Perhaps you have found yourself in a board meeting wondering why the board was taking time to discuss something you thought had neither strategic nor fiduciary importance. You lamented, “Why is the board wasting time talking about this issue?”
As a board member serving on a variety of boards, as well as a consultant and coach who helps boards govern more effectively, I recognize the reasons boards waste time are several. But one of the key reasons boards waste time is simply this: they don’t understand the three distinct types of information boards receive and do not know how to handle each of these types of information. This lack of understanding can lead to the board “majoring in the minors and minoring in the majors.”
Understanding the three types of distinct information helps boards make the best use of valuable time.
This is the most important information a board receives. This information provides a board with insight into the future and allows the board to be strategic and pro-active. Specifically, decision information helps a board make governing decisions involving
- the benefits the organization is providing to targeted beneficiaries and the cost or worth of producing them (Ends, for shorthand),
- the risks the board wants to limit to protect the organization, and
- the means by which the board conducts its own governing activities, including the delegation and monitoring process it has established with respect to the CEO (CEO is shorthand for whoever the top operational person is that reports to the board).
Decision information should be timely and provide the board with insight into the alternatives available as well as their implications. Decision information helps the board fulfill its fiduciary responsibility to ensure it has properly limited the CEO from allowing conditions and actions that are unethical and imprudent. Decision information also helps the board think strategically to establish Ends that ensure the organization remains relevant in the long term by making a real and appropriate difference in the lives of those the organization serves.
Typical examples of decision information include an environmental scan providing insight into Ends alternatives, input and perspectives of owners regarding Ends choices and alternatives, information about other related organizations that could affect the board-established Ends, and a risk assessment that provides the board with greater clarity regarding which internal decisions it should prohibit the CEO from making.
The purpose of this information is to assess past performance.
The information should be specific to the policy being monitored. For example, an internal monitoring report developed by the CEO contains a reasonable interpretation of the policy being monitored. This interpretation would include a measure that, if achieved, would demonstrate compliance, along with an externally verifiable or logical rationale for why the measure was chosen. Additionally, the report would show evidence of compliance with that reasonable interpretation.
This fair yet rigorous assessment of CEO performance, and thus organizational performance, is a critical element of the board fulfilling its fiduciary responsibility and accountability to the owners. A fair and rigorous monitoring process ensures the organization is making the intended difference in the lives of those the organization serves while ensuring the organization is operating within the boundaries of ethics and prudence the board has established.
This information can be categorized as 1) information the board has specifically requested it be informed about, such as anticipated adverse media, anticipated or actual legal action, changes in key personnel, etc. and 2) information about internal operations the CEO chooses to provide.
This information is NOT for board decision-making or for monitoring. It is simply information for the board to know about. Very little board meeting time should be spent reviewing it.
As boards become more effective at governing, they spend much less time handling information dealing with the past and present and much more time focusing strategically on the future as it relates to the Ends.
So where does your board spend most of its time? Looking forward with a strategic mindset, looking backward at past performance, or reviewing incidental information? If you would like coaching in how to be a more effective governing board, please contact us.