Corporate Governance – Board Operations – Keith Suter

INTRODUCTION

Besides being responsible for the organization’s strategy, the board is also responsible for ensuring that management has enough resources to carry out the strategy and then to monitor that work.

Board work is complex. The board has delicate balancing acts to perform. First, on the one hand it has to drive the organization forward (“performance”). On the other hand, it has to maintain careful control of the organization (“conformance”). A second balancing act is between being a rubber stamp automatically accepting staff recommendations and being a meddlesome, quarrelsome board refusing many of the recommendations. Third, it has to control all it should – but not necessarily all it could.

The board also needs to be collectively aware that it may well be a good board for yesterday’s organization but not necessarily for tomorrow’s organization. In an era of rapid change, an otherwise apparently successful board could become a board more suited for the past than for the future.

THE CEO

CEO’s Role

The main function of the CEO is to implement the decisions of the board.

The new form of corporate governance emphasises the role of the board. Quite often in the past, the board has seen itself mainly as the cheerleader for the CEO and left the board’s strategy work to the CEO. That is no longer acceptable because of the legal and other responsibilities of the directors.

Meanwhile a long-serving CEO could “capture” their board: dominate the board and virtually nullify it. In which case, how would the board add value to the organization? It had become superfluous. It is too “clubby” and just a rubber stamp.

By implication, the board itself now has to be a more professional group of people by virtue of their experience, qualifications and training. Some CEOs in the past have complained about the problems of working with under-performing boards, such as their lack of knowledge of the industry or understanding financial reports. CEOs have had to fill the skills vacuum by doing much of the board’s work themselves. That era is now ending.

Recruiting the CEO

Recruiting the right CEO is one of the board’s toughest duties. A board sub-committee and a recruiting company are now a common way of conducting the preliminary work, with the final interview done by the entire board.

Thanks to professional websites like LinkedIn, nowadays people do not so much search for jobs, as jobs search for them. Recruiting companies can make discrete enquiries as to who would be appropriate for the short-list.

Involving a recruitment company will also ensure that the organization’s own procedures are in place for when potential applicants ask for such documents as the CEO job description, how is CEO evaluation carried out, and what are the board’s membership and governance arrangements.

CEO as a Board Member

The trend now is not to have the CEO as a board member, and certainly not as the chair. The CEO should certainly attend the meetings but should not be seen as a fellow director or to vote.

If the CEO is a board member they carry out two separate roles: head of management and a member of the board running that running that management. This means that the CEO is both an employee of the organization and an employer. When the CEO speaks, is that in the role of head of management or as a director? Similarly when a director speaks to a CEO, is that person speaking to the head of management or to a fellow director? These problems are solved by not having the CEO as a board member.

Some CEOs are currently board members because of previous arrangements. It is probably better now to leave them there and make the change when they leave. This is particularly the case if the CEO is a founder of the organization and the organization has grown up around them. However it ought to be made clear that this old arrangement will not apply to their successor.

No incoming CEO should ever become a voting board member.

Monitoring the CEO

It is important that feedback be supplied to the CEO on a regular basis. A “no surprises” policy throughout all board meetings is very helpful. Directors should get ample warning from the CEO of impending bad news and directors should ensure that no surprises are sprung on the CEO.

The chair should have a separate regular meeting with the CEO after each board meeting to discuss the matters that arose and to see how the CEO is travelling. The meeting can also do a preliminary review of matters for the next meeting. There could also be a more periodic formal board assessment of the CEO, at which the CEO could also explain what the board could do to assist the CEO carry out their duties. The annual evaluation of the directors could also include a question about the relationships between directors and the CEO.

The time of greatest danger comes at the time of greatest success. In other words an organization is ticking over very nicely, and so a sense of complacency sets in. The organization may become vulnerable to believing its own public relations. The organization could soon start to drift on automatic pilot with vital warning signs being missed. The board therefore has to guard against any management complacency and it looks to the CEO to keep the staff on their toes. It is necessary that the CEO builds a strong senior management team of independent and creative thinkers and doers.

By contrast an exit of senior staff may also be a warning: is the CEO pushing them out? It is possible that they are not up to their tasks and so should not be kept on. But it could also be that the CEO wants senior staff who will be more compliant and loyalty to the CEO. This will create a CEO with docile senior staff and the growth of a “group think” mentality.

CEO Succession Planning

There is a lifecycle in most CEO careers within an organization. The initial phase is one of enthusiasm and energy, and so they start on a high note.

During the second phase the CEO is on top of the job and at their most productive. But is the CEO flourishing because they really are on top of their job or is just that times are so rosy that all organizations are equally doing well? A rising tide lifts all boats. Directors need to have good industry knowledge to make that assessment. A really good CEO is when times turn bad and yet the organization can still hold its own.

At some point, the third phase could arise: a jaded feeling: the CEO has been around too long, the challenge has gone, or the challenges are now boring and repetitive.

Or possibly the organization has headed into new areas of work which the CEO has difficulty understanding and feels somewhat overwhelmed. There is a tendency to assume that a CEO should be talented in all areas and in all situations. But given the complexity of today’s society, it may well that that a CEO is skilled in one situation but not so skilled for a new one. A new situation may require a new type of CEO.

Whatever the cause in that third phase, the CEO has difficulty reinventing themselves. It is time to move on. But no one likes to admit they are in decline.

If recruiting the CEO is one of the board’s toughest duties, so removing a CEO can be one of the most unpleasant. (If nothing else, some of the directors may have their position because the CEO suggested their names as possible directors). Indeed the board could even split over whether the CEO should go. This is especially the case if there are close personal friendships between the CEO and some directors built up over the years. Continual monitoring of the CEO can ease the stresses for both CEO and the board. Both sides can see the problems coming. Perhaps the CEO could do with some additional training or coaching? Is there a way of rearranging the CEO’s duties to enable them to perform better?

Does the CEO share the same perception of their problems? The CEO should be given opportunities for reinvention. Certainly the board should not start looking around for a replacement without first warning the CEO.

Succession planning should be a smooth process and not a dramatic event. The staff (and volunteers and donors) need to be reassured that there has been no boardroom battle and that the CEO is leaving with dignity.

The board and CEO need to agree on an explanation why the CEO is leaving. Preferably the CEO is not just pushed out of the organization abruptly. What ever happens there needs to be a face-saving statement of why the CEO is leaving. Such a statement is useful to both parties. It helps the CEO obtain another position. It also lowers the risk of the organization (not least its directors) as being seen as an “awkward” or “unpleasant” organization in the jobs market (and so hinder recruitment of good people to the CEO’s position). It also provides a reassurance to the staff that the board is not being plunged into turmoil.

The outgoing CEO should not be involved in the recruitment of their successor.

Chart of Delegations

One role for the CEO and board is to agree on a chart of delegations. The delegations relate to what may be spent by whom within the board-agreed budget. In other words, once the budget is set in place for the year, staff know what they can spend and on what without constantly having to return to the board seeking permission.

REPORTING

The Importance of Information

Information and ideas are the lifeblood of the board. An important board role is to ask the right questions. Directors need to know something about the industry and finance to ask the right questions, assess the answers and think through the implications. Directors should be wary of CEOs who hoard information or filter information. “Good news” reporting is really bad news for the organization’s long-term future. All organizations have some bad news somewhere. What is the CEO hiding?

By the same token, the board itself must be realistic. It must not live in a world where it only wants to hear the news it wants to hear. The CEO should be able to provide bad news without fearing that the board will shoot the messenger.

There should be no surprises. Directors should hear bad news from the CEO and not via the media or the organizational grapevine.

The agenda and papers should go out well ahead of the meeting. The chair should make it clear that directors are expected to have read the material before the meeting. Not only are the directors carrying out their own obligations in doing this but they are showing courtesy to the staff who would have spent a great deal of time preparing the papers. Preparing board papers cost staff time and staff money and so a failure to be adequately prepared is a disregarding of all that effort. Why should staff take directors seriously if directors do not take their own duties seriously?

Reporting System

The board needs to have a reporting system to assess the organization’s health and sustainability. The strategy should drive the quest for focused relevant information. Instead of a single agenda item “CEO report”, it would be better to have the CEO provide reports under a number of set agenda items. A single “CEO report” item could spin the board’s discussions down a number of different directions. It is much better have a clear agenda and then ask the CEO to provide information as per those items.

There is a risk that boards could drown in information, and valuable staff time wasted in collecting data that are really not required. There is a difference between information a board needs to know – and what is nice to know. Directors should always ask: “what is the relevance of this information?” “What implications flow from my knowing it?”

The requirements for financial reports are well known. Another standard reporting item would be new senior staff appointments. Another would be changes in government legislation affecting the organization.

There also have to be a specific set of indicators for the particular organization. The indicators will necessarily vary from one organization to another because of their relevance.

Directors need to remember two warnings that

many things that matter cannot be counted and that what is easily counted may not matter and
whatever gets measured is what the staff concentrate on

On the first warning, the implication here is that intangible matters are often more important than the tangible (and easily) counted matters. Staff morale and client satisfaction, for example, are important but not as easily assessed as (say) the number of staff employed or the number of meals issued. Numbers do not always tell a clear story. This is where a director needs skill in interpreting data.

The second warning is that staff note what is being noticed by senior staff and the board. This is not necessarily a bad thing – but it does serve as a reminder that directors need to be careful about what signals they are sending to the staff about what they are looking at.

For organizations that rely on members, here are some key matters to monitor:

the number of members
the trend in membership levels from one year to the next
the rate of membership renewal
how do these figures compare with figures in comparable organizations
the increase (or otherwise) in concessional membership (in other words, the number of members may remain similar but increasingly they are now pensioners and so potentially less active and less of a source of membership revenue)

If the organization relies heavily on donations, it needs a system to answer the following questions:

the number and amounts of donations
the trend in donation levels from one year to the next
the rate of donation renewal (do people give as a one-off or are there regular donors and if so what is being done to nurture their generosity)
how much is spent to raise each $1 of a donation (this can be one of the biggest reputation risks for an organization and directors need to understand the complexities of fund-raising )
how do these figures compare with figures in comparable organizations
an understanding of what triggers fluctuations in donations (for example, a humanitarian organization may find that wars and natural disasters automatically trigger an increased rate of donations; or perhaps donations just follow the general progress of the Australian economy’s ups and downs)

The Importance of Questions

Never assume that people know. The board should have a culture where people feel free to ask questions of clarification. The question should be asked in a neutral way – without somehow implying that a question is an implied objection. Responders need to acknowledge that such questions can be asked without any implied criticism. The only “stupid” question is the one that does not get asked.When in doubt, rely on gut feelings: is this right? Here are some warning signs:

a sudden blow-out in costs or a sudden influx of revenue should trigger questions.
are talented staff leaving the organization?
is the CEO now too heavily involved in outside organizations? (This can a risk with a high profile CEO who is in demand to serve on other boards, not least time-consuming government ones).
is the CEO now out of touch with recent industry developments?
are board members being blocked from speaking to staff members? (They should not do so behind the CEO’s back but they should have a right to do so in consultation with the CEO).
is the board receiving information on recent developments in the wider operating environment (such as changes to government legislation and funding)?
is the CEO ignoring reasonable requests or suggestions by board members?
is the CEO preferring to deal with some directors while ignoring others?
is there a suspicion of a director having an undisclosed conflict of interest?
are decisions being deferred to a later meeting? (There is nothing wrong with calling for more time or information – but is there a pattern of indecision emerging?)

Does the organization examine its failures – or does it bury the failures, move on and hopes no one discovers them? This is perhaps a rather blunt way of putting it but many boards miss the opportunity for some sort review of a project (especially one that went wrong) and see what lessons could be learned.

This can be a confronting exercise and there is a risk of animosity over “I told you”, “I warned you” etc. The problem is even more pronounced if the chair had been a big enthusiast of the failed project and pushed it through the meeting. The chair may be reluctant to reopen old wounds (especially if the chair had inflicted some of them).

But handled well, in a neutral way without trying to assess blame, this can be a useful way to build up collective expertise. In other words, there are no “mistakes” – only opportunities for learning.

RISK MANAGEMENT INTRODUCTION

Definition

“Risk” is the chance of something happening that will affect the objectives of the organization. It is calculated in two ways: the likelihood of an event happening and the consequences if it does. Living is full of risks and so we can never expect a risk-free existence but we can reduce some of the risks and be ready to cope with problems when they arise.

“Risk management” consists of the culture, structures and processes that are directed towards the management of both reducing the adverse effects of an event and trying to find opportunities arising from it.

Directors are responsible for ensuring that the organization is managing risk, rather than implementing risk management matters (which are for the CEO). Here are some basic questions to open the conversation:

“What is significant in our work that must continue?”
“What could go wrong?”
“What is the worst case scenario?”
“What are our risks?”
“How are we prepared for them?”

Directors should make sure that the organization does not take risks that the directors themselves do not understand. They should avoided being bamboozled by management with jargon and flowery financial estimates. This also means understanding the regulatory environment in which the organization operates. It is worth noting that government is now transferring some additional risk to the NFP sector by way of providing contracts for the delivery of services that were once performed by government (such as some forms of childcare). The risk landscape continues to change.

By the same token, however, a risk can arise from an opportunity not taken. Directors should be encouraging the CEO to think creatively and not just be risk-averse. The history of NFP organizations is one taking risks, going into new subject areas and introducing new ways of helping humanity, animals or the environment. The board should have some form of risk appetite statement to guide the organization.

The technique of scenario planning is also very useful in helping organizations to think about unthinkable and to reduce the risk of being taken by surprise .

Value of Risk Management

Risk management is both a way of protecting the organization but also, more positively, as a way of learning more about it from another angle. It should not therefore just be viewed as yet another burden on the organization but something that can be used to advantage. Staff are often so busy working in the organization they may not have the chance to work on the organization – to see its broader context. Here is where directors can add value.

Risk management is a reminder that rarely does any event suddenly “happen” out of the blue. Many disasters (in retrospect) could have been spotted before they occurred and could have been avoided or at least minimised – if only people had been looking out for them. The problem is that people were not looking for them.

Hence a value of risk management is that it encourages a deeper perception of the organization and the environment in which it operates. For example, if a part of the organization suddenly becomes a very good financial performer, instead of just congratulating the team it would also be useful to look at how the success was achieved. Was the success a genuine event? If so, what are the lessons for other parts of the organization? If not a genuine success, how were the financial records fudged?

Continuing Challenges

Many NFP organizations operate in a high-risk environment: they are providing services to people in need. For example, if an organization is assisting people who have problems with managing their own finances (such as some people with a disability or some older Australians), there is a risk of employees and volunteers siphoning off the clients’ money into their own pockets.

There are also new challenges emerging for technological change, such as social media. Social media provide new opportunities for communicating with people – but also the risk of communicating badly with people.

Building Resilience

Risk management strategies come under three headings:

prevention
mitigation
coping

An organization may not be able to control what happens to it – but it can control how it responds to the blow. Organizational resilience is the ability to withstand the blow and to be able to carry on. Therefore the organization should have a business continuity plan.

The organization needs to have personnel ready to speak on behalf of the organization in the event of a crisis.

Thankfully disasters are rare. But it means that existing directors and staff may not have lived through an earlier one (such as a “once in a lifetime flood”). Hence business continuity plans are a way of reminding boards and staff that disasters – though rare – can happen and need to be prepared for. (The discussions over climate change suggest that natural catastrophes will continue to get worse).

If the organization is in human services it may be in the tragic situation of being both directly affected by the crisis itself (such as a bush fire or flood) and at the same time helping the victims of that disaster in their homes. It needs plans for both eventualities and a communications plan to seek public assistance.

From a media point of view, never waste a disaster. But make sure that any funds raised in the context of that disaster are spent in accordance with the public appeal.

Reputation risk is another category to be considered. NFP organizations enjoy a higher level of trust than do government or business. They are the most trusted institution in every country except China. That trust must not be squandered.

BOARD COMPOSITION

Diversity

No one has a monopoly on information and wisdom. It is important to avoid “group think” where the directors all think in the same way. Various studies have shown how groups of other intelligent people have followed group loyalty over independent questioning thought. “Belonging” is more important than thinking.

This is a powerful argument in favour of diversity (let alone the usual human rights argument in favour of equal opportunity, etc). It is in a board’s and organization’s own interest to have diversity of outlook and membership. It is pointless having a group of people who all think the same way; they are not adding value to the organization. If (say) seven people all think in the same, six are superfluous.

Diversity has to be managed on grounds of both qualifications and social factors. On the one hand, all directors should have a sound financial knowledge and have (or acquire) at least some knowledge of the industry in which the organization operates. Directors may then variously be specialists in other matters, such as law, human relations, fund-raising, public relations/ marketing and strategy.

On the other hand, directors should be drawn from both genders and all adult ages. There needs to a diversity of viewpoints and not just a “club”.

The board should be a blend of experience, expertise, and external contacts.

The organization may also need to reflect on whether a particular constituency or client group should have a representative on the board. If there is one, they would need to remember to think and vote as a member of the board (that is, as a full director) and not as an ambassador/ advocate for their client group.

If there is no one willing to take on full director duties, it may be possible for the person to attend meetings as an observer. They can then take back to their client group a summary of events. They can useful for information transmission: both as an additional source of information to the board and as a way for the board getting its message across to the client group.

Another “diversity” issue is the culture clash between the well-meaning amateur “making up the numbers” by serving on a board and the usually young people with a proper director training who have come in from the corporate sector and would like to contribute something to the community. The latter may find this an unhappy experience as they clash with the possible amateur culture of NFP boards.

This is yet another incentive on chairs to ensure that all the directors receive adequate director training. The usually older directors may well have good industry knowledge and have something to contribute but they do need to learn more about corporate governance.

The board may want to include in its annual report a skills matrix to show what skills are represented on the board and to reveal what skills are still missing, with an explanation of what is being done to address the problem.

Recruitment

Boards need to bear in mind the diversity issues raised above. There is a need to avoid the temptation of only recruiting friends or at least names that existing directors can recognize; people with whom they know they will feel comfortable. Boards should be cohesive but not comfortable and “clubby”.

There should be a formal and transparent nomination and election process.

In addition the board could prioritize the type of skill its needs by identifying the major challenges it has to confront and then deciding the type of person who might best have the skills for helping to cope with them. This would encourage the recruitment process to look beyond the standard legal and finance backgrounds. For example, an organization with declining membership might opt for a person with a marketing/ public relations background or who was known to expand another’s organization’s membership.

Another way of diversifying recruitment is to decide not to have anyone from a board on which a current director is already sitting. This would reduce the “clubby” make up of boards by forcing directors to think beyond their immediate circle of friends and acquaintances.

Another option would be to look at the composition of the board of a successful organization in the same subject area of operations and see the different skills mix reflected on that board. Are there lessons to be learned?

Size

The board should be large enough to ensure diversity and not yet not be too large as to be unwieldy. There is now a trend towards smaller boards of more active directors, say, around seven or eight.

The board has to be large enough to cope with the issues of diversity. There also has to be enough members for the board committees.

The board has to be small enough to identify non-performers who attend and do not contribute much. Too many members may also hinder communications between meetings.

Directors need not like each other as friends (that is the role of human nature) but the group should be an open forum of discussion with a focus on the organization’s mission, strategy and finances. Mutual respect in this context is more important than seeking a group of friends. They can find their friends elsewhere: this is business.

Induction

A structured and personalized induction programme should be compulsory for each director. This should include information on the director’s obligations and the board’s way of working; some site visits; and meetings with senior and middle management. Each director needs to be knowledgeable about the organization itself, how it operates, its strategic plan and the wider environment in which it operates.

Each person should receive a binder (or some IT equivalent) as the organization’s board manual into which are placed all the key documents. It will need to be updated from time to time.

Additionally if the organization runs some sort of induction programme for its new staff, invitations to directors should also be issued to attend. Given the way that organizations change, it would be useful for even experienced directors to receive invitations to the staff induction programme to get an update on developments.

A board away day or retreat or some other planning event should be held on an annual basis, preferably with an outside facilitator. At the very least a much deeper discussion on where the organization is heading, what it is trying to achieve, how it measures its success/ failure will enable directors to share their underlying assumption about the organization and their perceptions of their role. By contrast board discussions in formal meetings are often focussed on the immediate decisions at hand; how each person makes a decision has to be inferred from the discussion and vote.

An away day, with appropriate facilitation, enables each person to explain how they get to make their decisions, with what knowledge base, and how they perceive the organization’s future. A useful icebreaker is: “In the context of this organization, what keeps you awake at night?” Another icebreaker: “Do you think that this organization is too slow at exiting ventures that aren’t working?” This opens up a discussion of what constitutes “success” and what are the criteria of “failure”

It would be useful to make sure that the CEO (who should also be an attendee) shares the same assumptions and perceptions as the directors: they are all in strategic alignment.

Development

Boards expect their staff to adopt a mentality of continuous improvement; the directors should impose that same mentality on themselves. If boards do not address their own performance issues, they should not expect their staff to do so.

Therefore directors should be offered appropriate training opportunities. The opportunities should not be limited to the more usual corporate governance and strategy ones. Staff will probably be sent to courses on recent industry developments put on by peak bodies; directors might also find the industry updates useful.

Evaluation

An annual formal evaluation is vital to assess how the board is travelling. This may cause some unrest in a board that has not done this before. The directors may argue that they are unpaid; it is not like being at “work”, where the annual review is now a standard matter. This board may take some persuading but evaluation will eventually become a standard item in the NFP sector.

The incoming generation of younger directors with director training will expect to see it. A poorly performing board will have difficulty recruiting talented younger directors and so the organization will suffer. The more professional a way a board operates, the easier it is to recruit talented people to join it.

Meanwhile it is reassuring to the organization’s membership that the board takes this matter seriously. Members see it in their own workplace and so will expect to see it in their NFP organizations.

An annual formal evaluation enables the chair to weed out non-performing directors. Perhaps even the chair will recognize that it is time to start thinking about stepping down. More positively, it also gives directors the opportunity to indicate where they would like additional development training.

The evaluation is best done in a systematic neutral way. Simply asking directors to make comments directly about each other may harm personal relationships.

An outside facilitator can assist in all this process. The board could start by deciding what skills it should have and how it should operate. By what criteria could the board collectively decide whether it has been a success? What are other NFP organizations doing? This will open up the conversation about evaluation.

Initially the evaluation could be about the entire board. As the process becomes more embedded, then the attention could be focussed on each director.

Payment for Attending Meeting

Directors on for-profit boards are paid; should NFP directors also be paid? This would give them a greater incentive to serve and accord the role more seriousness. It would also be a reflection of the heavier duties on them in this new era of corporate governance.

According to one corporate governance commentator, the answer is “No”:

The issue is taboo in Australia. Rightly or wrongly, having unpaid directors creates more public confidence that charity boards are giving back to the community and getting more funds to people who need them.

Also, director pay might not sit well with the many volunteers who join charity boards out of a deep commitment to the cause. Surely, becoming a charity director is a chance to give rather than take?

I agree. Besides, given the nature of some of the people who serve on NFP boards, it would need to be reasonably sized fee to make it worth an incentive for directors to attend.
I think it is better to make financial provision for directors to attend training courses at the organization’s expense than to pay them outright. Hopefully the organization already has a training budget for its own staff and so this not such a strange idea.

But the issue of payment is raised here because it is probably not going to disappear, especially in the health and aged care contexts where directors are on the boards running multi-million enterprises. Some of these enterprises are larger in turnover than companies in the for-profit sector that do pay fees.
If NFP boards do decide eventually to make payments, it is probably better to provide an annual standard honorarium rather than a sitting fee. A fee for attendance could encourage an increase in the number of board meetings!

Succession

Directors should have fixed terms of consecutive service to ensure a fresh supply of new talent.

If directors know their period of service will not be indefinite they may be better able to cope psychologically with the despair of having to leave the board. This is not necessarily a reflection on them; it is simply that their time is up. Leaving a board can be particularly traumatic when a person is so obviously performing a wonderful role and their colleagues wonder how they will be able to cope without them. But no one is indispensable.

Turnover should be staggered to ensure some continuity between continuing directors and newcomers.

A skills matrix will help the selection of determining the next type of director needed.

A continual matter of reflection is whether the board is still best constructed for the emerging challenges: that it is a board for tomorrow and not yesterday. This takes the recruitment process back to the task of reviewing the organization’s strategy and asking whether it is still on track for making the most of the new opportunities that are bound to be arising.

CONDUCT OF MEETINGS

The board may want to reflect on the frequency of its meetings. The tradition has usually been for a monthly meeting. Is this still necessary? Can there be fewer and more focussed meetings? Can more detailed work be done at the committee level?

Another topic is whether the board can agree to some form of indicative planning for the board meetings for the coming year. In other words there is a tentative agreement to focus on particular matters at particular meetings.

Good corporate governance unleashes the brain power of the board. This means that meetings should be opportunities to make the most of the talent in the room.

If the meetings are not being productive then the directors and CEO should see what is going wrong. Directors should not leave meetings exhausted or dispirited and wondering what was achieved. Some meetings are tough but a consistent pattern of disheartening meetings points to an underlying systemic issue which needs to be addressed. Directors and the CEO should feel empowered to explain what they think is going wrong.

Before the Meeting

NFP board meetings often used be to informal gatherings among mates. The new era of corporate governance requires a new level of seriousness, focus and determination. For example, if a certain amount of time is required under the constitution to hold a key meeting (such as the AGM), stick to it. Do not try to cut corners.

Is the board addressing the right issues? An indicative list of future topics may provide some assistance here. But is the CEO bringing to the board issues that are the most crucial for the organization’s operations and future (and not getting the board bogged down in trivia).

Directors should be invited to contribute agenda items before the meeting and perhaps circulate background material before the meeting.

Board papers should be focussed around action recommendations. The recommendations should come first and the argument should follow. This will help keep the paper focussed. This will help keep the focus on analysis rather than drowning in data. Data alone never tell the story; it is necessary to find the pattern contained therein and understand the wider implications. The author (usually the CEO) should be asked to provide the three main reasons in favour of the recommendation and also some of the concerns that have arisen in making the recommendation, No proposal is ever cost free or risk free. That is no argument against making the recommendation but it does help the board get some perspective on it.

This means that thought should be given to each agenda – rather than just circulating a standing list of usual topics.

Apologies, adoption of the agenda, minutes of the last meeting, and matters arising should all be standard items (with care taken to avoid a rehash of the previous meeting’s deliberations in the matters arising). Possibly the agenda could contain a time limit for these initial items. The risks with being focussed too much on the minutes is both that valuable time can be lost and a nasty debate over what was said at the last meeting could poison the atmosphere of the present one, and so disrupt discussion of the impending substantive items yet to come.

If there is an indicative list of topics for the year, so there will already be a draft framework for substantive items. It will enable directors to schedule the date sin their dairies and indicate what additional reading they need to be doing in readiness. Minutes are the first draft of history. The chair (or the board’s representative, such as the honorary secretary) should see the draft minutes before they are circulated. Suggestions for correction (including new or alternative wording) should be sent in before the following meeting. Time can be easily lost with directors at meetings trying on the spot to compose alternative wording.

Minutes are best done in the form of identifying agreed actions and an explanation of why the decision was made. The chair should provide a summary of what has been agreed (with the text of any resolution adopted).The contrast is to provide a running account of who said what; virtually a mini-Hansard. A great deal of time can be spent at the following meeting clarifying what was said as directors and the CEO fret about how their remarks are being recorded for history. A simple list of decisions and an explanation thereof makes for quicker and easier reading, with less angst among the directors and CEO. It is also a reminder of the need to focus on the output of a meeting and not the input.

Finally, there are the issues around information technology. One is the format of the board papers: should they still be in hard copy form or should they be sent out electronically? The argument for the latter is that it helps the environment, is quicker, and reduces costs (packing and postage). If there is a cost in printing them out, it will be borne by the director who uses their own printer to do the work – this is a saving for the organization but a burden for the director (who is not being paid anyway).

This taps into a much deeper discussion about the IT implications for brains . In essence the IT is getting better every two years or so (Moore’s Law) but humans are not developing the brain power to cope with screens. There is now a tendency to “graze” on information rather than “read and inwardly digest” (as previous generations of university students were told to do). My preference is to work off hard copy but I realize that this is now less popular. My concern is that documents on screens will not receive the attention they deserve. Directors will skim documents rather than study them.

Another dimension is Internet security. The Internet is being used for purposes for which it was not designed (it was designed to enable US military forces to continue operations in the event of a surprise nuclear attack and then university academics thought it would be a good way to exchange quick messages). Now it is being used for conveying conversations and movies, and for banking and financial transactions. The Internet is vulnerable to hacking and facilitating identity theft.

Meanwhile security cannot be guaranteed (as recent spy scandals have revealed). E-mails are required to be stored within company computers for set number of years; they can be read by IT staff; they can be relayed without the authors knowing. Directors are now living in a new era of transparency.

During the Meeting

The board could consider getting out of the boardroom and rotating some meetings through the organization’s facilities away from head office. The rooms may not always be as grand as the organization’s boardroom but it will give an insight into what the staff and volunteers have to operate within all the time. It will also give an opportunity to meet staff and volunteers.

The chair could open the substantive part of the meeting (after apologies and adoption of minutes) by asking what has happened in the operating environment since the last meeting. Are any changes required to the strategy?

The chair needs to observe the “body language” and personal dynamics of the board – a lot can be said without words being used.

Silence should not imply consent. If a member is consistently silent and not participating, the chair should have a private word after the meeting to ascertain the problem.

Meanwhile heated disagreements must be focused on the issue at hand and not allowed to become personally rancorous (“You always disagree with my proposals”.) Directors should be able to disagree without becoming disagreeable.

It might be useful to schedule a short break in proceedings, especially after a gruelling agenda item. If there is a ban on receiving electronic messages during the meeting, directors and the CEO should given the opportunity to catch up with the e-mail/ telephone messages during the break.

After the Meeting

At the end of each meeting before people leave, the chair could conduct a quick post-mortem on proceedings: were the important issues dealt with? How useful were the board papers? Are there issues/ problems/ projects that were not brought to the board? The chair should have a later private meeting with the CEO to also review each meeting and its outcomes.

The chair could also invite directors to contact them to provide additional comments. Outside the meeting, boards should speak with one voice – or none at all. No contradictory instructions, for example, should be given to staff. Confidentiality should be maintained. No spreading of rumours or gossip.

COMMITTEES

At least three board committees need to be established to report back to the board on a regular basis. None of the reports from the committees should be accepted on a rubber stamp basis. The committees do the prior work of the board but do not carry the board’s power.

Audit and Risk

The audit and risk committee is responsible for ensuring that management applies financial reporting and internal control principles. It must be independent of management. It will need to maintain an appropriate relationship with the organization’s external auditors. This will include reviewing the scope and results of the audit, its cost-effectiveness and the independence of the external auditors. The committee considers such matters as internal control, compliance, financial reporting. It deals with the story of the organization as told in dollars.

However, the committee – and auditors – deal mainly with the nature of the organization’s immediate past. It is not necessarily their remit to make judgements about the organization’s future viability and long-term sustainability.

Organizations often have their own internal auditors on staff who report to the CEO. These staff should also meet regularly with the audit committee.

Among some of the questions to be considered by the board:

does the board understand the role of both external and internal auditors?
have issues been raised in the reports by the auditors ?
if so, how have the issues been addressed?

The committee may also deal with risk and risk management or allocate that task to another specific committee. Whatever administrative arrangement is made, risk needs to be addressed in some form of committee.

My preference is that risk, given its importance, should be handled in a stand alone committee with an equal status as the audit committee.

Finance

A finance committee monitors the financial health of the organization. It considers budgets, ensures internal control systems are adequate, and makes recommendations to the board on major financial matters.

Remuneration

A remuneration committee should oversee salary arrangements for the staff. The board (and not management) should be the final arbiters on staff salaries. Given salary sensitivities, the committee may want to just make a general statement rather than a detailed listing of the individual salaries.

Other Possible Committees

Directors are responsible for setting the ethical position of the organization. This means setting an ethical culture and this may be best done in the first instance by an ethics committee.

Depending on the organization’s subject area of operations, the board may want to have subject-specific committees. A healthcare organization may wish to have a patient care committee relating to, for example, drugs, medical records and infection control. Finally, returning to the problem of recruiting new directors, a reserve pool of potential directors could be formed in an advisory committee. The committee would not be there solely as a reserve group and members should not assume that this is a steeping stone to be a board appointment.

But it may be possible to attract some people who can be sounding board on particular issues and would welcome some association with the organization without having to make the time commitment of attending board meetings and (for the moment anyway) acquiring the duties of directors. It is possible that from among the advisory committee there may be one or two people who could later be considered as directors.