A governing board is responsible for the organization’s strategic planning process, including measurable strategic goals. Great goals are SMART goals. They are specific, measurable, achievable, reach requiring, and time-bound. Three common reasons that boards don’t develop measurable strategic goals are that the task requires hard mental work, board members often don’t know what to measure, and the board isn’t sure what level of achievement is reasonable.
So many times in the past month board members have told me that there are no problems with their board. Then they proceed to tell me that the biggest problem in the organization is that the Executive Director is not moving the organization froward or achieving the organization’s goals. My immediate thoughts are “Your board has a big problem!”
The most important role of the board is often considered to be ensuring that the organization has an appropriate senior staff person. To this end the board is responsible to hire an individual with the attitude, skills, and knowledge to move the organization forward by achieving its goals. That is just the first element in the board’s job regarding the senior staff person. The board is also responsible for ensuring that there is a current strategic plan with appropriate, measurable and time-specific objectives. The board ensures that resources and training are made available so the operational side of the organization is equipped to achieve the goals. Then the board asks for specific monthly or quarterly reports from the senior staff person to monitor progress towards the goals. The board gives feedback on the progress, praising work that is on track and asking for improvement regarding goals that aren’t being met. An effective board holds the senior staff person accountable by insisting on seeing corrective action plans quickly after noticing underachievement of a goal and by monitoring progress more frequently in underperforming areas that are critical to the organization’s future. If the business environment has changed so that the goals are no longer appropriate, the board changes the goals to provide redirection. If the senior staff person is not able to lead operations to achieve the current goals, then he is the wrong person for the job. Now the board is responsible to remove him from the position and start the hiring process again.
Yesterday, when I shared with a former employee of a large corporation that I am a governance consultant, she had an immediate heartfelt response. “Boards don’t care about employees”, she declared. “They make decisions without any regard to how they will impact the employees’ work life.” Unfortunately that may be a common employee opinion. When the workplace culture drains energy rather than generating energy, the organization achieves less and has weak financial results. This should be of grave concern to the board.
One of the board’s key roles is to direct the organization in the interests of the owners. Directing includes developing the strategic plan and involves stating clear organizational values. Some boards identify the concept of employee engagement – a proactive, mission-focused staff team – as a value. This tells the senior executive that he is expected to create and maintain a positive, rewarding workplace culture. It also sets the expectation that the board will set policies and make decisions that enable a fulfilling employee experience.
Another key role of the board is to protect the interests of the owners. (more…)
The board’s responsibility to protect the interests of the organization’s owners includes monitoring financial performance. Many boards request financial reports on a monthly basis. Others might review finances every quarter. Some CEOs provide the board with a sparse one-page financial report that provides inadequate information. Others compile an inch thick package in which the board-relevant numbers are buried.
Many boards simply ask for a financial report and leave it up to the CEO and CFO to determine what to include. However, a proactive board is very specific in its request. It might ask for a one-page balance sheet showing this year’s figures to-date and last year’s figures at the same date; a two-page income and expense statement with this year’s and last year’s year-to-date figures as well as this year’s budget year-to-date; and a report explaining every line on the income and expense statement that varies from budget by more than 5%. Some boards ask for a cash flow report monthly, others ask annually. This statement allows the board to review the organization’s ability to meet its financial obligations. The board might also ask for some key financial ratios such as profit as a percentage of gross income. The report should include the numbers that quickly allow the board to determine if the budget parameters are being met.
In many organizations the board approves the detailed line-item budget for the coming year, often engaging in exhausting discussion about small differences in preference. There are other approaches to board leadership and oversight of the organization’s finances that position the board to focus on the big picture and empower staff to manage the details.
A helpful concept for clarity of authority and responsibility is that only the person or group that makes a decision has authority to change that decision. Applying this practice to the budget process can greatly reduce board micro-management of finances while releasing staff to adjust expenditures in response to changing circumstances.