World Class Governance General Conference of Seventh-day Adventists Office of Global Leadership Development Prepared by: Lowell C Cooper Revised May

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Why board processes matter: 1.Most leadership training is for individualized positions of responsibility. Most major decisions are made in groups. 2.Effective group decisions do not arise spontaneously. They result from deliberate designs in structure and social dynamics. 3.Many governance weaknesses and mistakes arise from inadequate attention to group responsibilities and processes. 4.The pursuit of excellence in such matters is worthwhile…because God’s work deserves such. 3

4 Our challenge: “…there is one thing all boards have in common, regardless of their legal position. They do not function.” Peter Drucker

5 Our challenge: “Effective governance by the board of a nonprofit organization is a rare and unnatural act...” Taylor, Chait and Holland “The New Work of Nonprofit Boards” Harvard Business Review, Sept-Oct 1996

6 Our challenge: “Though possessed of ultimate organizational power, the governing board is understudied and underdeveloped…where opportunity for leadership is greatest, job design for leadership is poorest.” --John Carver

7 Our challenge: “The development of all our powers is the first duty we owe to God and to our fellow men. No one who is not growing daily in capability and usefulness is fulfilling the purpose of life.” --E G White Christ’s Object Lessons, p

“If things seem under control...you’re just not going fast enough.” —Mario Andretti 8

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10 7 Signs of Ethical Collapse: 1.Pressure to maintain those numbers 2.Fear and silence (dissent not tolerated) 3.Bigger-than-life president/CEO, aspiring colleagues 4.Weak boards 5.Conflicts of interest not addressed 6.Success is all that matters 7.Goodness in some areas atones for evil in others

11 Boards and Committees

SDA Governance Structures: BoardsExecutive Committees 12

SDA Governance Structures: Boards Stand-alone entities Executive Committees Part of a network 13

SDA Governance Structures: Boards Stand-alone entities One employee member Executive Committees Part of a network Many employee members 14

SDA Governance Structures: Boards Stand-alone entities One employee member External chairperson Limited hiring decisions Incorporated status Executive Committees Part of a network Many employee members Internal chairperson Multiple hiring decisions Unincorporated status 15

16 Governing board Has ultimate corporate authority Total authority matched by total accountability Can be superseded only by organization’s owners or by the state In SDA structure the owner is the constituency, or “membership” defined in the bylaws

Governance and management: Governance: –Requiring accountability by setting goals and evaluating performance –Setting strategic plans and major policies –Overseeing implementation of plans/policies Management: –Implementing plans and policies –Managing day-to-day operations –Reporting on performance 17

18 What good boards do: 1. Shape mission and strategic direction 2. Maintain SDA identity of organization 3. Establish key policies and strategies 4. Select, develop, and evaluate officers 5. Ensure adequate financial resources 6. Build/enhance organization’s reputation 7. Provide adequate risk management 8. Assess performance against mission 9. Improve board performance

19 What goes wrong on boards: Time consumed is not proportional to results. Tendency to drift: –from strategy to operations (from long-term to short-term) –from governance to management –from collective action to individual initiatives Driving by the rearview mirror Reactive stance rather than proactive Leaky accountability Uncertainty over boundaries of authority Deluge of data, lack of big picture

20 Complaints of board members: “My presence is basically immaterial to the outcome. We are like accomplished musicians unable to play a symphony together.” “Meetings are boring, agenda tightly scripted, outcomes predetermined, opportunity to influence decisions severely limited.”

Pathways to progress Board/committee composition Board policies Director/trustee orientation Conducting effective meetings Role of the chairperson Creating good social dynamics ‘999’ Plans 21

22 Board/Committee composition: Compliance with governance documents Determine expertise/diversity range needed Establish constituency representation pattern Outline expectations of directors Select people with expertise and time Create a member education agenda Consider the value of staggered terms Factor the effect of board size

23 Considerations for Board membership How well does the person work in a group? What is the person’s reputation? Is the person capable of understanding the institution’s mission and work? Can the person overcome territorialism? Can the person commit sufficient time? Does the person contribute to the skill set?

24 Board policies: (Sarbannes-Oxley) Conflict of Interest Independent trustee Executive compensation/bonuses Contemporaneous documentation of meetings Provide Form 990 to the Governing Body Prohibition: retaliation against whistleblowers Record retention and destruction policy Rebuttable presumption of reasonableness Joint ventures Expenditure limits of execs Number of meetings.

25 Board policies: Code of ethics Safe reporting mechanism for ethical conduct violations (non-retaliation policy) Conflict of interest policy/procedures Confidentiality Conflict resolution--grievance/mediation Number of meetings per year Authority of execs and committees

26 Employees stunned most academics by saying that the code of ethics for their company had very little influence on whether they made ethically correct choices. It was the culture of their companies and the examples set by their leaders that influenced their conduct. —from a 2004 study by the Journal of Business Ethics

27 Conflicts of interest: Three basic rules: Declare Decide Document

28 Directors/Trustees As a body, a board of directors has considerable power. An individual director, acting alone, has almost no power. Relate to several parties or interests: –constituency which elected/appointed him/her –constituency of service (i.e. students) –constituency of accountability (i.e. gov’t)

29 What directors need to know: Who selected him/her? What is the term of service? Re-electable? What is expected from the director? What is organization’s purpose? What constituencies are served? What corporate documents exist…? What parties can question decisions? What protection is there against liability? What are director/member’s rights?

30 Director/member rights: Access to management Access to records and documents Attendance at meetings Prerogative to vote

31 Duties of Board Members Care Loyalty Obedience

32 The duty of care Refers to the level of competence expected Common standard: “ordinary prudent person” Duty to attend meetings regularly Duty to show independent judgment in voting Duty to be informed Duty to rely on/delegate to trusted sources Duty of diligence (perfect judgment not required) Duty of risk management …

33 The duty of loyalty Corporate position not for personal advantage Standard of faithfulness to the organization Undivided allegiance when making decisions Duty of loyalty breached when members use organizational property for personal purposes Maintaining confidentiality of privileged info

34 The duty of obedience Making sure the organization remains obedient to its purpose and role (i.e. faithful to SDA mission, beliefs, culture, policies and practices) Duty of compliance with laws Fulfilling commitments, including previous ones

35 Board member orientation: Director’s handbook Legal documents Organizational chart Meetings (time and frequency) Committee structures, if any Fiduciary responsibilities Expectations of trustees

Conducting effective meetings: Conduct meetings on a regular basis. Supply agenda information and reports in advance. Help senior management determine “what matters most” (avoid syndrome of “everything matters most”). Careful attention to agenda sequencing. Create opportunity for CEO to think out loud. 36

Conducting effective meetings: Encourage experimentation. Monitor progress and performance (define the dimensions of success). Model desired behaviors. Establish basic rules of conduct. Draft recommendations in advance. Conduct orientation for new board members. Involve all members. 37

Conducting effective meetings: Affirm the appropriate role of the chair. Think carefully about seating arrangements. Focus on decision-making that is informed by the mission statement. Timely publication of minutes. Conduct board evaluation and retreats… Encourage good social dynamics. Regularly review the board’s code of ethics, including conflict of interest policies. 38

39 The role of the chairperson Before the meeting begins. During the meeting. After the meeting.

40 Before the meeting begins: Orientation of new members Appropriate notice of meeting Conduct meetings on a regular basis Supply agenda info and reports in advance Awareness of agenda items Determine pace and sequence of agenda Use a consent agenda for items that can be approved without further discussion

41 During the meeting: Call to order Define the dimensions of success for the meeting Establish basic rules of conduct (use of cell phones, private conversations) Executive/privileged sessions Keep group focus on agenda Draft recommendations in advance

42 During the meeting ( cont’d ): Maintain orderly processes (rules of order) Encourage good social dynamics Call for the vote (in favor and opposed) Create opportunities to think aloud Arrange for board/committee education Close the meeting

43 Creating good social dynamics: Physical arrangements (seating, lighting, sound) of the meeting place. A virtuous cycle of respect, trust and candor. Minimal impact of political factions. A culture of open dissent encouraged. Be careful not to confuse dissent with disloyalty.

“…the highest-performing companies have extremely contentious boards that regard dissent as an obligation and that treat no subject as un-discussable.” —Sonnenfeld, ibid. 44

45 Creating good social dynamics: (cont’d) Deliberately develop/examine alternatives. Challenge cherished roles and assumptions. Give board members meaningful tasks that involve accountability. Regular evaluation of a group’s performance.

46 Following the meeting: Verify accuracy of minutes Keep in touch with absentees Maintain communication with CEO Monitor implementation of actions

47 And while the Great Ones repair to their dinner, the Secretary stays, growing thinner and thinner. Racking his brains to record and report what he thinks they will think they ought to have thought. London Institute of Directors 1971 Standard Manual

48 Board member preferences: Agenda materials—how and when received Minutes—how and when received Board meetings: –Reports: when and how many –Major discussion issues: first or last

49 Governance best practices: Create and use board member selection criteria. Insist on mandatory orientation and on-going educ. Create master board calendar (and website). Conduct board evaluations. Review board structure, composition, and policies on a regular basis. Conduct rigorous review of conflict of interest declarations. Clarify roles, responsibilities, and authority. Focus on effective meetings.

50 Effective meetings: Stay on the governance level. Provide agenda materials in standard formats, with executive summaries, in advance. Use consent agenda for routine items. Create and monitor ‘dashboard’ performance indicators. Facilitate conversations that build consensus. (Rules of order can be misused.) Develop and support healthy board culture. Use a meeting evaluation tool to obtain feedback.

Effective governance culture: Expertise: Quality and range of director expertise fits the organization. Environment: Board meeting is a safe place to talk. Engagement: Assumptions are examined, differing views are welcome. Emphasis: Clarity of strategic intent informs decision-making. 51

Ten Commandments for Trustees Thou shalt remember that board members have no authority to act alone. Thou shalt love, honor, and support the organization. Thou shalt serve the interest of the owners and not thine own interests. Thou shalt do thy homework. Thou shalt present thyself at board meetings and pay attention. Thou shalt trust the work of board committees. Thou shalt discipline thy mind before speaking it. Thou shalt not throw hand grenades at any time. Thou shalt let management manage. Thou shalt give thy attention to the organization’s mission and its future. 52

53 What can be done to improve _____ Board functioning in the next 9 days? What can be done to improve _____ Board functioning in the next 9 days? What can be done to improve _____ Board functioning in the next 9 weeks? What can be done to improve _____ Board functioning in the next 9 weeks? What can be done to improve ____ Board functioning in the next 9 months? What can be done to improve ____ Board functioning in the next 9 months? ‘999’ Plans

54 Acknowledgements: Boards That Make a Difference, 2nd edition, John Carver, Jossey-Bass Publishers, San Francisco Guidebook for Directors of Nonprofit Corporations, Section of Business Law, American Bar Association Meeting the Challenge, Video, BoardSource—formerly the National Center for Nonprofit Boards Ten Basic Responsibilities of Nonprofit Boards, Richard T Ingram, BoardSource The Board Meeting Rescue Kit, BoardSource What Boards Are Supposed To Do, The Governance Institute “What Makes Great Boards Great”, Harvard Business Review, September 2002 The Association of Governing Boards, Washington, DC. Hansen, Kent—Attorney, various documents and seminar presentations Hiroshima, Phil—Attorney, various documents and seminar presentations Nixon, Robert—Attorney, various conversations and presentations.

55 End