 CMC Today and Doug Macnamara, CMC, Canada
I – Understanding Return on Governance
Return on Governance – This is a concept I started speaking about and working with my clients on since 2005. Think about it; many organizations spend considerable resources supporting their Board from recruitment, to assessment, to staff support, meetings, travel, accommodations, food, materials production & shipping or even web portal management, and more. For a Board of 7-12 people meeting in person say 5-6 times a year, plus committee meetings and phone-call meetings, plus maybe a Board-Sr. Mgt strategic retreat… Even in the NFP sector, annual costs for your Board can easily be $250k+. For some Boards with honoraria or per diems, the costs can be double or quadruple that amount.
And so, what tangible, organizational “return” do you get from your Board?
Do you get at least $250k (or $500k or $1MM) value-add back from your Board?
Think of this from yet a different perspective.
You go out to recruit and attract excellent people for your Board. Like many Boards today, you develop a Board skills/competency/experience-grid, you advertise your openings; maybe there are elections; you develop Board position descriptions, you create offsetting terms to maintain congruency. You might even contract the services of an executive recruitment firm. You develop solid Board Committee Terms of Reference, annual Board & Committee Goals and accountability structures. You really do your best, to get the very best and brightest and diversified team of Board members. Your Board members show up to meetings well prepared, and wanting to contribute and make a difference!
And then what? What actually goes on in Committee and full-Board meetings?
How do you actually ensure you extract all that wisdom, good judgement, collaborative insight, perspective, and more – to the benefit of your organization? Does the Board really wrestle with your most important challenges? Does Sr. Management actually listen to and/or use Board member experience to advance their work? Is your strategic direction well considered? Are the issues and dilemmas and opportunities on the horizon, well examined and explored to understand what the organization must take into consideration in its future plans? Do they use their networks to connect your organization to key influencers or create helpful alliances?
Extracting excellent, tangible benefit from our Boards and Board members is one of the most gnarly, and often unaddressed challenges in governance today. “Going through the motions” of governance vs. getting maximum Return on Governance are two very different outcomes. And, it is something every Board Chair and CEO should talk about together, and every Governance Committee should address. Measuring and assessing your ROG would be even more engaging and rewarding.
In dialogue with Boards about how to know if they are making tangible value-contribution to their organization, the first area that is often identified by Board members is their “protection” and “oversight role. The tangible benefit to the corporation, its shareholders/members, community interests and stakeholders being that: the Board ensures “nothing bad” happens on their watch. Also, it is argued, that having a roster of excellent Board members enhances the reputation and trustworthiness of the organization – with bankers, politicians, community members and more. So let’s work with this, and identify how we might track and measure ROG in this first area of governance work…
Oversight and Protection
Critical components in this area include:
- Audit function – ensuring there is an absence of malfeasance, and there are proper control procedures in place to prevent corruption, safety & security loss, plus promote health advancement and injury prevention. Presumably, your Board has an active Finance, Audit and Risk Committee that meets regularly with external auditors and internal executives responsible for putting in place financial procedures; health & safety mechanisms that go beyond minimal compliance and actively prevent accidents and injury; and procedures to protect against lawsuits, bribery allegations, and environmental damage, etc.
- Corporate – Social Responsibility initiatives are working upon and ensuring positive corporate reputation and broad community support for your organization.
- Government, Public & Stakeholder Relations to ensure positive regulatory environment for your operations.
- Financial and Operational Management Reporting to show that your organization is keeping “on-track” – that debt and deficit levels or profitability targets or asset investments or operational risks are within expected and acceptable levels, with evidence provided by management and examined by the Board.
- An Enterprise Risk Management program has identified comprehensive operational, strategic, asset and capital projects risks and developed mitigation strategies and action plans.
- Staff and any organized bodies such as unions, see Management and the organization as fair employers and reliable partners in their health, retirement and career advancement.
- The organization is scandal-free, lawsuit-free, trusted, engendering broad support for its Mission/Vision/Values
What are these items worth in $ terms? Hard to say specifically; however, having a “clean audit” and prevention of malfeasance is probably easily worth $100k or more. Keeping your debt under control – worth many $1,000 in interest payments saved. A good credit rating can similarly save $1,000’s in interest. Risk mitigation and prevention save both reputational and hard $ costs. Being seen as a fair employee with provision of good career advancement likely saves $10,000’s in turnover costs, lost productivity due to strikes or illness days taken, and more.
Doing the governance work in this oversight and protection area generally falls to several Board Committees such as Finance-Audit-Risk Committee, the HR-Compensation-Safety Committee, and the External Relations (Government-Community-Stakeholder) Committee. Much of this oversight and protection work requires reporting from Management against criteria, standards and policy guidelines established by the Board.
While this IS important work and does require skilled Board members to ask good questions, to be able to read and understand reports and data tables, graphics, etc., this governance work uses only a small level of the talent, experience and potential value of Board members. Oversight & Protection work also keeps Boards dangerously close to “operational work” and the potential to wander into conversations and perhaps even providing direction to staff on doing the day-to-day work – something to be avoided!
Return on Governance can be significantly increased by building on this work, with contribution in the next two areas.
Strategic Insight, Prudent Prioritization & Future Path Choice-making
Strategy is usually a “partnership” outcome, involving both the CEO/Sr. Mgt and the Board working together. While it can sometimes be “driven” by the Board it is usually driven by the CEO – organizing market research, getting trend data from leaders across the organization, and identifying new product/service/market opportunities, and very importantly inspiring innovation in products, programs and services. Meaningfully engaging the Board in strategy however, can add significant benefit to the organization.
Consider the following areas for ROG contribution by your Board:
- As you get into strategic thinking, the decision-making around how to “position” your organization for value creation into the future becomes a very key consideration. What you will do or not do, emphasize or de-emphasize can bring considerable profitability return in successful areas – or grief and expenditure quicksand in not so appropriate or poor growth areas.
- In assessing market opportunity or value creation potential you can’t usually pursue all avenues you might identify – so you place some bets! Board and Management TOGETHER take some risks. You may never really know if you made “the best/correct” decision; but you probably know fairly soon if you made a bad decision!
- The Board can help Management see non-traditional vs traditional: product/service opportunities, competitors, underserved market segments or geo’s, understand potential alliances or partnerships to leverage the organization’s assets. Board members can help in validating or challenging assumptions, implementation capacity or capability reasonable-ness; help with business model re-thinking, analysis or creation – based upon their experience and expertise in other industry settings, other markets, etc.
- Can your Board assist in finding or accessing money, talent, infrastructure, etc. needed by the strategy? Can the Board assist in “opening doors” into new markets/segments or addressing regulatory frameworks that may be barriers to the plan?
The engagement of your Board in the strategic zone can have BIG pay-offs, and/or reduce risks/potentials for mistakes. The $ value of this kind of governance work is potentially large as well, yet often time-delayed in seeing the total impact. This is the realm of $10,000’s or $100,000’s or even $1,000,000’s of ROG! To measure this, most Boards would need to create some separate tracking mechanisms to see the net value impact and record such decision-making, prioritization and access initiatives – then follow-up perhaps annually during the plans’ implementation.
Governance work at the strategic level often takes more time and dialogue. It might require some special task-forces (maybe joint Board-Mgt); may require some outreach and travel to leaders in other sectors or geographies, some research, reading, and organized dialogue with customers/non-customers, or members or stakeholders. So, this doesn’t always neatly fit into specific Committee work or Board meetings. But it does take organization, time and then gatherings for shared insight or shared findings, or shared feedback.
Strategic governance work is arguably some of the most satisfying, creative and engaging of all that Board talent, that the Board can do – and that Management can “tap into” – while providing significant Return on Governance to the organization. (Done poorly of course, it can also provide a negative ROG!) But even this strategic work pales in comparison to the next category of Governance work!
Futures Opportunities, Issues & Environment Sense-making
In the world of governance, this is the realm of “getting the Board out ahead of Management”. This is not meant in any derogatory or competitive way; but it IS how the Board leads, versus being reactive to Management. This is also where the organization can truly unleash the potential of its Board, and use all the talent, experience, networks, wisdom, insight, collaborative creativity and innovation to render significant Return on Governance.
By now the astute reader will have noticed that the categories of governance work herein, follow the work of Richard Chait, et al and his Governance as Leadership concepts. He would call this section, Generative Governance work. The Generative Governance work demands the Board members to work in the future context:
- to explore out 5+ years into the future of the organization,
- think about the business environment evolution and disjunctions that lie ahead,
- consider local/regional/global demographic- & psychographic- driven issues,
- investigate technology impacts or new innovations-created products/programs/services, and
- examine the values/beliefs/priorities shifts of our customers/clients.
This is both exploratory and perspective exchange work, organized around perhaps some Board research or invited speaker/presenter to your board. The idea is to “make sense” of the future-scape with respect to your organization.
I.e. - what will self-driving vehicles or commercial drones or artificial intelligence applications have on your organization – inventory management, safety and security, staffing/business models, insurance needs, product development/innovation, etc.
I.e. - how is the regulatory environment on use of placental stem cells or personal DNA-driven information going to affect our research or our surgery techniques or our health care supplies or our retirement benefits cost containment priorities…
The Board starts by engaging in discussion, with Management, about the major issues, trends, technologies, etc. that are coming at the organization from the horizon – areas that the Board’s or management’s networks and reading of other industry or geography sensors have identified as being something the Board should explore in more detail. Next the Board must decide how to research or find an expert to bring knowledge to the Board and Management. Then the Board needs to create time and space to have dialogue around the topic – “So what does this mean to our organization?”
Board dialogue in this Futures context is done to actually “frame” issues for further research or exploration – if warranted. Exchange of perspective and experience and personal “network” intelligence gathering, or “ears to the ground” feedback helps identify, validate or invalidate, and then assess potential for inclusion in future Strategic considerations. This helps keep organizations relevant to future “state of the art” shifts, mind-set changes or political/regulatory/policy revisions.
The Board can be self-directed in this work, and should avoid “delegating to management” the work-up and/or the information-gathering processes – or again it sets the Board back to being reactive to Management. Techniques such as Scenario thinking, or Open Space dialogue-hosting may well be of benefit in such explorations.
The conclusion of such generative governance work might well lead to some new policy development or shaping of some strategic or priority consideration, or even further exploration and research by a task force. But the most important ROG value comes from the sense-making dialogue and exploration itself – the leveraging of the wisdom and experience of the talented Board members assembled, along with the CEO and possibly some sr. management team members as well.
The tangible $-value ROG? Well this comes from:
- identifying service or market opportunities ahead of competitors.
- finding new efficiencies and technological innovation impact in products/programs/services while the value of such is high to customers/clients.
- avoidance of “missing the boat” of new attitudes or values shifts of stakeholders towards your organization.
Yes, the tangible ROG will be a longer-developing and perhaps many months or even years away from quantification. Yet the gratification to Board members and the feeling of really making a difference for the organization is more immediate and motivational in itself.
II – Organizing for Enhanced ROG
Becoming a Board that really makes an impact and solid, tangible “return” to the organization, may well mean reorganizing the Board Committees, may require some different approaches to the Annual Calendar of Board meetings and topic flow, and quite likely require a change-up to the Agenda of your Board meetings.
Practical ways your Board can enhance their value-add to your organization.
First we must be clear about the forces opposing excellent ROG – so we can effectively deal with them. We have worked with Boards and executive teams across many different sectors…
- In entrepreneurial, fast-growth companies – with significant investment of a large telco or conglomerate – the owner-entrepreneur-CEO really wants to focus on advancing the tech, their own ideas, growing the interconnections and elements of their company. The executives grudgingly know they need a Board, investors, and the discipline these demand in managing cash-flow, operations, etc.; but they also bristle at (necessary) second-guessing, questioning and suggestions for taking different tacks or decisions or concerns over risk.
On the other side, the entrepreneurial company Board is usually put together to include “movers & shakers” with access to financing, experienced entrepreneurs with honed people & operations management expertise, and maybe some other tech-types that can identify new and different applications and collaborations. These people are strong and confident in their own right, and they have made their share of mistakes from which to learn.
The smart entrepreneur CEO & executives realize that if they have to work effectively with their Board, then they will “put them to work” and pull-out all the benefits possible from their contacts, financing, incubators, deal-making, etc. The high ROG Boards of this sector find the Board members rolling-up their sleeves and getting fully engaged. Indeed, Board members that can’t offer tangible value are usually replaced quickly! The effective Board Chair mediates disgruntlement and proactively greases the wheels for effective interaction.
Many NFP’s, Associations, and Professional bodies, especially the large national and/or sizeable regional ones, often have CEO’s and other experienced executives who would really prefer to do things their way; and are also resistant to questioning or suggestions from Board members. In some cases there has been a history of getting board members (appointed or elected), who are:
- nice people, maybe active members or knowledgeable users of the organization’s services or professionals but not necessarily competent;
- experienced past-managers that have handled large staff teams, complexity in innovation or service or marketing or fund-raising, etc. that the sr. managers can respect and benefit from.
I’ve heard many executives in these sectors grumble “I have to prepare reports for the Board and/or attend the Board meeting for a couple of days – but then I can get back to what I really need to do.” It’s as if they really have no respect for the Board, nor any recognition of potential benefit to their endeavours for/with the Board.
More and more, todays’ larger NFP’s are putting significant effort into recruiting really capable Board members – no matter how they get to the Board table. However, the other ‘force’ herein is often the well-meaning, but not-too-productive Board member. “Yes, I want to ‘serve’ but I really don’t want to put in significant hours of ‘work’ and personal creative, generational thinking and development.” They kind of want to give direction to staff, but don’t really feel or know how to roll up their sleeves and do value-add governance work.
- Of course, in the crown corporation or government agency, or QUANGO-type organizational Boards, there are all the above potential dynamics, plus the complexity of who the Board is actually accountable to and for what. Are they accountable to community, political parties or individual politicians and their personal or policy interest advancement? Are they being rewarded for loyal election work or campaign donations, and do the Board members have any actual experience or ability to apply to what the organization does? Imagine environmental or resource monitoring boards, health care, school, social services boards etc. Maybe they were elected, maybe they were appointed – but can they bring knowledge, experience, and/or expertise to bear to add value? I’ve heard many CEO’s/executives say “I’ve got my Board full of nice community people – but I don’t want the telling me how to run something they know nothing about!”
In truth, any kind of accountability and authority body overseeing highly trained and experienced executives, who are used to keeping others accountable to themselves, and telling others what to do; will have inherent power dynamics and challenges. Bigger egos and more hierarchical-oriented individuals, either on the Board or in sr. management, will create challenges. Those who are more collaborative and facilitative leaders will likely have an easier time of making the Board – Executive dynamic work effectively.
This all begins with a clear assessment of Board members’ skills, networks, interests, and experience/expertise. Making this assessment known and circulating it amongst both Board members and executive team members is an important foundation.
As an executive myself in the past, I was encouraged by my CEO to take individual Board members out for lunch – especially when I was travelling and in/near their home city. We could get to know and appreciate each other’s backgrounds. Lunch provided a (somewhat) low-anxiety environment, to also share perspectives – I could explain my divisional directions, competition challenges, and needs for introductions or dilemmas we were addressing. Lunch also allowed for me to answer Board member questions one-on-one. Of course, there was opportunity for relationship-building without the formality of Board table or Agenda timelines. I must admit I didn’t realize at the time how leading-edge my CEO’s attitude was!
Later as a CEO myself, one of my executives was considering a major restructuring of their part of the organization. I encouraged the executive and a couple of their managers to meet with a couple of the Board members I believed had relevant experience to provide perspective. I hosted the meeting initially and eventually slipped away allowing them to work together. Initially however, I had to “broker” management’s “I’m not sure why we are here” concerns, with the Board members’ “I’m not sure what I might offer or what is actually going on” to which they could contribute. In follow-up, both Board members and executives gained real value-exchange. We debriefed the exercise at both sr. management meetings and also a Board In-camera session. Another executive wanted to create an advisory Board for their department. In addition to recruiting high quality individuals for this role, we consciously used this as a developmental-zone for future Board members too. We also had a couple of Board members actual on the advisory Board. Here the CEO really needs to champion this approach with their executives.
As a Board member/Chair; whenever my business travels took me through the city of the HQ of the organization I served on their board, I would let both the Board Chair and CEO know several weeks in advance that I would be coming through and was available for any meetings that might be appropriate. One executive in particular had Friday morning bagels & team-gatherings. This was an excellent event to attend (upon their invitation); it also allowed me to interact with front-line staff and de-mystify “the Board” with staff; and as a Board member, I could see and feel the work environment, staff dynamics, etc. this is an easy idea to apply, maybe rotate Board member invitations, and maybe rotate departments with such events.
Over the years as Board member, I’ve gone on ride-alongs in ambulances, collection trucks, service vehicles; attended fund-raising events, community “town halls”, done runs, rides, and more, given speeches, spoken to media (with official support & pre-clearance), attended conferences on behalf of the organization, and much more. These are all mechanisms to enhance Board – executive relationships and interaction – perhaps leading to real engagement and value–exchange! Making the intentionality explicit at both the Board table and with sr. management is very important for the Chair and the CEO to orchestrate in a genuine manner!
III – Tuning-Up Your Agendas & Board/Committee Goals
If you like some of the ideas outlined so far; then adopting the Governance as Leadership “3 Modes of Governance” concept is really valuable. As Board Chair, this might cause you to completely re-think your Board meeting Agenda design.
First, as a Board Chair, supported by the CEO, you start by building a Board Annual Calendar (see our separate article series), reflective of your natural annual cycle of governance work. This will identify key governance and management Agenda items throughout the year, and identify critical dates and timelines for getting work done at the Board Committee level and also the Executive level.
Next, for each Board Agenda – ensure you have agenda items and appropriate time allotment for:
- Generative futures-exploration and discussion
- Strategic dialogue and priority/ trade-off decision-making
- Oversight reporting, explanation, and Q & A
Start with the important Generative & Strategic Governance items first!
Put Oversight reporting later in the agenda. This removes the temptation for Board dialogue on operational matters to expand to delay or postpone the value-add components of strategic and Generative Governance! Also, hold Board meetings in your operating facility/facilities wherever possible – maybe in different geographic locales. (I know some organizations that have every Board meeting in a metropolitan airport-hotel meeting room – the board members never set-foot in an operating environment. They could do better!)
Second, establish annual Board Goals related to its Generative, Strategic & annual Oversight functions, and then break these out to each Board Committee with timelines and expectations made clear. I’m going to get edgy here… but, most Board Committee have no independent “authority” or decision-making capability (except for possibly the audit function). Committees generally must bring their investigative or preliminary work back to the full Board for resolution/agreement. So, eliminate Minutes of Committees! The objective of Board Committees is to break-down the governance workload and get work done!
Many Board Committees, turn themselves into “junior boards” with motions, and votes and procedures, and secretarial staff taking minutes, etc…. Instead, replace these with work-oriented agendas, discussion/dialogue, external consultant or expert presentations/ recommendations, and task team drafts/options review to take to the full Board. Get the Committee Chairs to write up a synopses of work accomplished at committee-level and things being prepared for full board consideration, timing estimates, and progress on deliverables/goals, to be circulated to the rest of the Board members so all knows what is going on at each committee. Really, radically, re-think you Board Committees!
Third, imbue the sense of “getting out ahead of management”, into all Board members. The real opportunity to make a big difference is in futures consideration, examination, and dialogue. Even for Oversight work, the Board Committees should be out-front, establishing criteria, standards, or policy against-which management should report. Again, this is not meant to denigrate management at all. Boards are meant to lead management, not the other way around. I really don’t want to hear, as I have many times, CEO comments such as “I’ve finally got my Board trained as to what I expect from them and how to work for the best of the organization.” OK, OK, I DO understand the CEO perspective on this and probably felt that way too sometimes as a CEO, but I would rather hear: “My Board is dynamic, they make me think, they bring great ideas well considered, and are challenging us to see into the future with innovation, keeping us ahead of our competitors or client expectations, and driving up shareholder (stakeholder) value.”
Fourth, Boards should consider meeting with other Boards for collaborative exchange, alliance-building, joint-futures exploration and more. By now, I think you can figure out what this means!
Fifth, ensure your Board members use the services of your organization or is a customer, buys their products, and experiences the day-to-day environment of their work. This might seem like a “no-brainer”, but it remains incredible to me to see how few Board members do this from “common sense”. And, ensure they do it without identifying themselves as a Board member! Regular customer, client/product/program interaction is the idea here. If Management is organizing any focus groups or market research, consider inviting Board members to attend and observe these as well – they hear “straight from the horses’ mouths” – rather than an executive- or consultant- filtered report.
This ain’t your Momma’s governance work!
Board governance is evolving in this world like everything else. Innovation is coming to the Board-room, and your Board should be considering how to innovate, ramp up its energy/engagement, plus speed-up and maximize its value-add to your organization. High performance Board members – the people you are trying to attract – want to make a tangible difference, and they are willing to role-up their sleeves and do meaningful work. Your job as a Board Chair, Governance Committee Chair, Board member and/or CEO, is to help structure processes and channel this positive energy to achieve an excellent Return on Governance.