The Board is specifically called a Board of Trustees, meaning that the Board functions as the fiduciary (representative) for some other group. The Board must understand which group it is representing and then actively seek input from that group. NGOs usually function in a quasi-governmental capacity, and may represent citizens of a country, members of the UN or some other entity. This is an extremely important strategic question. The Board must then define the Ends of the organization. The Ends are comprised by three elements: 1. Who will benefit from the work of the organization? 2. How will this group (these groups) benefit from the organization’s work? 3. What is the priority of the organization’s work?/How efficiently does the organization have to work to accomplish its benefits? For example, an organization may state that poor families in Haiti will have access to quality health care. That is the broadest statement. If the board can accept any interpretation that statement, it should delegate the interpretation and execution to the Executive. This principle, that the Board delegates interpretation to the Executive when it can accept any reasonable interpretation is one of the keys to a good relationship. The Board may not be ready to delegate to the Executive and it may instead continue to delineate. Under the heath care example, it may say: Every village of larger than 2000 people will have its own health care facility. Experienced doctors will be available to patients within 24 hours. You can see that these Ends statements still leave a great deal open for interpretation, but they delineate the benefit that the organization will produce. The Board must then list the means that are not acceptable. For instance, it would not be acceptable to kidnap doctors and force them to heal patients. However, there may be a number of other actions that the Executive could take but would not be acceptable. When I work with a group, we start with a generic list of “Executive Limitations” and then add or subtract as needed. Through this work, the Board states what will be accomplished (which the Executive will have to figure out how to measure). The Board also states what must not be done (which the Executive will have to prove). The Board then delegates all the running of the organization to the Executive and measures the Executive in two ways: 1. Did the organization accomplish its ends? 2. Did the organization do so without using inappropriate means? If it accomplished its Ends appropriately, then the organization and the Executive have succeeded. Remember, the Board must not make Executive (management) decisions. Boards must be independent from management so that it can hold management accountable. That is why it must delegate.

Top

“We have a mission. They have a bottom line.” Is this attitude helpful?

Needless to say, the attitude that we have a mission while they have a bottom line is unhelpful. But one may not realize how unhelpful it is. In fact Enron had a mission as well which obviously did not help their company. While a mission has its place to galvanize the emotions of the organization, it misdirects the company’s loyalties. Neither organizations, nor nonprofits should serve a mission. Instead, they should serve their owners. While Enron failed its 2001 mission “to become the world’s leading company,” it really failed its owner/shareholders who entrusted their money with company in order to make a profit. As egregious as the Enron debacle, it is duplicated my many nonprofits that do not realize they have any owners whose they are obliged to serve. Nonprofits do have owners. Many nonprofits serve as quasi-governmental agencies providing social services to a community. In fact, the citizens of the community (or arguably the State in general) are the “moral owners” of the nonprofit. For membership organizations such as trade groups, religious congregation as the like, the members are the owners of the organization. The source of the failure of both companies and nonprofit organizations who fail to serve their owners needs lies with the boards of directors. Boards exist to sever the owners needs. It is the board’s fiduciary duty to communicate with the owners, learn what their desires and expectations are and translate them into outcomes that the organization, be it for-profit or nonprofit, should produce. Nonprofits have bottom lines as well. The bottom line for a nonprofit might be something like, -Underprivileged children will be able to read by the third grade. -Women will be able to live safely in their own homes. -Members of the XYZ organization will have the skills and knowledge to succeed in their business (for a trade organization). -God’s presence will be known and experienced in our community. These are not simply aspirations, they are outcomes (Ends) of the organization. Metrics can (and should) be added to these statements so that nonprofit organizations can measure their own effect. The bottom line for nonprofits is not to DO good work, it is for good work to GET DONE! Boards fail their company or organization when they do not define what is to be accomplished. How would I help nonprofits and business to work together? I would remove boards from running/managing their organizations. Especially in nonprofits, boards are often sad, confused organizations who spend a majority of their time arguing over meaningless operational details rather than focusing on what the organization should produce. By helping nonprofit boards to focus on the big picture and see that they too must produce something, we create a common language that can draw business people, their expertise and their capital, into the nonprofit world.
Top

Have you come across a creditable rating model for social enterprises, charities and NGOs as well as the effectiveness of their projects as measured against a blended set of criteria — social, economic, value-add, sustainability and long term impact?

I would recommend you explore the Policy Governance model. I recently spoke with Allan Benamer of SocialMarkets.org (which I also recommend) and we believe that Policy Governances provides a powerful model for measuring effectiveness. It starts by having the board identify the Ends of an organization. Ends consist of three areas: Who benefits or changes as a result of the work of the organization? How the group changes or benefits? What is a reasonable worth of those benefits? After the board defines these Ends, first broadly and then possibly in increasing detail, then it delegates the job of achieving the Ends to the Executive Director who recruits paid and/or volunteer staff. Finally, the Executive Director develops *reasonable* criteria to prove compliance with the Ends policies. As long as the criteria are reasonable (and there is a reasonable rationale for the criteria, then the board will use that criteria to measure success. The ED then must bring evidence to demonstrate that the organization as met the criteria set by the board and interpreted by the ED. It is a thoughtful and elegant model that I highly recommend.
Top

Can managers effectively execute their responsibilities, and be held accountable if they have absolutely no authority?

As many others have said, authority must go hand-in-hand with responsibility. The question is, how does the board delegate authority without simply giving over control. A simple but effective answer is for the board to prescribe what the company is supposed to produce on behalf of the owners, usually some return on investment in a corporation. But the board should proscribe what the administration must *not* do to produce those outcomes. The board limits the executive only in those areas that it would not accept certain types of activities. For example, most companies would not accept illegal, unethical or imprudent behavior. The board may want to define those more specifically, listing the general categories of imprudence that it would find unacceptable, (such as allowing conditions where there is no financial liquidity. That would be an unacceptable means.) By proscribing unacceptable actions, the board leaves the maximum amount of authority in the hands of management so that it can hold them responsible for their choices. This is a crucial concept for anyone who is committed to accountability.
Top

Does your firm have a system of governance to control the behavior of managers?

Rated as a Good Answer

There are two answers depending if your focus is on board governance or executive governance. If we divided the issues that companies deal with into Ends and Means. We can think of the Ends of a company as its purpose, usually to produce some sort of increased equity for the shareholder. While we ask the administration to work towards these Ends, there are some Means that the board would find unacceptable. In general, the board would want to proscribe any actions which are illegal, unethical, or imprudent through a type of policy called and Executive Limitation. However, these policies need to be further defined. The board may need to define the general categories of unethical or imprudent behavior (we can assume that no illegal actions are every acceptable so nothing more needs to be said). For instance, the board may proscribe unethical actions that treat workers unfairly or unduly harm the environment. At some point the board must turn these policies over to the CEO to continue defining and turning into specific executable policies. The hand-off point between the board and the CEO is when the board can accept Any Reasonable Interpretation of a policy they created. At that point, the board should delegate to the CEO and then demand that the CEO demonstrates that the administration has complied with board policies. There is a mechanism for this to occur, but it extends beyond the scope of this question.
Top

Self-defeating regulatory targets: Is Goodhart invariably right?

A distinguished Professor at the LSE, Charles Goodhart, has observed (“Goodhart’s Law”) that any system of regulation which seeks to measure performance using numerical targets will inevitably be compromised in two ways: (1) The people being measured will chase the numerical targets and will not bother with modifying any generally inappropriate behaviours; (2) the measures selected as target definitions are, in any case, rendered meaningless simply by virtue of being selected.

Answer:

It is unclear whether Dr. Goodhart is inevitably correct. It is difficult for government agencies who are forced to use a specific an narrow set of metrics to measure performance. John Carver, who developed the Policy Governance model, uses metrics, but in a slightly different way. Rather than prescribing what the actual metrics will be, he demands that the administration develop reasonable metrics that are justified in some reasonable way. If the metrics meet the “reasonable man” test, then he accepts them. Obviously, this can be subject to abuse as can any form of regulation, be it by outside regulators or an organization’s board of directors. However, it does seem that a test of reasonableness is, well, reasonable and could allow management to focus on the purpose of the regulations and not simply the numerical targets.”
Top

What was the result of the Sarbanes-Oxley Act of 2002?

Rated as Best Answer by LinkedIn

The Sarbanes-Oxley (SOX) Act has shaken the board room, but it has not unnecessarily provided a coherent governance model to achieve its goals of director independence and accountability. C-level executives do feel a certain amount of pressure that was appropriately applied by SOX. The NASDAQ is launching a new website for potential directors of corporations in order to facilitate locating qualified and truly independent directors. The pressure for independent boards is in the air. What boards are still missing is a coherent system of governance and board structure that eradicates common board practices that erode independence and accountability. Boards commonly approve plans and decisions of the CEO, but doing so makes the board complicit in the decision and draws them in a part of the administration that they are supposed to monitor. This is only one of the common practices, not addressed by SOX, that continue to undermine board independence and accountability. The best model for board governance that is scrupulous about board independence is Policy Governance. It organizes the board in a way that strengthens the board’s ability to direct and monitor the organization while simultaneously strengthening the hand of the CEO to make decisions. That is a win-win for everyone.
Top

Is a humble for-profit social entrepreneur just as important to society as a grand charity donor, who provides finance to pet non-profit projects? Have you invested in any social enterprise? Which social entrepreneurs inspire you and why?

Interesting question. The important consideration is not where one gives one’s money or even how much is given; rather, What is the benefit to society? Non-profits need to increase their transparency by demonstrating the benefit they bring to society. There are two important ways that this could happen. First, the board needs to view itself as representing the “moral owners” of a non-profit. Often the moral owners are the citizens of a particular community, state, or even country. The moral owners may also be the members of a particular group. The board must clearly identify this group so that it can ensure that their will is being carried out. The board needs to adopt a governance system, Policy Governance is the best, that demands that the organization demonstrate the benefit it creates. Second, there is a new website called SocialMarkets.org that was just launched a few days ago. It creates a stock market of sorts for non-profits by demanding that organizations indicate the social return on investment (SROI). In this way, entrepreneurs can see the societal benefit that their funds bring. By donating funds to organizations that utilize Policy Governance or that clearly demonstrate their SROI through websites like SocialMarkets.org, entrepreneurs of all size, humble or grand, can collectively make a great social impact.
Top

How do you get a seat on the board of a non profit (e.g. museum)?

It is commendable that you wish to be on a non-profit board. Many people find the task of serving on a board to be frustrating and at times risky because boards are often poorly run. It is frustrating because boards often focus on minutia of running the organization rather than focusing on the purpose and values of the organization. It is risky because, as a board member, you are responsible if there is mismanagement, which, unfortunately, happens more often than you would care to imagine. If you are going to be on a board, I would highly recommend learning some basic concepts about board governance. You will find that many people who serve on boards are not able to answer fundamental questions such as: What is the purpose of the board? Who actually runs the organization? While they may have answer, you will find, upon reflection, that they are often contradictory. I highly suggest reading an article that will provide a coherent governance system that will help any organization with which you work to better serve the needs of its owners or members. If you read the model and wish to discuss the ideas, I would be more than happy to do that with you. All the best and good luck.
Top

Is ‘Business Ethics’ a tight rope walk for the current and future business leaders?

Rated as a Good Answer by members of LinkedIn

Boards of directors contribute to the level of business ethics in a corporation. We often think that governance boards exist to run the organization and see this model whenever the board has a committee structure that mirrors that of the management. However, the essential purpose of a governance board is to represent the will of the owners. As such, the board must direct the management to avoid ethical lapses. However, giving directives is the easy part. Boards must also insist that the CEO demonstrate compliance with the ethical standards set by the board. This is where boards often fail in their duty to represent the ownership and raise the probability of ethical behavior. New models of governance have emerged that lay out the principles and practices that demand an ethical standard which must be proven. Our Founding Fathers realized that a balance of power with a certain degree of independence will check human beings natural tendency to act only in their selfish best interest which often turns out to be unethical. Only an independent board, acting as the agents of the owners, is in the position to demand and monitor ethical behavior. Many board governance consultants, like me, are helping concerned boards to set up these ethically demanding, accountable systems.
Top

What are the biggest differences between working in a nonprofit organization verses a for-profit business?

Non-profits often have unclear or distributed authority structures. It may not be clear who can make decisions or decisions have to be made by many, many people. This tends to make non-profits inefficient. Non-profit boards also have a poorly defined role. Many non-profit boards act as the super-manager, overseeing the operations of the organization and micromanaging the executive director. The board should represent the owners, ensuring that the organization is producing what the owners want. The only problem is that in a non-profit, it is often difficult to identify who the owners are. Furthermore, it is often difficult to identify what the organization is trying to produce. When non-profit boards understand their role as owner representatives, identify the propose of the organization, and delegate the running of the organization to a single executive, then a non-profit can function effectively and efficiently. Also, because the work can also be deeply meaningful, it can be a superior career.”
Top

There have been many laws created to prevent unethical behavior in business, therefore if an organization is not in trouble with the law, should they be concerned with ethics?

Rated as a Good Answer by members of LinkedIn

Boards of Directors must represent the interest of the owners. It is their responsibility to ensure that the business is run ethically by mandating and then monitoring ethical behavior. It does this through a special type of policy called Executive Limitations where the board proscribes behavior that is unethical or imprudent. The board starts with very general statements and becomes more and more specific if it feels it needs to. For instance, it should say: Staff should be treated fairly and ethically. There are many ways the CEO could interpret that. If the board would not be satisfied with any reasonable interpretation, then the board should define further, for example: The CEO may not 1. Operate without written personnel policies that: a. clarify personnel rules for staff, b. provide for effective handling of grievances, c. include adequate job descriptions for all staff positions, d. include an effective personnel performance evaluation system, and e. protect against sexual harassment. 2. Discriminate against any staff member for expressing an ethical dissent. 3. Prevent employees from grieving to the Board when internal grievance procedures have been exhausted and the employee alleges that Board policy has been violated. Next, the board directs the CEO to develop a reasonable means to prove that he/she is in compliance and provide data of that compliance. This creates a rigorous mechanism for the board to set ethical standards and hold the CEO to those standards
Top

What are the Corporate Governance best practices approach a Startup Global Life Science company Should look into? Especially when it’s a R&D intensive Company with some commercial products.

There are general principles of all good corporate governance that would apply to a global market of any kind, but would be even more important in a field that changes as quickly as medical and biotechnology. In short, the principles are: 1) an independent board 2) its central focus should be on the Ends (purpose) of the company and not on how it run. 3) the board should delegate the running to a CEO who will be held accountable for company performance 4) While the CEO runs the company, the board places limits on the means by which the CEO can achieve the ends. For instance, the CEO cannot take imprudent risks, the CEO cannot mistreat employees, the CEO cannot fail to have appropriate insurance, etc. 5) the board checks to make sure the limitations (in step 4) are met 6) the board checks to see if the Ends (step 2) are met. 7) the board spends a majority of its time reexamining the Ends (step 2) looking 10-15-20 or more years down the line and adjusting the Ends accordingly. This way, the board doesn’t manage the company, it leads it into the future. While this answer is very brief, I believe you can begin to see the coherence and the benefit to the company to have the board both looking forward far into the future while monitoring today’s performance as well. Feel free to contact me and I can explain some of the mechanics of how this system can be implemented. Remember, bad governance costs companies untold losses. Do not neglect to invest in good governance
Top

Board Leadership – is your Board of Directors an effective leadership instrument or a cozy gathering for tea and cakes?

The traditional model of boards of directors developed organically over time. Unfortunately, the traditional board model has a great deal of ambiguity and incoherence. This ambiguity has contributed to catastrophes such as Enron and the like. While Sarbanes-Oxley was meant to address the problem, it did not do what is really needed which is to totally redesign the system of board governance. Were it not for such a redesign, organizations would be destined to repeat the mistakes of the past. Over the last thirty years, there has been a revolution in board governance and finally a coherent board system has emerged which defines the purpose of the board clearly and differentiates it from the management of the organization. Because the system is based on fundamental philosophic principles (social contracts, servant leadership, etc.) and sound organizational theory (Agency Theory), it applies to all organizations of all sizes (except for the very tiniest of organizations). Our best thinking now separates the Ends (purpose) of the organization from its Means (any decisions other than Ends). For instance, the purpose of an equity organization is the build value for its owners. The purpose of a non-profit organization is to bring benefit to a certain group. The board controls the Ends of the organization and delegates the rest to the CEO or Executive Director (ED) to decide on the Means. The board places limits on the CEO/ED by proscribing means that are unacceptable (The CEO shall not fail to treat workers ethically). The board then monitors the CEO/ED’s compliance with the limits, and it checks on the performance of the Ends it has set. This system provides great freedom to the CEO while maintaining appropriate control to the board. Additionally, there are always criteria by which the Ends and Limitations are evaluated, so the CEO is evaluated thoroughly, but always fairly. While the system is somewhat simple in concept, it does take time to understand how the workings of this new board system. Please feel free to contact me and I will be glad to explain it further for the benefit of your corporation, non-profit, family business, or government organization
Top

CEO titles. What makes a Chief Executive Officer?

Rated as a Good Answer

Titles such as president and CEO are used differently by various boards. CEO is often the title used in equity corporations to refer to the individual to whom the board delegates the running of the business. The CEO is accountable for the performance of the business and for running the organization ethically and prudently. The term president or chair often refers to the person who heads the board of directors. Again, the titles tend to be flexible. Sometimes presidents refer to the person running the company. Many governance experts believe that it is very bad policy to have a single person as both CEO and president of the board since that reduces the board’s ability to hold the CEO accountable. The independence of the board must be maintained if the board is to fulfill its central mission of protecting the interests of the owners. Given the separation in roles between president and CEO, I would not advise someone to adopt both titles and roles.
Top

For the CEO the strategic plan has to be personal. Otherwise it will just sit on the shelf gathering dust. Agree or disagree?

Part of the problem is in the terms that we use. First of all, there are different level of a strategic plan. The first level is deciding what the organization should actually produce. There are many terms for this: objectives, outcomes, ends, desired results, etc. I think about it as a citizen (an owner) being represented by a city council (the board). When I pay my taxes (the equivalent of making a donation to a nonprofit), how will the city be better as a result of the work of the city government. The board, who is the representatives of the moral owners of the organization, should be responsible for accomplishing that task of defining these ends. However, just because they responsible, it does not mean that they should ignore input from the CEO/staff, but the board must ultimately make the decisions.

The CEO must be responsible for creating an approach to how to achieve the results. That is the second part of the strategic plan. Again, just because the CEO is responsible for creating plan, it does not mean that the CEO should write the plan in isolation. That would be unwise in the extreme. So in this sense, the plan must be personal in that the CEO should be held personally responsible for its success or failure.

While it is common practice for the board to take part in creating a strategic plan for how to accomplish the ends, I think there are several problems with this approach.
1. The board may not have the expertise to know how to accomplish a task. They should be experts in what the owners want, not in how to accomplish the task.
2. The board members may not realize that they are ignorant of how to accomplish the task and therefore may compel the CEO to use a strategy that is unwise.
3. It is unfair to ask the CEO to be accountable for a strategy that she may be forced to implement even though it is not the plan she would have chosen. I know that people will say that good boards should listen to their CEO’s input, but people should also refrain from texting and driving. People do not always act their best.
4. CEOs do not have the time to communicate sufficiently with the organization’s moral owners and boards rarely have the time and expertise to become experts in how to run a particular organization. By logically separating the duties, both can be done better.

This model creates clear roles and responsibilities and clear accountability.
Top

Who is ultimately responsible for the performance of the board?

This is a thoughtful question, but I do think it has an initial straightforward answer and then a few additional caveats. In order to understand the answer, it is helpful to think about nonprofits in general.

A non-profit is a group of people who agree to act collectively. The government requires them to form a board so that some identified group is responsible for the decisions that the organization makes.

If the organization wants a government subsidy (that is, become a tax-exempt organization), then some group has to enter into an agreement with the IRS, promising to use the funds appropriately. This is board’s responsibility to enter into this agreement on behalf of the organization.

A board’s job is to represent the interests of others; often they represent the interests of several groups at the same time and must balance those interests. In tax-exempt organizations, boards always represents the interests of the citizens who subsidize the organization (tax-breaks are really subsidies given by every citizen). In membership organizations, the board also represents the members. In community organizations, like a social service agency or arts organization, it can be argued that the board represents donors in specific, but really everyone who cares about mission of the organization.

Bottom line – boards represent others.

There is a challenge:
People are self-interested; it is human nature. Since the people who manage the organization (Executive Directors and CEOs) are people, they are self-interested as well. For instance, it is unlikely that an Executive Director will hold themselves accountable for imprudent or unethical decisions.

The purpose of board is to ensure that the executive is running the organization in line with the interests of the people whom the board represents. For instance, if the Executive Director of a tax-exempt organization wants to hire is own son and pay him an exorbitant salary, the board would probably not view this as being in the interests of the people they represent. The board would prohibit the executive from taking this action.

Boards must know whose interests they represent and oversee the management to ensure those interests are being considered.

Whose job is it to ensure that the board is acting correctly? The person who leads the board, that is, the Board Chair. There is no question that the role of the chair is to ensure that the board fulfills its purpose and responsibilities. The problem with this responsibility falling to the Executive Director is that EDs may have their own self-interests and may wish to weaken the board rather than increase oversight. (It happens all the time.) That being said, there is also enlightened self-interested.

Thoughtful EDs who see their organization teetering because of poor board leadership will try to improve governance because it is in the organization’s best interested and their own! However, we must always be cautious about having EDs running the board because of the inherent conflict of interest when a person (the ED) has too much authority over the group who oversees the ED’s actions.
Top

Barry Diamond answers governance questions

1. Board of Trustees: What experience can you share about effective interactions in NGO’s between the Trustees and the Executive?

2. “We have a mission. They have a bottom line.” Is this attitude helpful?

3. Have you come across a creditable rating model for social enterprises, charities and NGOs as well as the effectiveness of their projects as measured against a blended set of criteria — social, economic, value-add, sustainability and long term impact?

4. Can managers effectively execute their responsibilities, and be held accountable if they have absolutely no authority?

5. Does your firm have a system of governance to control the behavior of managers?

6. Self-defeating regulatory targets: Is Goodhart invariably right?

7. What was the result of the Sarbanes-Oxley Act of 2002?

8. Is a humble for-profit social entrepreneur just as important to society as a grand charity donor, who provides finance to pet non-profit projects? Have you invested in any social enterprise? Which social entrepreneurs inspire you and why?

9. How do you get a seat on the board of a non profit (e.g. museum)?

10. Is ‘Business Ethics’ a tight rope walk for the current and future business leaders?

11. What are the biggest differences between working in a nonprofit organization verses a for-profit business?

12. There have been many laws created to prevent unethical behavior in business, therefore if an organization is not in trouble with the law, should they be concerned with ethics?

13. What are the Corporate Governance best practices approach a Startup Global Life Science company Should look into? Especially when it’s a R&D intensive Company with some commercial products.

14. Board Leadership – is your Board of Directors an effective leadership instrument or a cozy gathering for tea and cakes?

15. CEO titles. What makes a Chief Executive Officer?

16. For the CEO the strategic plan has to be personal. Otherwise it will just sit on the shelf gathering dust. Agree or disagree?

17. Who is ultimately responsible for the performance of the board?

What are you interested in?