As a board, you are entrusted with the stewardship of an organization or company on behalf of someone else – your shareholders or, if you are a not-for-profit, your “moral ownership.” That places a moral as well as a fiduciary obligation on you to ensure that the resources of that organization are used most effectively to produce appropriate results. Traditional activities such as “approving” financial statements do not fulfill this stewardship. Rather, the board needs to be able to show accountability for the organization as a whole. Is the organization or company achieving what it ought to achieve? The board sets the direction for the organization. If the board is not doing its job effectively, the whole organization suffers.
The board is responsible for its own development, job design, self-discipline and performance. These are not areas that can be delegated to the CEO. The board itself is accountable for the quality of governance. Self-evaluation is a way to assure yourselves and your owners that you take accountability seriously.
John Carver suggests that evaluation of board conduct is important for three reasons:
because the board is a group of individuals, there is a need for clarity about group conduct;
because the board is group of peers, it “must learn to govern itself before presuming to govern others”; and
because other people depend on the board’s style of operating, there is a need for predictability and stability.
It is well a known adage that “what does not get measured does not happen.” Board self-evaluation is crucial to the ongoing improvement of your capacity to govern. If you do not measure yourself against the bar set by your policies, you will not improve.
Additional details about and tools for board self-evaluation are available in the Policy Governance Toolkit: Board Self-Evaluation.You can also learn more about board self-evaluation in our interactive REALBoard Self-Directed Learning Modules. Module 9 covers Board Evaluation and improvement. Templates for self-evaluation consistent with Policy Governance® principles are available from The Governance Coach™.
It is a common misunderstanding that boards using the Policy Governance® model should not have any committees. In fact, there are times when board committees can be very helpful in the board’s work. The key principle to keep in mind is that board committees should only help the BOARD do its own work. Secondly, no board committee should be permitted to take over the board’s role in being accountable for all governance decisions.
Therefore, committees that are made up of or include board members, appointed by the board, should never be created to “help” or advise the CEO in operational areas that the board has already delegated to the CEO. If a board committee advises or directs the CEO regarding means to achieving the Ends, it is no longer possible to have a clear line of accountability from the Board as a whole directly to the CEO. If the means advocated by the board committee isn’t effective, the CEO can’t be truly held accountable. So a Finance Committee which advises the CEO on financial matters is inappropriate, while an Audit Committee to assist the board in its function of monitoring CEO performance against board-stated policy criteria is fine.
A Programs Committee would be inappropriate if its job is to assist or advise the CEO or staff at any level, because programs are means for which the CEO is accountable. Appropriate board committees might assist the board with its job of connecting to owners, researching information for policy development at the board level, or creating an on-going development plan for the board itself.
An Executive Committee, while not inappropriate just because of its title, needs carefully stated authority to prevent it becoming the de facto board, with the rest of board members being simply rubber stamps to decisions the Executive Committee has already made. No committee should interfere with the accountability of the board as a whole to govern. In many boards, an Executive Committee is not needed at all. Some boards operate under legislation that requires them to have an Executive Committee. If this applies to you, severely restrict its powers, limiting it to making decisions on behalf of the board only in urgent situations when it is impossible to convene a quorum of the board. With the use of technology that is available now, such situations should be extremely rare. Another way to use this committee, if you are required to have it, is as a standing committee that is available for specific ad hoc tasks designated by the board. The important principles here are not to allow the Executive Committee any authority other than that authorized by the board as a whole, not to let it have any kind of instructional power over the CEO, and not to let it interfere with the wholeness of board function.
Additional details about board committees are discussed in Introduction to Policy Governance® workshop. You can also learn more about committees in our interactive REALBoard Self-Directed Learning Modules. Module 5 on Board Holism and Delegation addresses the use of committees.
In a for-profit corporation, the owners are obviously shareholders. In not-for-profit organizations, there are no shareholders as such, so Policy Governance® uses the term “owners” or “moral owners” to mean the equivalent of shareholders. The owners are the people on whose behalf the board determines what benefits should be produced by the organization, who the beneficiaries are, and what it is worth to produce those benefits (this is called the “Ends” in Policy Governance® terminology). This is the group to whom the board owes moral accountability.
The moral owners may or may not always be the legal owners of an organization. And stakeholders are not necessarily owners. Stakeholders include all individuals and groups who have an interest in the organization, including employees, customers or clients, vendors, donors and funders, and other organizations. Certainly the board has some responsibilities to each of these groups – for instance, to be sure that employees are treated fairly, that clients receive high quality service or products, that vendors are paid on time, and so on. However, there is one major difference: boards are not accountable to the stakeholders for deciding what benefits the organization is to produce. For that most important decision boards are accountable only to the “owners” as a whole. While the board may well wish to obtain the perspectives of various stakeholders as part of its overall knowledge before making Ends decisions, in the final analysis, the decisions must be made on behalf of the owners. So, all owners are stakeholders, but not all stakeholders are owners.
Each board needs to carefully consider who its moral owners are. Sometimes the owners are also clients or customers, such as in some membership organizations. That means the board will need to carefully sort out when it is hearing “owner” information, and when it is hearing “customer” information, which should be given to the CEO who is accountable to the board for operational matters such as customer or client service.
* Additional details about Ownership Linkage are available in our interactive Online Learning Modules. Module 1 addresses Ownership Linkage. Additional references available on this subject: Connect! A Guide to Ownership Linkage toolkit.
For access to more FAQ’s on board self-evaluation and improvement, board policies, board meeting agendas, monitoring the CEO, Board structure and processes, ownership linkage, and effective delegation, click below.
What is the board’s role in monitoring?
What is the CEO’s role in monitoring?
How often should the board monitor CEO performance?
What are “Ends”? Is that the same as our “Mission”?
What should an effective board meeting agenda look like?
How can board members add items to the agenda?
Why should the board evaluate or monitor its own performance?
How should the board evaluate or monitor its own performance?
Should the board have committees?
Should board members ever sit on operational committees?
What are “owners” – do you mean stakeholders?
How does the board delegate effectively to the CEO?