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Finding boards a better way.

Many associations are governed by groups that govern the way they govern because they have always done it that way. It's the way they learned to govern as they were coming up the ranks. It's consistent with die way they run their businesses or their professional lives.

And no one has ever stopped to find a better way. Until John Carver, president of Carver Governance & Design, Carmel, Indiana. In his book Boards That Make a Difference, published by Jossey-Bass, Inc., Publishers, San Francisco (which also publishes tapes and a newsletter by Carver), Carver starts from scratch to build a new understanding of the role of the board in nonprofit organizations.

Association Management invites you to explore Carver's insights about the working dynamic among volunteer leaders and the chief staff officer and his or her staff--the balances of power, lines of authority, and processes by which the association is governed. In this interview, Henry Ernstthal, CAE, executive director of the master of association management degree program at George Washington University, Washington, D.C., raises the tough questions, and Carver responds by showing us how to rethink the questions and our framework for finding solutions.

HENRY ERNSTTHAL: Let's first talk about the generic nature of governance.

JOHN CARVER: Governance has been the most underdeveloped part of the management spectrum. It's the part that makes the least sense, it's the part in which you find intelligent people doing unintelligent things. Put a board together, and all of a sudden you've got an incompetent group of competent people.

At the outset we form a board in order to bring wisdom together. But we haven't had a mechanism by which that happens very well. We've had a mechanism long on trivia and indecisiveness.

The work done in management for the last three decades has failed to make boards much better. Management has gotten better by leaps and bounds, and keeps on improving. That's the beauty of it--to keep growing like that.

But governance is still running along horse-and-buggy style. If you put good managers on boards, damned if they don't do the same thing. So it's not the people--it's the process that doesn't work well. What I found years ago is that underlying what makes school boards terrible, or city councils atrocious, or hospital boards, or association boards, or foundation boards, or even corporation boards, are some generic inadequacies that, when attended to, can make boards function with much more sense.

ERNSTTHAL: Let's explore, then, aspects of the new paradigm. As I understand your approach, you'd say the board or governing body should do four things:

* Address the ends to be achieved in the long- and short-term.

* Set some limits on the means by which the executive will achieve those ends--for example, prudence in the management of organization resources, and ethical behavior.

* Address the board--staff relationship in terms of delegation and what the nature of that delegation is.

* Attend to the process of governance--that is, continually look at the way in which the board makes its decisions and at what kinds of decisions it makes on an ongoing basis.

Is that a fair summary?

Policy building from the outside in

CARVER: Yes, and then cut across those four functions with one more principle: that issues and values come in sizes. There are big ones and little ones. Boards need to always approach the resolution of those questions from the big to the small. This simple-sounding concept makes a huge difference in how a board then delegates.

A board deals with the big questions with regard to a policy issue and then says to itself, "Are we willing to accept any reasonable interpretation our chief executive might make of those words we just used-?" If it is, it stops. If it isn't, then the board narrows the words further. For example, a board might establish as an end that "social service providers will be skilled in CPR." The board may be unwilling to trust the full range of reasonable interpretation until it has added, "The emphasis among providers will be on those serving high-risk groups." In another area--say, "There will be a general public familiarity with the signs of heart attack"--the board may be quite willing to leave which "public" and degree of "familiarity" open to any reasonable interpretation the chief executive officer chooses to use.

This is what policy building ends up looking like. So, the board goes in level by level, piece-by-piece policy building versus the usual approach of approving a single document that contains all levels at once.

As the board gets narrower in the language it uses, a majority is able to say, "We can accept any reasonable interpretation of those words." Not the interpretation the loudest board member wants, not the interpretation board members say later they wish they had meant. If the board understands that ahead of time, then it can look at its words and say, "I don't know, that leaves us too wide open, let's get even more specific." That process goes on until the majority of the board can accept any reasonable interpretation. Generally, it doesn't take too many words to get to that point.

The board may start by saying, "Don't be imprudent with the association's resources." But what's meant by imprudent? The board man, discuss that for awhile and add, among other considerations, "Insure at no less than 80 percent of replacement cost." My point is that the board starts by trying to define prudent rather than by making the specific decisions about what insurance to buy.

The ownership and homogeneity factors

ERNSTTHAL: In your book you use examples from philanthropic and human service boards, governmental and quasi-governmental boards, park and recreation commissions, zoning boards. Aren't association boards different from these models in a number of ways? It seems the commonality of association boards creates a stronger sense of ownership of the organization and its outcomes than even in the philanthropic sector.

That raises two questions. When board members have common backgrounds, do they have common expectations--and consequently don't have to articulate as much? And second, does a sense of ownership of the organization make boards more likely--and maybe more justifiably--to involve themselves much more in the nitty-gritty?

CARVER: Every organization I have ever dealt with has had a set of reasons for thinking of itself as different. Associations are different, surely. But the underlying issue of governance is the same even though it shows up in different ways. In an association, commonality makes that part of the work--the what-we're-here-for part-appear to be easier, but it turns out it's not all that easy. The sense of ownership you describe has a way of moving association boards into business that should be left to management. So ownership ends up being expressed not just in terms of setting the destiny of the organization but also in terms of fiddling with all the bits and pieces. Greater ownership doesn't necessarily lead to more-functional behavior.

How size affects effectiveness

ERNSTTHAL: What is the impact of frequency of board meetings and size of the board in your governance paradigm.; Local associations are apt to have a monthly meeting whether it's needed or not. State and national associations tend to meet less often, sometimes as infrequently as twice a year. What is the relationship, if any, of frequency of meetings to governance process? Or of the size of boards to governance process?

CARVER: I think the larger the size, the more difficult the governance process. And while there may be good reasons, sometimes, for having large boards, we generally haven't given milch regard to how size affects a board's effectiveness.

My point is not that boards should all be made of seven or eight members but that we should balance size and effectiveness more carefully than we have before. A board should be the smallest possible size consistent with a good representation of the ownership. A large board makes it even more important to have a good process. Frequency can be flexible if the process has integrity. I favor less-frequent meetings with depth rather than more meetings skipping across the surface. If the board isn't too awkwardly sized to do its job, it need not default to an executive committee for de facto governance.

When the roles are clearly defined

ERNSTTHAL: Let me ask you about paradigm shifts. To paraphrase something I read in the Economist, "Anybody who tells you that it's easy for a group to change is either a liar or a management consultant, or both. Getting an individual to change is difficult; for a group, it's nearly impossible." How much pain do you have to be in before you can shift the paradigm)

CARVER: I don't think you have to be in pain. I've worked with hundreds of boards, and most of them weren't in trouble. Rather, these boards were good and said, "Let's be great." These boards are willing to be flexible, willing to try out something new and maybe even bold. A board of realtors, for example--membership association--shifted a raft of committees that previously reported to the board over to the chief executive officer. They became the chief executive's committees rather than the board's, because they were doing essentially staff work, not board work.

ERNSTTHAL: And have these boards sustained the momentum built with the paradigm shift?

CARVER: Over my 16 years of spreading this new vision of governance, some have and some have not. I'm sure there are boards who have totally wasted their money on me. And there are others who have taken the new framework and sustained it over years.

ERNSTTHAL: Your model appears to require very focused, intellectual participation instead of what we're all used to. But there's a niceness and familiarity in the board meeting as rite and ritual, filling social and ego needs.

Is there a danger of good things being lost by your very businesslike approach to governance@ In turning governance into a very left-brain, linear, logical kind of experience, don't you really lose something? Particularly in an organization such as an association.?

CARVER: I'll answer you with an analogy. Baseball is a good example of a system with rigidly defined roles. Third base and first base simply never get confused. We don't have any arguments about it. When we have the roles clearly defined, then we can play. And we play together, and that's fun. Likewise, my governance model enables a clear distinction between those things a board makes decisions about and those things a staff makes decisions about.

The board draws the distinction where it wishes, but wherever the distinction is drawn, it's very clear. The board doesn't get into staff decisions, and the staff doesn't steer or manipulate board decisions. You keep the two apart.

And once the board has made clear the distinctions, now it can say, let's take the staff into this exciting, challenging, visionary, horizon-looking kind of job we're involved in. For example, a board might have its chief executive officer invite a couple of staff members--ones who disagree passionately and knowledgeably on some choice the board must make--to debate the matter before the board. The principle is that when the board does that, the conversation, the interaction is on the board's playing field, not the staffs. It pulls everybody up. And it's a lot of fun.

ERNSTTHAL: Talk a little bit about board--staff relationships and how their work gets divided up. The reality of most association governance is that staff is involved in board decisions, in part because they have some handle on implementation, and the board is involved in some administrative matters, in part because feels a sense of ownership.

Does your model say that's no longer really the model? That in fact we can clearly draw boundaries between what are policy matters for the board in which the staff does not become involved and what are administrative matters for the staff in which the board does not become involved?

Defining a movable line

CARVER: Except for working only to the "any reasonable interpretation" level and refraining from prescribing staff means, you and I sitting here cannot say what's a board decision and what's a staff decision. You can't make that kind of delineation from the outside looking in. The delineation is made by each board as it progresses from the larger issues toward the smaller issues. There's a stopping point--that point of consensus of definition I mentioned earlier. Now it has, for that time, topic, and organization, defined where the boundary is. The line, however, can be moved. The board can move it. Staff can't.

ERNSTTHAL: Can staff recommend a movement?

CARVER: The staff can ask, the staff can even cajol-e-as long as staff realizes it's the board's determination where the lines are drawn.

Learning that boards speak with one voice

ERNSTTHAL: But what about the set of expectations board members bring to the situation? For instance, a group of small-business people, who are in business in part because they like control, will tend to want to deal with the management of vour association in much the same way. Add to this the uniformity of background we discussed earlier, and it becomes a very heavy staff burden indeed.

Have you dealt with that kind of environment and gotten the board to back off, or do you just have to find an executive director who is willing to have the board dictate what color drapes should be in the office?

CARVER: I want to see integrity in governance. I'm saying, look, whatever the board composition is, let's see if we can define the board's job. The job is not just a collection of every member's laundry list.

What is that job to be done@ Can we define it in a way that executive directors who don't have that mix you just described still are able to perform better.; And sure, small--business people, who are used to hands-on control, have to learn to back off. But then that's what we all had to learn becoming managers. It's not as if they can't learn that. Particularly if they learn it in an environment that makes compelling logic.

Every board member has to learn that boards speak with one voice or not at all. Lots of people have no problem with the principle, but they use mechanisms that run roughshod over that principle eve time they turn around--like a board treasurer or chair with his or her finger in management decisions.

Getting down to business

ERNSTTHAL: Associations are in a transitional stage between the preboomers and the boomers. The preboomers have an expectation of fellowship as part of the board process, whereas the boomers tend to think, "What do you mean we meet for half a day and then go play golf-? We'll meet at the airport hotel and then go home, because I have to coach my kid's soccer game." Do you have any observations on generational differences.;

CARVER: I know that things have been changing, about what volunteers won't spend their time at. For example, organizations have found that women aren't in the same spot they were a few decades ago. They have less time to give, so they want to get on with business. They want to get something done and move on to something else. It's the same kind of phenomenon you're talking about.

ERNSTTHAL: No more envelope stuffers.

CARVER: Yes, and in fact, the leftover volunteer mentality" is part of the problem for boards. If people think of themselves as volunteers, instead of as owners or trustee-owners, they get involved in minutia. Volunteers who see themselves as moving on with business have a readiness to hear a different way of going about governance. I dealt with a public commission in a city in Canada just recently. It handles 7,000 housing units. And the board members were very ready to say, "Yes, that which we are doing doesn't make any sense. What can we do to change how we operate?"

ERNSTTHAL: What generates that', Are people getting smarter suddenly?

CARVER: I don't think we're smarter. And I don't know that the money crunch has anything to do with it. That just makes us tighter about cost control, not necessarily better at what we do.

I think we are ready to see that a lot of what we've done simply didn't make sense. It's a game boards played, and a game executives then played back with the boards: Let's bring in our dog-andpony show as a staff and tell the board what good things we've been doing. Let's bring them a budget so they can ratify it. The board manipulates around the edges to look like it's not rubberstamping, so it can then rubber-stamp it. The games are getting more transparent. I want to make it as transparent as I can.

Safeguarding the board's wholeness

ERNSTTHAL: How in your paradigm do committees operate?

CARVER: Once the board has resolved the issue of what is its job versus the chief executive's job, then the board says to itself, "Do we need to break up into smaller groups to get our job done? If so, what do we have to worry about--for example, fragmentation of the board--as we do it?" So the board could have its own committees if that particular group of people can work best that way, and if it safeguards its wholeness. The chief executive officer can have committees or not. That's the executive's decision. So there can be staff committees as well as board committees.

ERNSTTHAL: Are the board committees, by your definition, committees consisting of members of the board?

CARVER: Doesn't matter. They are committees that the board has empowered, has charged, as part of getting its job done. The key is, its job done. The board never has committees to help the staff with anything because that crosses over the line and confuses the delegation. Staff has all the committees it wants. That's not even the board's business. If staff happens to use some board members on its committees, that's okay too. It's clear they're not being board members when they're there; they are being advisers to staff.

ERNSTTHAL: If I understand then, board committees could be made up of members of the association, none of whom are board members. And indeed, a board committee can be served by staff and supported by staff.

CARVER: Yes, it can be supported by staff. But staff should not take responsibility for its success.

Is it an ends-means paradigm?

ERNSTTHAL: One of the things I've been thinking about and would argue is that associations do only two things. One is, they provide goods and services of all kinds--books, meetings, discounted credit cards, whatever--to their members and to other markets, including supplier markets.

The other thing associations do is involve their organization in the public policy debate in some way--representing the interests of the members, taking a broader role.

And I have been arguing that we ought to give the goods and services side to staff. And that the role of the board, then, is the more traditional corporate board role, to set broad financial targets and stay out of the way.

In the public policy side, the board and board committees need to attend to the future viability of the trade or profession. Staff can act in an advisory or tactical role, while the board decides how to deal with public policy initiatives. This is the real board agenda. Any comments on that?

CARVER: The board sets the ends in both arenas. The board asks "Why do we have this association?" Well, we have it so that we can make certain kinds of changes in the world that we couldn't make as individual members. We also have it so that we as individual members can have access to this or that which we otherwise wouldn't get.

So the association exists for ends that cut across your two demarcations. It may be, however, that the means of achieving goods and services is totally left to the staff. And the board says, "But with regard to public policy, we're holding onto it as part of our job. It's not going to be a staff-means issue, it's going to be a board-means issue." just like creating policy is a board-means issue. All means don't have to belong to the staff, though most of them will if a chief executive officer function exists. So the board then hangs onto that particular part of it.

ERNSTTHAL: There's a tendency, when things get financially tough, for boards to start micromanaging where they macromanaged before. To the extent that the board is allowed to redraw its own lines, though, arguably, they can do that. But is that a good thing?

CARVER: There is some tendency in all of us, when under pressure, to do the wrong things harder than we did them before. So whatever boards do poorly, they do more of it under a little pressure. Within my model of governance, though, the effect is not that the board zeros in on smaller details. Instead the effect might be that the board tightens up on whatever the requirements are--that is, changes the criteria themselves, but not necessarily makes them more detailed. For example, the board might adjust the degree of liquidity the chief executive officer is required to maintain (a means issue). Or it might change the priority given to a particular beneficiary population (an ends issue). It will thus have altered its criteria but will not have responded to macroadversity with micromanagement.

A short definition of prudence

ERNSTTHAL: Now to fiscal planning. Associations spend a lot of energy on budget development--maybe less so in flush times than in tough times. If I read you correctly, you would remove boards entirely from the budget process and instead have the board develop a budget policy statement that precedes budget development. Tell us about that.

CARVER: Budgeting is an administrative tool to get the job done. To safely, competently, prudently get the job done. If the board describes well enough what the job is to get done and describes what level of prudence is required, then staff can go create a budget.

ERNSTTHAL: Explain what you mean by prudence.

CARVER: I mean, for instance, "Don't spend more money than we're taking in." Or any variant of that, such as "Don't have a deficit that's greater than X percent of our long-range reserves." "Don't let a budget materially deviate from the priorities we've established." "Don't budget low points in cash flow that get us within this degree of hitting zero point."

Now, whatever that list of prudence factors looks like--and it's not a long list, less than half a page for most boards I've dealt with--the board deals with its values about budgeting and avoids picking at all kinds of little bits and pieces. The chief executive officer, in effect, can then produce a budget "to specs." What is amazing--and gratifying--is how few specs (budget policy provisions) are needed and how much less fiscal planning is an exercise in disjointed trivia.

Decisions about not spending

ERNSTTHAL: Let's talk for a bit about practical politics in the association context. Associations have lots of committees in different areas of responsibility. For example, publications and education committees.

When you go through the process of asking, "What are we going to do next year?" there's a clear education mission, a clear publications mission, and so on. You go to the committee--maybe that's the error--and ask, "Okay, what are the member needs?" The committees respond with their lists, and when you combine them with the government relations committee's needs and internal administrative activities--when you add it all together--you're in the red.

CARVER: You've described a very normal, fragmented board process. The board has dealt not as a whole with the whole, but as parts with parts. The chief executive officer, dealing with the whole, is thus caught in the middle because of an incompetent--though widely accepted--approach to board control.

ERNSTTHAL: Well the board hasn't been involved. These are all committees. The board has said to these committees, your job is to provide important clinical information or practical information to the membership.

CARVER: What you're describing produces--by fragmentation--a confusing case of board and staff roles. When you're finished, you really can't tell who made which decision. The executive becomes more politician and therapist than a chief executive officer.

If the board wrestles with the decisions about what the association can and can't do, budgeting can be a totally different exprience. Because the board will have struggled with what it wants to accomplish. The board will have asked the tough questions: What are these outcomes worth to us in terms of money or in terms of what we have to give up in order to get them done? If the board has done that work, then building a budget is just a document that makes its vision come true.

The board has to ask: "How much are these things worth to us; what's our priority about these things?" The board might say, for instance, that this publication is extremely important to us, but we're not willing to put any money into it. It has to break even--in other words, at least pay for itself.

Playing a customer service role

ERNSTTHAL: Okay, but it's legitimate, is it not, if a board says, as a policy matter, publications overall have to break even on a fully allocated budget, plus generate $X; any way they do that is okay with us. And staff then makes its own internal decisions about what things get published next year.

CARVER: It's even cleaner if the board focuses on what effects it desires rather than the publications themselves. Perhaps the board wants a particular public to have a certain awareness or members to have certain data or knowledge. The publications per se have no value--the effect they intend does. So the board will be far more powerful and incisive if it stays focused on the valuable ends rather than the seductively concrete means. The board, on behalf of the association's owners, is being more definitive about what difference the organization will make for its customers.

Separating the roles of customer and owner

CARVER: Associations, by the way, have a particularly hard time separating the roles of customer and owner. Associations' customers and owners often are one and the same. That's not true with most other organizations.

ERNSTTHAL: Particularly in a professional society, where the mix is so intermeshed, how do you go about making that distinction?

CARVER: The important thing is to make the distinction. Consider that you can buy a share of General Motors stock and you can buy a Chevrolet, and you would not at any point get confused about your separate hats of owner and customer.

But with an association or a city council, there's confusion from the very start. You can be a recipient of a city service--let's say, a customer of a water service--at the same time that you're a taxpayer and, in that sense, owner of city government.

Boards represent owners; that's what boards are for. On behalf of the owners, they determine who the customers shall be. If you're on the board of McDonalds, you determine your customers are people who want fast food, not people who want to buy Fords. So while you're very customer focused, you don't get too upset if somebody comes in saying, "I'm a customer, and I want to buy a Ford," because this person is obviously outside your definition of customer. But if a person wants fast food and is displeased, you'd be upset about that.

ERNSTTHAL: But that's easy. Now roll that into the association context.

CARVER: An association is a federation--individual organizations or persons who come together and in federation style say, "Let's act together." We give up a little of our autonomy, or a little of our money, in order to do something that's bigger than what any one of us is going to do alone.

So we get together in federation, and we own this new thing we've just created. This new thing we just created provides certain benefits, for which we are customers. Being a customer means I want the most for my money. And I want it when I want it. And if I get a lemon, I want it replaced, and so forth.

If I'm an owner, I want to be sure that the total range of services or goods is exactly the kind of mix that is best for this very heterogeneous group that we have. So I have a different kind of interest as an owner representative than as a customer. And when those hats get mixed up, then we find board members acting as if they are simply individual members and treating staff from a customer perspective, instead of from an owner-representative perspective.

The board's obligation

ERNSTTHAL: Yes, but if I'm on the board of an organization, I have a couple of advantages in wearing my customer rather than owner hat, including knowing to whom to talk in the organization. And even if I say to the staff person, "I'm really just another customer," staff knows I'm on the board of directors.

While I can recognize what hat I'm wearing, it is difficult for the staff person with whom I'm dealing to separate me from my hats.

CARVER: Not if the board as a body has made a clear delineation. But it's monumentally difficult for persons to separate the hats if the board hasn't made a clear statement. The board must say to the chief executive officer, "What you owe us as individuals is courtesy. But when we speak as a board, God just spoke."

The board is obligated as a body to protect its staff from itself as individuals. Getting serious about good governance requires this kind of discipline by the board--maybe not more work, but surely more clarity and role integrity than we countenanced in the past.

We simply must grow beyond a norm in which boards of directors pretend to govern and staffs pretend to work for them. The new vision of board leadership is a matter of the board empowering itself and the staff at the same time to the optimum.
COPYRIGHT 1992 American Society of Association Executives
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Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:directors of corporations
Author:Ernstthal, Henry
Publication:Association Management
Article Type:Cover Story
Date:Sep 1, 1992
Previous Article:What's in a LAN?
Next Article:Don't leave the room.

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