The headlines about the deficiencies of corporate governance show no sign of abating. Most of the solutions being proposed relate to structure, composition, and regulation. While these approaches may indeed treat the symptoms, they appear to have missed the diagnosis of the underlying root cause. Many governing boards today are suffering from "governance scurvy" - a deficiency in one or both of the governance "vitamins" of sincere motivation, and the ability to clearly conceptualize the purpose and method of governance. An effective remedy already exists.
We now know that the cause of scurvy is a deficiency in Vitamin C, found for example in citrus fruit. In 1601 an English sea captain named James Lancaster conducted an experiment. At that time, over half the men on a ship would die of scurvy on a long voyage. Lancaster had a fleet of four ships. On one ship, each man received a tablespoon of lemon juice daily. The men on this ship remained healthy. On the other three ships, 110 out of 278 died by the midpoint of the voyage. Did this great idea change the world of shipping and save thousands of sailors' lives? Not for nearly 200 years! It took another 150 years before another officer, James Lind, replicated the experiment, and another 48 years after that before the British Navy began providing regular dietary supplements.
In the 1970's, two brilliant thinkers independently developed complementary concepts that have the potential to change the future of governance. Robert Greenleaf addressed the issue of the motivation of those who sit in positions of power on governing boards. John Carver provided a conceptually complete model of governance, that, when adopted, allows boards to operate in a way that fulfills their accountability to those for whom they hold their organization or company in trust. Yet, more than a quarter of a century later, most organizations are still struggling with how to "fix" what has gone wrong with governance, and in most cases, paying little heed to the answers that have already been provided. Is modern governance, like 17th century sailors, doomed to wait 200 years before taking advantage of these improvements?
The Motivation Vitamin: Servant-Leadership
First, the motivation vitamin: Greenleaf points out that the motivation for being on a board of directors ought to be grounded in the desire to serve: "The greatest leader . . . is seen as a servant first because that is what he is deep down inside. Leadership is bestowed on the person who is, by nature, a true servant." (1995, p. 20) Servant-leader boards see themselves as stewards. The Toronto Stock Exchange Committee on Corporate Governance (1994, paragraph 4.3) had this to say about stewardship: "By stewardship we mean the responsibility of the board to oversee the conduct of the business and to supervise management which is responsible for the day-to-day conduct of the business. In addition [the board ensures] no issue affecting the business and affairs of the company 'falls between the cracks.'"
Board members should seriously ponder their motivation. Are you on a board because you wish to wield personal power? Because the position is lucrative? (While this is unlikely to apply to most not-for-profit organizations, it may be a motivating factor for corporate board members.) Because it will look good on your résumé? Or are you there because you want, in some way, to make the world a better place, whether that is through the benefits your not-for-profit organization provides or the increase of shareholder value for your company? The New York Times has said that "Servant leadership deals with the reality of power in everyday life - its legitimacy, the ethical restraints upon it and the beneficial results that can be attained through the appropriate use of power" (Quoted in Spears and Lawrence, p. 4).
Greenleaf (1991a, p. 31) makes a very powerful statement about the potential of boards to create good in the world: " . . . [trusteeship] is an important leadership opportunity. . . . no one step will more quickly raise the quality of the total society than a radical reconstruction of trustee bodies so that they are predominantly manned by able dedicated servant-leaders."
He also acknowledges that when boards of directors are concerned enough to make a change, it will not necessarily be easy, but it will be worth it: "If directors want a more socially responsible company . . . they should start the process by becoming more responsible directors. This will require some adjustment from administrators who are accustomed to nominal (and, therefore, less responsible) directors. Directors should accept that when they move to their proper role they create a problem, and that they should deal with it as a problem. The heightened quality of the company that will result will be to everybody's benefit, including the administrators who will be disturbed by the adjustment they must make" (Greenleaf, 1991, p. 4).
In The Institution as Servant, he suggests that boards of directors of companies should take a leading role in social matters, not only to follow the spirit of existing legal requirements, but to keep ahead of them. They should be aware of all new laws or regulations governing social performance, and develop policy to expect voluntary compliance. Further, they should devise a system for assessing the attitudes toward, and opinions about, social performance of the company by owners, be aware of trends and developments in other businesses and institutions, and start a regular flow of information to the directors.
He also notes "the interpretation of these data which the directors need for their policy decisions is different from what administrators need for their operating decisions. Therefore, the directors should begin to build their own independent source of advice to help them interpret the new data." (Greenleaf, 1972, p. 4)
Finally, he makes a case that it must be clear who is in charge. Boards need to have foresight, the ability to see changing social conditions far enough in advance that institutions can adapt the business to the conditions before events ultimately force their hands. "Managers are not apt to develop those qualities [foresight]. These are not the qualities that bring a manager through a succession of steps to the top of an institution. These are qualities that are best developed . . . in people who are intensely interested in the institution, who basically control it, but who stand outside its day-to-day operation and have a perspective on it that active managers are very unlikely to have. . . .we're suffering because this role has not been generally recognized or accepted by . . .chief executives of institutions of all kinds. Managers and executives . . evolve a strategy to manage their trustees rather than the other way round" (Greenleaf, 1996, p. 350, emphasis added). It rather sounds as if he were still around watching the recent events in corporate governance!
The Conceptual Integrity Vitamin: The Policy Governance® Model
Having examined the "motivation vitamin" we turn to John Carver's contribution: a complete "operating system" for boards, built on the premise that the leadership provided by boards is for the purpose of representing the owners (a characteristic emphasized in servant-leadership, as we have already noted). Greenleaf talks about what is often missing in governance: motivation to be a servant-leader; clarity of governance and management roles; information specific to governance. Carver goes a step further and provides the vitamin in which many boards are deficient - a conceptually complete and internally consistent model (Policy Governance) that actually gives boards a practical method that can be used to transform governance.
Carver (2002) emphasizes that the source of board authority is the owners, a fact that appears to be ignored in many companies. The board's role is to act as a link between owners and management, directing and controlling the company on the owners' behalf. In serving the interests of the owners, the board is obligated to provide leadership and exercise authority. This does not mean that the board simply blesses with its approval plans and strategies produced by management. It means that the board takes initial authority by clearly specifying what the company or organization is "for" - what benefits it is to produce. It also means that the board takes initial authority by clearly specifying what means are unacceptable for the management to use - an authority that seems to have been woefully lacking in most of the recent corporate governance disasters. Exercising this initial authority in both cases requires the board to have foresight, a requirement noted by Greenleaf. Carver also emphasizes that the authority of the board is vested in the group, not any individual member, including the Board Chair.
Carver's model also provides a rigorous method by which the board can hold the management accountable for what has been delegated - once again, a serious vitamin deficiency in many boards. Used as intended, Policy Governance can be the basis for a culture of accountability in any organization: the board fulfills its fiduciary role by being clearly accountable to the organization's owners; the board maintains an open connection with the owners so that it is aware of their values about the organization; the board delegates operational authority to the management, but not before clearly specifying the Ends it expects (what benefits are to be provided, for whom, at what cost) and operational situations that are unacceptable; the board holds the management accountable to it by systematically and rigorously monitoring performance based on those stated expectations.
Policy Governance provides a very useful distinction among the kinds of information that boards need in order to govern. While Greenleaf points out that directors need their own information flow, Carver further explicates the concept by helping boards clearly distinguish the difference between information they need to make decisions, monitoring information, and incidental information. He also encourages boards to develop their own sources of information in addition to that provided by management.
Current governance "band aid solutions" include the requirement for boards to have a variety of committees. These solutions generally give the committees considerable amounts of the board's power, detracting from the ability of the board to function as a unified whole, using their authority as a group most effectively. Carver's clear principles that board committees should be reserved only to do work that rightly belongs to governance, not management, and that board committees should never be allowed to interfere with the unity of the board's process, should be applied before creating any committee.
Finally, the Policy Governance principle that the board is accountable for its own performance, and should evaluate itself just as rigorously as it evaluates the management, appears sadly lacking in most of the structural and regulatory quick fixes being proposed for corporate governance.*
A Modern Parable
Over the past several years, there has been a flurry of activity in drafting legislation (e.g., The Sarbanes-Oxley Act in the USA, proposed amendments to the Criminal Code in Canada), changing the corporate governance listing requirements for the NYSE, Nasdaq and TSX, and controversy over the benefits of rules versus principles. Each of these initiatives, while not necessarily bad in themselves, fails to look at the bigger picture. They strike me as rather like the parable of the blind men and the elephant. Each looks at isolated parts of the "governance elephant," without benefit of conceptual wholeness. Canadian scientist David Suzuki (1989) wrote "As long as scientists look at nature in isolated bits and pieces, they can never describe the whole." We might paraphrase that to say, "as long as society looks at governance in isolated bits and pieces, it can never describe the whole" - or realize its full potential.
Greenleaf (1991a, p. 35) asked: "Who is the enemy? Who is holding back more rapid movement to the better society that is reasonable and possible with available resources? . . . .The real enemy is fuzzy thinking on the part of good, intelligent, vital people, and their failure to lead, and to follow servants as leaders. . ."
Will governing boards continue with their fuzzy thinking, like blind men feeling part of an elephant, ignoring solutions that have already been discovered? Or will they exercise true servant-leadership, and opt to apply a model that already exists, and that has great promise to cure the "scurvy" presently afflicting many boards?
*Note that for reasons of space all the principles in the Policy Governance model have not been described here, but because the model is conceptually a whole, it is intended that all, not just some, of the principles be used.
References:
Carver, John with Oliver, Caroline. 2002. Corporate Boards That Create Value: Governing Company Performance from the Boardroom. San Francisco: Jossey-Bass Publishers.
Greenleaf, Robert K. 1972. The Institution as Servant. Indianapolis: Greenleaf Center for Servant-Leadership.
Greenleaf, Robert. 1991. Advices to Servants. Indianapolis: The Robert K. Greenleaf Center.
[Originally published in 1975 by Robert K. Greenleaf.]
Greenleaf, Robert. 1991a. The Servant as Leader. Indianapolis: The Robert K. Greenleaf Center.
[Originally published in 1970 by Robert K. Greenleaf.]
Greenleaf, Robert. 1995. Life's Choices and Markers. In Reflections on Leadership, edited by Larry C. Spears. New York: John Wiley & Sons, Inc.
Greenleaf, Robert. 1996. A Conversation with Robert K. Greenleaf. In On Becoming a Servant Leader, edited by Don M. Frick and Larry C. Spears. San Francisco: Jossey-Bass.
Spears, Larry, C., and Michele Lawrence, eds. Focus on Leadership. John Wiley & Sons, Inc., 2002.
Suzuki, David. Inventing the Future: Reflections on Science, Technology and Nature. 1989. Toronto: D.T. Stoddart Publishing, Ltd.
Referenced by Blake Harris in "The Forces of Change." Available from World Wide Web: [cited 23 December 2003]
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