An all too-common occurrence that can kill the effectiveness and efficiency of corporate and non-profit boards:
The agenda calls for review of a standard profit-and-loss statement. A board member with prior reservations about the executive's performance begins dissecting a certain line item in the statement. Almost immediately, that board member steers discussion away from the financial statement and starts addressing the executive's effectiveness.
Whether you are an executive or board member, or have had a similar occurrence in another management setting, the Board Governance model for executive monitoring can improve and inform your response to such situations.
To review, Board Governance is a model that I have found most helpful in my career as both a CEO and board member. Developed by management consultants John and Miriam Carver, Board Governance emphasizes that the board:
- acts on behalf of the owners
- acts as stewards or fiduciaries of the organization's purpose and values
- acts NOT as an individual
More details about Board Governance may be found in my past articles, available in the archive at freshxperts.com. But how can Board Governance improve executive monitoring?
First, executive monitoring requires a board to develop monitoring criteria and avoid merely approving an executive's actions. For example, the board may determine that the company must meet certain financial ratio benchmarks for every operating period. These benchmarks, in the board's best judgment, maintain the company at a level of risk responsible to its owners. Instead of receiving financial statements better suited for review by lower-level decisionmakers, the board receives targeted reports from the CEO relative to the benchmarks set by the board.
Receiving targeted reports moves the board from merely approving an endless stream of documents that may be better analyzed at lower management levels. Instead, the board is monitoring the CEO's performance based on specific criteria established by the board. This provides the CEO more power to exercise the responsibility entrusted to him or her-the responsibility to achieve the goals and policies the Board has established in the best interests of the owners.
In summary, monitoring the CEO is different from "approval" in that it allows a board to:
- determine if the CEO is reasonably interpreting the policies of the board
- only review data relevant to how well the CEO is accomplishing that interpretation
And yes, executive monitoring may also keep board members from seizing upon the minutiae of a line item to grind an ax that should, instead, be ground in a different context.
But what about when the data the CEO submits to the board indicate the CEO is not complying with the standards the board has set? My next installment on Board Governance will address that scenario of non-compliance.
Shelford provides Board development, training and coaching to Governance Boards of partnerships, cooperatives, LLC's and Corporations, profit and not-for-profit organizations. Contact him at jshelford@comcast.net.
