This is how the chief executive officer of a large, urban public transit system responded to my question about engaging his board in the annual budget preparation process in a one-on interview kicking off a board development project a decade ago.
“What’s the process for engaging my board members in shaping the annual budget document before taking action on it? I’m not sure what you mean by that question. As CEO, I’m accountable for getting a complete, carefully prepared budget to the board at least six weeks before the end of the fiscal year. My board’s accountable for doing a thorough review of what I’ve submitted over the course of two – and sometimes even three – work sessions before taking formal action. I have my job, they have theirs. It’s that simple.”
By that point in my 35-plus years of work with public and nonprofit CEOs and their boards, I’d grown accustomed to hearing similar responses from CEOs to my standard questions about board engagement in the strategic and operational planning/budget preparation processes. But in the last ten years, a rapidly growing number of chief executives have been responding to this question by expounding on the processes they’ve designed for meaningful engagement of their board members in shaping such key governing “products” as the annual budget. In my professional opinion, this trend is indicative of dramatic developments in the rapidly evolving field of public/nonprofit governance and the emergence of a new model of CEO leadership on the governance front as a consequence of these developments.
Before examining the key features of this emerging new CEO governance leadership model, I’ll bring you up to date on dramatic developments in the rapidly evolving nonprofit/public governance field.
The Changing Landscape of Public/Nonprofit Governance
As I take you on a tour of this changing landscape, you should keep in mind something I’ve been pointing out for quite some time in governance workshops and retreats. Although public/nonprofit boards have been around for over a hundred years in this country, even at this point in their long history, governance is far from being a fully developed field with universally accepted principles and practices. In fact, as I’ve learned in conducting hundreds of one-on-one interviews with CEOs and board members, there’s not even consensus on the detailed work that a board does when it governs. More often than not, I’ve heard boards described as essentially “policy making bodies,” even though fashioning and adopting policies – which are basically broad rules governing the operation of a public or nonprofit organization – is only a small, albeit important, part of every board’s governing work.
If the bad news is that governance is an underdeveloped field, the good news is that over the past ten years or so a working definition of governing work has emerged and is steadily being refined in practice. You can see that the following contemporary view of the board’s nuts and bolts governing work goes well beyond the vague and practically useless concept of a “policy making” body:
In practice. your board is essentially a kind of decision and judgement making “machine.” Your board’s decisions relate to concrete governing “products,” such as an updated mission and values/vision statement, a strategic plan, the annual budget, etc. For example, when your board adopts the budget recommended by its planning and development committee, it is making one of the preeminent governing decisions. Your board’s judgments, which are usually based on written and oral performance reports, answer the question, How is my public or nonprofit organization performing? Performance can relate to delivering services to customers/clients, generating financial resources, maintaining relationships with the general public and key stakeholders, and the like. When your board, after reading – and usually listening to – the monthly financial report from its performance monitoring committee, identifies issues deserving further attention, it is making a critical governing judgment. That’s the work of governing in a nutshell. Of course, the quality of the governing decisions and judgments that your board makes heavily depends on the design of structures and processes that generate governing products such as the annual budget and of the reports that provide your board with performance information.
Significant recent developments in addition to this more complete and practical definition of the nuts and bolts governing work a board does have fundamentally re-shaped the landscape of public/nonprofit governance over the past decade. One of the most significant is the emergence of a new breed of board member who expects to hit the ground running when entering the boardroom, rather than slowly learning the ropes, and to make a real difference in organizational affairs – sooner rather than later. As one board newbie shared with me in a recent interview, “Life’s too short, I’m too smart, and my time’s too precious to just thumb through staff-produced documents or listen to staff reports and merely react!”
Another very important development in the evolving field of public/nonprofit governance is the growing recognition that board members who feel like deeply satisfied owners of their governing decisions and judgments make for more committed and reliable partners for the chief executive officer and that meaningful engagement in shaping governing products before making final decisions is the preeminent key to both ownership and satisfaction. This recognition has led to increased attention to the design of engagement processes aimed at fostering board member ownership. For example, many organizations are now building into their annual budget preparation processes front-end board engagement in one or more work sessions aimed at creating a framework to guide staff in putting together the detailed annual budget document.
These frameworks often consist of updated core values and vision statements and detailed descriptions of high-stakes operational issues deserving detailed attention in putting together the upcoming fiscal year budget. Issues can take the form of both challenges/problems calling for corrective action and opportunities that can be capitalized on. In this regard, a recent board-CEO-executive team work session I facilitated for a public transit authority identified and fleshed out operational issues related to declining ridership on certain bus routes, the need to provide more visible security on light rail cars, and the opportunity to work closely with the regional economic development corporation in fostering transit-related economic development.
And the increased use of well-designed board standing committees as vehicles for meaningful board member engagement has transformed the governance landscape in recent years. It is now widely recognized that old-time silo committees aligned with specific operational and administrative functions (e.g., human resource management; business recruitment and retention; facility and equipment maintenance; etc.) turn board members into technical advisors, inviting micromanagement. In effect, such silo committees send board members a clear but dangerous message: “Come on in, immerse yourselves in the weeds of nuts and bolts technical details that have little to do with governing; in short, become our technical advisors rather than governors.”
But committees aligned with broad streams of governing decisions and judgments cutting across narrow administrative and operational functions (e.g., planning and development; performance oversight/monitoring) have proved to be highly effective vehicles for high-impact, meaningful board member engagement.
The Emerging CEO Leadership Model on the Governance Front
Before examining the emerging new CEO leadership model, I want to remind you of the model that it’s supplanting:
“Well, where my board and the governing function are concerned, I’d say that as the CEO above all else I’m accountable for ensuring that my board receives the information it needs to make decisions in our monthly board meeting. I take that responsibility really seriously. Not only is our board meeting packet chock full of pertinent information, it also hits my board members’ desks at least a week before the board meeting. Another one of my major responsibilities where the board’s concerned is making sure that my executive team members and I provide incoming board members with a power-packed orientation program that thoroughly covers our Economic Development Corporation’s programs, services, finances, and administrative structure. I also make sure that the orientation clearly distinguishes between the high-level policy role of the board and my and the staff’s role in actually running the EDC’s day-to-day operations. By the way, I’m always on guard against what I think is the clear and present danger of the board getting bogged down in the weeds of micromanagement. As CEO I make sure that board members are alerted when they cross the hard and fast line separating their policy making role from the executive management/administration function.”
There you have it. The traditional, terribly limited view of the CEO’s role in governance boils down to: keep them informed and out of my business. I pulled this capsule description from my project files, by the way. It goes back fifteen or so years, when I was working with a local economic development nonprofit on a governance improvement initiative. I’d asked my CEO client to prepare for our upcoming one-on-one interview by coming up with a one-paragraph description of his responsibilities in the governance arena. Although I still occasionally – mainly in workshops – hear CEOs describe their governance role in similar terms, this limited definition has become a glaring exception to the rule. A very different model for CEO leadership has emerged since those days, and it’s becoming widely accepted, although sometimes more in theory than actual practice.
The following capsule description is how – these days – the great majority of the CEOs I work with in consulting engagements and educational workshops would describe their role on the governance front. Although I’ve put the actual words in their collective mouth, I’m 100 percent confident that the key concepts represent the majority opinion relative to CEO leadership on the governance front:
“In a nutshell, governance – particularly the work of my board – is one of my preeminent CEO functions. I hold myself accountable for ensuring that my board functions as an effective governing body and that it fully realizes its tremendous governing potential in practice. My board is a rich organizational asset, and I am responsible for making sure that we capitalize on this asset. Of course, I share this responsibility with my board members, but in view of the fact that they are part-time, unpaid volunteers, I must devote significant time and attention to making sure that the governing judgments and decisions making up my board’s work are made in a full and timely fashion. I’m keenly aware that my board members are the ultimate decision makers, but I’m responsible for taking the lead in building and maintaining my board’s governing capacity. If I don’t play the leading role in continuously improving my board’s governing processes and updating its structure, my board will under-perform as a governing body, and my organization will consequently pay a steep price. My board and I enter into a kind of grand bargain: In exchange for board members’ commitment of time and attention to making effective governing decisions and judgments, I ensure that their governing experience is highly productive and richly satisfying. And I also go out of my way to provide the unpaid volunteers on my board with non-monetary compensation, such as public recognition for the important work they are doing in committee and full board meetings, representation of our organization on the boards of stakeholder organizations, and opportunities to attend state and national conferences.
You can think of the foregoing as a kind of CEO governance mission – a credo, of sorts. Translating this mission into actual practice requires that the chief executive officer become many things, including the following five:
- A world-class expert in the public/nonprofit governance function. This is a tall order for two major reasons. First, this function – which is in the process of becoming a full-blown field – is rapidly evolving, and both principles and best practices are unsettled and heatedly debated. Second, the nonprofit/public governance literature is scant and often badly out of touch with recent advances. The really board-savvy CEO must aggressively search out books and articles that provide guidance that isn’t merely theoretical and that has been thoroughly tested in practice. She must also connect with seasoned mentors who can share what they have learned in the governance arena.
- The Board Developer-in-Chief. Since a nonprofit/public board is by definition an organization, it can always be systematically developed/improved by updating its role, structure, and engagement processes. If it isn’t continuously developed as a governing organization, a board will invariably underperform, resulting in board member frustration and dissatisfaction. My readers are well aware that board members are always inclined to take their frustration out on the CEO. And they also know that boards tend not to be self-developing. So it makes the best of sense for the CEO to take the lead in building support for systematic board development, beginning with the Board chair and other officers. The board-savvy CEO must also continuously monitor board performance, identify governing performance issues, and work closely with the board chair, vice chair, and other officers in determining how to address governing issues: Through the board’s standing Governance Committee? Through an ad hoc Governance Task Force? Through a daylong facilitated governance retreat? And, of course, whatever mechanism is chosen, the CEO must ensure that adequate executive support is provided so that the selected mechanism actually gets the development job done well.
- The Chief Board-CEO Relationship Manager. A close, positive, productive, and enduring partnership between the governing board and chief executive officer is a critical piece of the governance puzzle in every organization, but this high-stakes working relationship is notoriously fragile and prone to disintegration for a number of reasons. The most important, in my experience, is inadequate management of the partnership. I’ve never seen the partnership thrive without the CEO taking the lead in managing it. This includes making sure that a standing committee – often called “Governance” or “Board Operations” – is created to, among other governance responsibilities, oversee the relationship. Once a committee has been made accountable for ensuring that the board-CEO working relationship is healthy and enduring, the CEO must provide strong executive support to the committee is taking such critical steps as developing a formal set of board-CEO communication/interaction guidelines and putting in place a well-designed process for board evaluation of CEO performance. The CEO must also make sure that the committee closely monitors the board-CEO partnership, identifies relationship issues needing attention, and comes up with solutions.
- Part of a Cohesive Board Chair-CEO Leadership Team. Investing in the development of a rock-solid board chair-CEO working relationship can yield powerful organizational dividends. In fact, one of the preeminent priorities of a truly board-savvy CEO is to transform her board chair into a strong governing partner, a reliable ally, and when needed, an ardent change champion. The board chair makes an especially important partner for the CEO not only because of her formal authority as “CEO” of the governing board, but also the fact that board chairs are often major actors who wield tremendous influence in their communities. Strategies that CEOs employ in building close and productive working relationships with their board chairs include: (1) reaching agreement with the board chair on the fundamental division of labor with the CEO; (2) getting to know the board chair really well; (3) actively helping the board chair succeed in her formal governing role; (4) assisting the board chair in having a richer, more satisfying governing experience beyond her formal leadership role; and (5) never missing an opportunity to provide the board chair with ego satisfaction, often in little but important ways.
- Head of the Governance Executive Support Structure. Governing boards do not, in my experience, function at a high level unless they receive strong executive support. In this regard, no really board-savvy CEO would ever delegate leadership of this critical element of the governance architecture to an executive team member. Rather, the CEO must play a hands-on role in directing the executive support function. For example, many CEOs around the country are convening and chairing monthly meetings of their executive team sitting as what is often called the “Governance Coordinating Committee.” One of the critical functions of this group is development of agendas for monthly meetings of the board’s standing committees. In many cases, the executive team member responsible for each of the board’s standing committees presents his/her committee’s draft agenda to the Coordinating Committee, which fleshes it out for discussion with the board chair. And the Coordinating Committee often determines who on the executive team will be accountable for the development of information relating to particular committee agenda items.
