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Aug 9, 2012

Questions a Board Should Ask

The release of the Freeh report on the Penn State-Sandusky affair exposed a board that had become complacent and assumed that management had everything in sight and under control.  Obviously, they were wrong.  But such an assumption is always wrong.  A strong counter to complacency is to foster a culture that encourages board questions and assumes that risks are always out there, no matter how strong or famous or well-managed the organization may be.  Questions are so important that I end each section of my book Linking Mission to Money with key questions that board members should ask.  And I end all my books with “to-do” recommendations on governance, management, and planning.

I recently ran across a book with a similar focus on questions by the best-selling author Ram Charan, Owning Up: The 14 Questions Every Board Member Needs to Ask.  Seven of them are of particular relevance to avoiding board complacency.

•    Does your board have the right members?
A board’s greatest value is the skills and perspective of its members which complement those of the management.  Every organization should have a matrix of the skills it needs and who on the board and staff brings those skills.  In addition, the perspective of daily management is always strengthened by the perspective of independent board members, whose less frequent and higher-level involvement brings value.

•    Is the Board paying attention to the organization’s risks?
As the Freeh report demonstrates, only one Penn State board member was concerned enough with the risks of the Grand Jury investigation to demand a briefing of the board.  A board should support a culture that believes that risks always exist; no matter how well run is the organization.  Long-term risks must be teased out, acknowledged, and discussed, and the groundwork for contingency responses prepared.  An in-depth discussion of risks and contingencies should be on the board agenda at least once a year.

•    Is the Board ready to act in a crisis?
Charan distinguishes between “knowable unknowns” and “unknowable unknowns.”  The former are crises that have happened before, such as an economic slowdown, cancellation of a major contribution, or a prolonged power interruption.  For these crises, there should be a documented crisis plan that identifies a crisis team composed of board and staff with the appropriate skills, a communication protocol, and a set of contingency actions to maintain or resume services expeditiously.  Even for the unknowable crises, a response team and protocol can be established.  It is the duty of the board to ensure that plans for both types of crisis are documented, complete, and clearly communicated to the staff and board.

•    Does the Board “own” the strategy?
This is the area where a board brings its greatest value.  Organizations that exclude the board from in-depth involvement in developing a strategic plan are making a huge mistake.  Strategy is multi-dimensional and the perspective and diverse experiences of board members are a useful counter to the more exclusive focus management may have on the current products, services, clients, and competitors of the organization.  A day-long retreat devoted exclusively to strategic planning is an excellent way to ensure both board and staff has commitment to and understanding of the strategic plan.

•    Does the Board have enough data for good governance?
Charan notes “most of the information packages management sends out before board meetings are chock full of great data, but the direction on what to do with it are usually dismal.”  Despite the attention paid to metrics these days, we must remember that it is the analysis of the metrics that is important.  Too often the effort stops at report creation.  Charan suggests that at least one board member work with management to make sure the right information is presented and in a way that facilitates and prompts insightful board questions and dialogue.

•    Is the Board making the best use of its time?
This is a topic of endless debate:  what must the Board approve?  How much time should be spent on presentations?  I strongly advocate board meetings that are focused on decisions.  Charan proposes three regular discussion items:  strategy, risk, and succession planning.

•    Can self-evaluation improve the Board’s work?
Sadly, I have never worked with a board that did a serious annual self-evaluation of the board as a whole and of each individual board member.  I suggest that each board member should document what he or she wishes to contribute in time and money and what accomplishments he or she would like to achieve over the coming year.  At the end of the year the board governance committee should have one-on-one discussions of how well those expectations were met.  It works two ways.  A board member does have an obligation to perform, but the organization also has the obligation to make the experience rewarding and satisfying for each board member.  If both obligations are not fulfilled, the board member has better uses for his or her time.

These are just a few of the questions a board should regularly incorporate into its agendas.  Without them, your complacency may someday subject you to an otherwise avoidable crisis.  If you haven’t focused on governance, planning, and board self-evaluation, it is time for a day-long board retreat to nail down your approach.  Call me.