Is Our Organization at risk? Part One: Board of Directors

In the next series of blogs I would like to look at elements of organizations at risk versus characteristics of thriving organizations. Assessments of the functioning of organizations should look at individual elements and then evaluate the relationship between each functioning piece. Sometimes individual systems such as HR or financial systems are individually efficient but there is no synergy with other aspects of the organization, creating an organization at risk. One thing I learned from analyzing so many organizations: No two are alike and that's great! However, there are still some underlying principles that can either enhance or derail a business or organization.

Image taken from emsaac.org

What follows is a straightforward list based on key operating principles that boards of directors might use to evaluate themselves. In some instances, boards may prefer to have this done externally. While there is a continuum of efficiency along which each of these guidelines might fall, I would like to discuss the two extreme ends: the "at risk" and the "thriving" boards. For each section, I have provided a list of possible documents which could be viewed to ascertain the effectiveness of each principle. Internal assessments should be evidence-based where possible.

The Board of Directors plays a key role in the health of an organization. They
1. Set strategy and organizational direction and resulting goals.
2. Monitor the overall financial health of the organization
3. Select and manage the CEO
4. Evaluate organizational risk
5. Ensure compliance with legal requirements.
6. Work to promote the organization with the wider community to enhance relationships


1. Boards of Directors hold structured, regular meetings and meaningful Annual Meetings 

The regularity and organization of board meetings are indicative of the commitment and participation of Directors. A board that excels sees Directors who make their attendance and their participation a priority. Planning strategic direction is a long term task and therefore requires meetings that look more long term and that build in evaluations of progress. This is difficult to maintain if Directors opt in and out of meetings. Annual planning is certainly important for sound board practice leading towards a meaningful AGM that both reports back to and engages their constituency in onward goal setting. Each regularly held meeting should be presented with a full set of accounts for discussion and approval in addition to other structured discussion.  All Directors will have been given the opportunity to contribute to the agenda.

Struggling boards are sometimes adhoc in their meeting planning and attendance by Directors. AGMS are not seen as important milestones but are merely to fulfill a legal obligation. There is no clear structure to the agenda items and little advance planning for key board tasks. Because of the lack of structure, boards at risk are often in emergency management mode, dealing with whatever crises are on the top of the list rather than being proactive and preventative.

Evidence? Board meeting minutes, board agendas, financial reports, AGM reports, AGM meeting minutes and attendance records.

2. Board members understand their roles and responsibilities.

In a thriving board, not only will each board member be provided with a job description but these are reviewed regularly to ensure that they are current with the tasks at hand. This is particularly needed when the skills mix changes with the introduction of new members. New board members are provided with induction and a truly thriving board will undertake some form of team building to ensure that the dynamics of a new Director are not disruptive to its effectiveness.  When there is a board vacancy, job descriptions and person specifications are written in advance so that the right skills and personality mix are sought. In a thriving board, all directors will have signed off on each of the board job descriptions and will have agreed to each other's roles. Clarity is not just individual but collective.

Conversely, a board is at risk when there is a lack of understanding of their roles and responsibilities, when there are conflicts over role boundaries or where there are large gaps in service delivery. At risk boards have difficulty recruiting the right skills mix and find themselves unable to make key decisions because they lack the knowledge among themselves. One of the greatest areas of risk is in a lack of clarity between the board and its CEO. It is a common issue for boards that are not well trained to either become overly involved in management decisions or to completely give their CEO free rein with a totally hands off approach. Both extremes pose risks for the organization. A board that has been inadequately trained and prepared can also encourage conflict and frustration.

Evidence? Written job descriptions, person specifications, recruitment processes for board directors, notes of induction training. Interviews with board directors to determine if they are familiar with their roles and responsibilities. Policies and procedures for standing committees.

3. Establishing Vision and Direction
To be truly thriving as a board of Directors, establishing strategic vision and overall direction of the organization is not simply something they do among themselves. Whether for-profit or non-profit, boards of Directors represent a wider community. A healthy board will have canvassed and taken into account the views and needs of their constituency when drafting their strategic plan. Likewise, a healthy board will view their strategic plan as a living document and will regularly seek feedback to adjust it where needed.

An excelling board of Directors will measure all plans brought to them by the management team against the strategic plan. The board is the rudder, holding the ship on its intended course and will ask the appropriate questions to ensure that the long term vision is maintained as well as keeping the organization ticking over on a day to day basis.

Boards that are at risk in this aspect tend to be those that rubber stamp approvals, look at decisions in the short term without due regard to long term impact or direction. The strategic plan is either not written or it has been drafted by the CEO and management team with little input from the board or the wider community. While it is appropriate for the CEO to be delegated the task of pulling all the threads of the strategic plan together, ultimately a good board will take personal responsibility for its development. Boards at risk are often insular in nature, taking very little into account from outside of the walls of their meetings.

Evidence? A document expressing vision such as a constitution is in place. Signed off strategic plan, board minutes showing discussions of strategic planning, input of constituencies, long term planning with detailed analyses against the strategic plans, CEO board reports and business plans showing references to the strategic plan, minutes of community based meetings. 

4. Clear and Well-Documented Decision Making Processes 
We know that a board is thriving when we see solid, well-informed decisions being made. This is not as simple as it sounds. It means that the Directors expect sound data to inform their deliberations: financial data, HR and capital costs, marketing data, risk analyses and legal issues. A good board will not move forward until they have examined not only the immediate advantages of a decision but also the longer term impact. This is definitely not a rubber stamping exercise and requires the full skill set of a well-balanced board as well as a cooperative and skilled CEO. Policies and procedures support this process to ensure clarity of roles between Directors and the management team. Such policies and procedures should particularly include powers of delegation. Who is able to negotiate and sign off on contracts? Is there a process for increasing staff numbers that includes the board? At what level are capital expenses brought to the board for approval prior to purchase? Are restructuring plans expressed in the longer term as well as the immediate impact?

In the decision making exercise, all Directors need to be participants. A thriving board is one that has meaningful conversation around decisions without massive conflict. This is not to say that all need to be in a unity of agreement. Far from it! Directors need to have sound negotiating skills in order to focus on solutions and not on people.  Decision making by the board is a team effort that requires clear structure and process that falls into place at each adjustment and turn. Flexibility and structure are balanced and go hand in hand. In fact, within a well-run board it is the structure that provides the freedom to be creative. A good board conceives, delegates the "how" and "what" to the CEO and management team, reviews progress with their staff and regularly seeks for measures against the intended strategic plan. This is possible only if the CEO is regularly present in board meetings as well as other management staff by invitation as needed.

Image taken from www.worldvision.ca

On the other hand, a struggling board either abdicates the decision making to the CEO, rubber stamping decisions or micro-manages each and every management decision. An at risk board will not take the time to examine important decisions with any level of depth and will fail to ask the key questions needed for sound decision making. A board that works in isolation from their constituency group will also made adhoc decisions without reference to their overall agreed purpose or without reference to the current needs of their constituency or client group. Those boards that insert themselves in the day to day management are more likely to create conflict with their CEO and will slow down decision making as it goes back and forth to the board room.

Evidence? Board minutes show informed decision making processes in play that involve all participants. Minutes show data used in decision making. CEO reports show information fed into decisions. Financial reports as tabled and discussed by the board.

5. Legal obligations are met and risk is minimised
Oversight of organization-wide risk is one of the key roles of the Board of Directors. While it is the management team's responsibility to identify and manage risk, a good Board of Directors will have put into place robust and structured procedures for the reporting of that risk, receiving a risk management report at least annually in a scheduled manner. At the same time, a good board will differentiate between oversight of ongoing risks to the organization (such as legislative requirements or occupational, health and safety risks) and situation specific risk oversight (such as when considering a change in direction or developing a new strategic plan.). In a similar light, good oversight of risk will allow for assessment of changes to its particular environment. In a great board, the parameters around risk are contained within a written document that is regularly reviewed for relevance and adherence.

A survey of more than 200 current and former board members was undertaken by Proviti in December 2010 which revealed that slighly more than half of respondents felt that their board was highly functioning in risk oversight.( http://www.coso.org/documents/Board-Risk-Oversight-Survey-COSO-Protiviti_000.pdf.) In this same report, only 13% of board members of non-profit organizations reported that they were effectively undertaking risk oversight.

An at risk board will not have regular processes in place to monitor risk, who seek for reports on risk in an adhoc manner. There is also the opposite difficulty where boards are so concerned with risk that they tie the CEO's hands in their anxiety, thwarting creativity. In other words, a balanced approach to risk is needed. Where a board of Directors has not been able to recruit a good mix of professional skills, there can be gaps in the ability to analyze the data provided.
Evidence: Risk reports tabled with the board, risk analysis with each major project, annual board agenda, minutes of board meetings showing discussions on risk oversight, policy on risk management.

Overall, self-evaluations by Boards of Directors are healthy and enable an organization to move forward with assurance, creativity and great leadership. If self-evaluations are not possible because of lack of internal skills or lack of functionality of the existing board it is recommended that the board look at an external evaluation to enable the basic principled practices to be put into place.