Board Savvy July 3, 2019

The 3 Pillars of Board Work: Strategy, Governance, Fiduciary

By Beth Lewis President & CEO Emeritus: 1517 Media

This is a contributed piece by Beth Lewis, an Athena Pioneer. This was originally published on Beth’s personal blog.

Having served non-stop on boards for the past seventeen years, I am constantly amazed by the lack of professionalism I sometimes observe, such as board members who don’t understand what their role is and executive leaders who aren’t sure how to articulate it, either.

Whether the organization’s tax status is “for profit” or “not-for-profit,” the work and responsibilities are broadly the same. Board members have three primary roles: strategy, governance, and fiduciary. While this blog post is largely for relatively inexperienced board members, it might also be shared with your entire board as a gentle reminder of their role.

Strategy

When I teach or speak about board work, I often show a photo of a quilt to help people grasp the difference between strategic work and operational work. Before starting, a quilter imagines what the quilt will look like—the colors, the design, how large or small it will be. That is akin to thinking strategically. But, once s/he has imagined and perhaps even sketched out the design, s/he gets to work. That is akin to the operational work that will actually craft the desired product. The quilter will need to source the fabric, batting, and thread; iron the cloth and then carefully cut the pieces of fabric into the desired shapes that will go into the quilt. And then comes the hard work of sewing them together, sometimes even tearing them apart when the seam wasn’t quite as straight as s/he had hoped, sewing some more, adding the batting, and doing the actual quilting.

Imagining what the quilt will look like is the strategic part of the endeavor. If our quilter had a board of directors, they would assist with this imagining and crafting a design. But they wouldn’t do the actual sewing! The quilter (or a team of quilters) would then provide the day-to-day labor that actually makes the quilt a reality. They are the equivalent of the executive leaders and staff. And, our imaginary quilting board would review their work and provide them with feedback while planning for the next quilt design.

It’s a bit simplistic, of course, and none of the talented quilters I know have a board of directors! But I have had many organizational leaders tell me that this simple example helps them understand a bit better where the line gets drawn for strategic versus operational work in a company or a not-for-profit organization. A good strategy provides a clear roadmap or direction to help staff people understand the actions that will move the organization in that agreed-upon direction, the actions that won’t, and serve as a framework for prioritizing the day-to-day work to achieve the agreed upon goals.

Boards need to understand the operational priorities that enable achievement of the strategy. But boards often have a tendency to stray into actually wanting to make operational decisions. Most people who serve on boards came up through being front-line workers, then managers, then executives themselves. They are comfortable and feel as if they have something to contribute in the operational arena. It is fine to say something like, “Perhaps you’ll want to explore,” or “Have you thought about looking at the way (another organization) is managing that process?” But that is where the line needs to be drawn—being helpful and offering insights, without being directive. It is up to the chief executive and his or her team to determine whether to follow through. If the board doesn’t have confidence in the CEO and his or her team to make these operational decisions, then that is another conversation altogether. Then, it’s time to think about replacing the CEO (see the fiduciary section below).

One role that I have often found myself playing as a member of a board is to point out when the board (or even a single board member) is in danger of crossing the line from strategic to operational. I will try to gently point it out by saying something like, “I’m not sure that is the board’s area of expertise or authority; I propose that we leave that to the staff to determine.” And, if it seems appropriate, I might add, “And, perhaps at a future board meeting, the staff can report back to us on the outcomes?” This role of publicly acknowledging the line that differentiates strategy from operations and the respective roles of board and staff is an important one. Having sat on the other side of the board table as a CEO who was often on the receiving end of board members who wanted to be directive regarding operational concerns, I know how awkward that can be. After all, the CEO reports to the board, so they shouldn’t be put into the position of also having to “manage” the board.

Governance

I have heard the term “governance” or “board governance” used in boardrooms to mean a variety of things. It has to do with the formal structure of the board: What the organization’s formal documents (articles of incorporation or bylaws) say about who will serve on the board, how many people will serve on the board, and for how long they will serve on the board.

It also has to do with whether or not the board always meets as a whole or if they have certain committees made up of board members to accomplish some of the work on behalf of the board. The levels of authority of committees as compared to the board as a whole differs from organization to organization and needs to be clearly spelled out in governance documents in order to prevent misunderstandings about who is in charge of what decisions.

Governance also has to do with managing the talent on the board. Having a governance or nominating committee that focuses on things like terms of service, board compensation, managing the board culture, and identifying the background, skills, and experience needed for the next group of board members in order to make certain that the organization is well-served by a diverse set of gifts and perspectives. Sometimes this diversity might have to do with operational expertise (legal or IT, for example). Other times this diversity might be focused on gender, race, age, or other demographic characteristics that bring differing points of view to the decisions being made by the board.

Last, but not least, good governance requires that boards self-assess the quality of their work. There is a famous saying attributed to Albert Einstein, “The definition of insanity is doing the same thing over and over again but expecting different results.” In the fast-paced world of change in which we live, if boards need to provide dynamic leadership for their organizations, they need to constantly be focusing on evaluating and improving themselves. This type of professionalism sets the standard for the executive staff and all who work for the organization and is a fundamental part of good governance.

Fiduciary

Generally, people think of the fiduciary responsibility of boards as meaning oversight on the financials for the organization. This includes the P&L and balance sheet, cash flow statements, budgeting process, investments, etc. However, this is just one side of the fiduciary oversight obligation of board members.

The board must also be attentive to the proper management of all kinds of resources, including investments for the future, such as mergers and acquisitions, investment in new technologies, partnerships, and most important of all, the people who work as paid staff members. For many organizations, the single largest budgetary expense is that of the salaries and benefits paid to its staff. With this in mind, while boards delegate the hiring, retaining, development, and placement of staff to the CEO and his or her executive staff, they should be attentive to trends and policies related to the people who work for the organization including, but not limited to, employee development, turnover, morale, equitable compensation, and having a whistleblower policy or procedure to ensure that employees have a safe place to express ethical concerns.

The place where the board has direct engagement with staffing is in determining what gifts are needed in the chief executive officer (whether his or her title is President or Managing Director or something else). The chief executive reports to the board. The board, as a collective, is that person’s boss. It is up to the board (or a committee to which this work is delegated, such as the HR committee of the board) to work with the chief executive to establish reasonable performance goals and then have regularly scheduled check-ins for accountability. The board is also charged with determining fair compensation for this person including salary, benefits, professional development opportunities, short-term and/or long-term incentive plans, and other perks. Some boards also weigh in on hiring and compensation of other key C-suite executives, but in my experience, this should be the purview of the chief executive.

To summarize: Effective boards care deeply about the organizations they serve and should be invested in helping the organization succeed. Boards have a critically important role to play in terms of setting strategic direction, providing solid governance oversight, and providing a duty of care regarding the multi-faceted oversight of fiduciary matters. But that doesn’t mean boards should overstep those boundaries into the day-to-day operational decision-making of the organization.