Vanguard Governance: Part II - The Double Helix

Biggest lesson of 2008: Boards make decisions that determine the success or failure of our economy, increases or cutbacks in jobs, access to education, healthcare, and social services, energy conservation or waste, the future of pension plans and resources for seniors, and the creation and availability of cultural arts.

On behalf of the "owners" of for-profit and nonprofit organizations, boards have legal and fiduciary responsibilities to build high-performing enterprises and achieve maximum results. But success is achievable only if boards do their jobs well. And there are two essential roles that are intertwined around each other, forming a double-helix:

Ensuring Compliance

  • The role of both for-profit and nonprofit boards is to ensure that the organization complies with its legal and fiduciary responsibilities.  Compliance includes financial reporting, accounting and auditing standards, adherence to laws, and requirements for governmental reporting and regulations. Boards must engage professionals to provide expertise that is necessary and ensure that there are no conflicts of interests among board members, management, and experts who are hired for assistance.

Envisioning and Achieving the Greater Potential

  • Far too many for-profit and nonprofit boards stop at step one, and only busy themselves with compliance issues. In order to build robust organizations, however, what boards really need to do is to envision and achieve the organization’s greatest potential.  The for-profit board’s role is to work with senior management to imagine how the company can maximize shareholder value by creating and delivering highly competitive goods and services at an optimal price in the global marketplace.  The nonprofit board’s role is to engage with the CEO to imagine how the organization will achieve a better future for the community, and develop and accomplish the revenue model for success.

    Unfortunately, boards, CEOs, and their consultants are not focusing time and attention on the greater vision and expanding revenue models.  And strategic planning does not encompass these matters.  Ordinarily, strategic planning is not much more than a dressed-up, static document with multi-year, incremental targets.

Some people have reacted to my concept of dual roles by suggesting bifurcating each board into two bodies - one to address compliance and one to address vision and revenues. This idea comes from the notion that one board can’t do it all. I entirely disagree.

It is essential for board members to be engaged in the interplay of finances, reporting and regulations, together with public awareness and interests, market demands, and revenue threats and opportunities, in order to determine the future of the enterprise and how it will compete in the global arena.

Also, the most desirable board candidates will have talents as well as interests that will cross over from the financial to the marketplace and the creative.  And the interaction between board members is vital for vibrant, smart, and productive board meetings.

The next question is how to organize the board to deal with compliance in sufficient depth and care, and also address vision and revenues in depth.  The answer is to create and implement an effective board committee structure.  This will be discussed further in my next post, Part III on Roles, Rigor, and Structure.  Then, Part IV will address board composition - and building the strongest boards.

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1 Comments

  • Luis G. Jaramillo

    Very good post.In many cases Directors are very disconnected from the company´s reality . The top executives speak a different language than the Board does. It is advisable to organize a board with members well informed and committed to the business they lead. They should also exercise the leadership necessary and consistent with the values they want for their organization. We must recall, the Board has the ultimate responsibility for the organizacion. I would recommend for both, directors and top executives, to discuss basic checklists, which should be an usefull guide to lead the organization. MBS as common language could help them "to deal with compliance in sufficient depth and care". MBS in fivestarmanager.com