Musings, Rants, Opinions and Experiences -- Board Governance

My active blog is now BoardGovernance.Storeblogs.com

2010-05-25T09:50:00.003-04:00

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Will Differentiation Save CUs?

2009-11-29T10:54:00.001-05:00

The Filene Research Institute just issued a Research Brief, "What People Pay: Deposit Account Fees at Banks and Credit Unions." [http://filene.org/publications/detail/whatpeoplepay] This was my comment:

The brief is encouraging and surprising. Given that most consumers know little of and care little for the difference between credit unions and banks, pricing often becomes the consumer's primary decision tool. Forget for a moment that my former credit union's free share draft account was not enough to convince many eligible consumers to switch from a regional bank their parents had done business with forever. A dose of reality hit me when another regional bank, Barnett, mocked by CU employees for its long list of fees, was able for a time to beat many local CUs on car loan and CD rates. It became apparent that their fee income enabled them to beat us on core business. (Barnett became Nations, then Bank of America.)

The challenge for today's credit union leaders is to develop strategies to remain competitive on pricing while establishing the kind of differentiation that resonates with and captures the hearts and wallets of qualifying consumers. Simultaneously, CUs need to continue the tax exemption to ensure a small amount of price difference. A single regulator will further erode if not obliterate CU and bank differences. There may be a chance to shine under the proposed national consumer protection agency.

U.S. consumers' lives will be adversely affected by a lack of credit unions. Becoming indistinguishable from banks or going out of business entirely will be the same for consumers. Filene followers and other leaders need to see beyond the economics and issues of 2009 and 2010 to ensure that future generations will know and appreciate the credit union difference. The continued presence of a viable credit union choice is necessary to keep down and reasonable the costs of consumer and small business banking, and to assure the presence of a nonprofit commitment.

Don’t Obfuscate Policies

2009-11-02T23:45:00.001-05:00

I read a call to develop a cell phone policy: if a company provides cell phones, there's personal use to consider, and there's potential liability if the employee has an auto accident attributable to being on the cell phone at the time.

I read recently that companies ought to have a social media policy. Management concerns range from worker efficiency to "tweeting" something that will embarrass the company, or expose its new strategy.

To avoid company policies becoming a patchwork of individual provisions to meet the latest specific concerns, take the time to see if existing policies may cover the issues.

For example, here are a few statements you could already have in your code of ethics:

To do one's job to the best one's ability, efficiently and effectively, such that one contributes to the moral and financial success of this company.
To promote and protect the best interests and reputations of this company and the industry and avoid and resist influences and practices detrimental to it.
To display the highest standards of personal conduct at all times.
To uphold and comply with the laws, rules, regulations pertaining to our operations.

(Those are excerpts from my Board Governance Policies model manual for boards of credit unions, adaptable to nonprofits.) You can see that many of the concerns over the use of company cell phones are covered in the code. Your Personnel or H.R. Policies are also likely to address acceptable and unacceptable behaviors.

A company providing cell phones may also provide long distance lines accessible from every desk, company cars, cameras and other company equipment that can be used personally. A company will already have addressed personal use of company property including tax implications.

If you find that in this case, cell phones are adequately covered, rather than write a new policy, leadership can choose another means to ensure that employees know how their use and not use their company-provided cell phones. When legal risks are significant, have the employees sign the interpretation sheet evidencing their understanding.

A signed interpretation could be a single sheet. On the other hand, a full-blown policy addressing cell phones might be several pages and contain many of the same provisions as for the other things previously mentioned; the only difference being the name of the object.

That duplication presents a couple of problems. A greater number of pages increase the chance for non-compliance when employees fail to read or remember policies. Repeated policies need to be worded the same to remove the potential for different interpretations.

When policies are the same for cell phones and other stuff, it's better to have overriding policies addressing the concerns, and include a list of example objects that are covered by it.

Whether you add a whole new policy or take my approach, have your attorney review policies periodically to be sure of your legal footing.

Strategic What?

2009-10-21T13:48:00.001-04:00

There's another offer in my in box to attend a "Strategic Collections" seminar. Now having received several of them, I can't stand it anymore. It is one more misuse of the term "strategic." I can find nothing strategic about responding to increases in slow payments, existing customers missing payments, or existing customers entering into bankruptcy.

What then is strategic?

Being strategic is finding a borrowing niche less likely to have payment issues.

Being strategic means choosing a particular underwriting or collections process, over others, because you see a unique position, or to reinforce your brand.

Being strategic is about positioning your company to take advantage of trends that will result in a new market place.

Being strategic is not about current commitments (like the loans you're trying now to collect) but seeking a new set of commitments that will make you more competitive, make you more money, or satisfy a craving for success.

Being strategic is about finding needs no one else is filling and planning to fill those (a Blue Ocean Strategy).

While improving one's ability to conduct operations effectively is important, being strategic is more about reinventing operations because the outside world has changed.

The Emergence of Governance in Credit Unions

2009-09-16T16:23:00.001-04:00

There are fads on one end of a continuum, cool ideas tried by many and abandoned because the results are not consistently positive. On the other end of the continuum we find sea changes. The move to governance is more a sea change that alters the nature of the Board/Executive relationship.

In the beginning, there was a board to take care of everything because the members would not or could not. Everything. Treasurers are known to have carried a notebook with members' loans and payment in it; there was a cigar box locked in an office drawer with cash for the next loan, typically under four-figures.

The Treasurer/Manager, having a full-time job in a vocation, needed help with the credit union avocation. Staff was hired to help. As memberships grew the board hired more people to help. Eventually, the Treasurer/Manager could no longer manage the day-job and credit6 union office staff so the Board hired an office manager. As the institution progressed, the position became General Manger, President, and now most commonly, CEO.

From my point of view, Examiner and state Administrator (Florida), CU Director, Consultant and CEO, titles in the top positions in credit unions have much less to do with the expectations of the job than the status, the sound of the title. The growing complexity of the business environment and the speed of change surrounding credit unions have the most to do with the transference of decision making power out of the boardroom.

The Board holds the power until delegated. While it first delegated personnel hiring, nurturing, managing and firing to its first string of managers, other authorities remained in the boardroom. The power tipping point was 1970, the advent of share insurance, share drafts, economic volatility in the 1980s and increasing complexities associated technology, expanded competition, increased regulations, including some with fines for lack of compliance, and ever-changing investment options.

The fiduciary duty of care means that a board ensures the viability and longevity of the institution. Since it could no longer make an increasing number of decisions fast enough, a board needed to find competent people it trusted and transfer decision-making to them. In 1980, the term "governance" gained the attention of nonprofits in John Carver's seminal book, Board That Make a Difference.

Governance means a Board transfers it powers to its competent and trusted chief executive and provides guidance on how to use that power through its policies. The policies that speak to the CEO we call Governance Policies. A Board's previously written policies: products and services, personnel, and others, now called Operating Policies, become the realm of the chief executive, among other delegations in Governance Policies.

In this sea change, a board recognizes that if it intends to keep the institution safe, sound and vital, it must find a capable person to drive that success (http://www.danclark.com/products ). In addition to the chief executive, it hires audit firms, and allows the CEO to hire other C-Level executives in areas such as finance, marketing, human resources, services, facilities and information technology. Those specialists deal with ever-increasing levels of complexity and can more quickly research alternatives than a group of volunteers have the time or expertise to do.

Governance is the right idea for our times, four decades in the making. Directors who care about the institution entrusted to them will recognize what they cannot adequately do, and find and empower that expertise to work for them. Governance is a big part of fiduciary duties today.

A Question Relating to New Board Members

2009-06-12T11:20:00.003-04:00

The purchaser of my model Board Governance Policy Manual for credit unions asked about the legality of the provision that requires a credit union member to be a member two or more years before being eligible to run for the board.

Of course, any user can remove a membership requirement to qualify for nomination or appointment. I put the requirement in there to prevent people from becoming a CU member just to become a committee member or director; what is their purpose and intention?

As a part of the Board's efforts to make the CU successful, it needs to attract the best talent and the most dedicated people it can to lead the CU. If the Bylaws contain sufficient processes and protections, then Governance Policies do not need to address it.

What about the legality? It is not illegal, best I can tell, to introduce reasonable processes to assure the Board is the best it can be. Members can follow the Bylaws to the letter and circumvent Governance Policies that are more restrictive. Therefore, the Board is not mitigating or taking away any membership power. People who have the best motives will not want to circumvent the criteria for doing so may place a cloud over their intentions.

When the Board or the Recruiting/Nominating Committee finds a non-member it desperately wants on the board, the board can adopt a resolution allowing for a one-time waiving of the length-of-membership criteria. The resolution will outline the compelling reasons for its actions, and preserve the integrity of the written policies.

Keep Strategic Planning Pure in Tough Times

2009-04-17T12:07:00.003-04:00

I just read some things about strategic planning from McKinsey & Company, and comments from executives to a survey about it. The current environment is causing many firms to alter their planning focus. Some are reshaping their strategic planning processes to generate short-term solutions to fix problems. Others are celebrating their previous strategic planning because the plan prepared them to do better now than many of their competitors are doing.

In your organization, if there are issues such as a negative bottom line, reduced net worth, and other operational things being talked about and worried about, such can stifle visionary thinking and vision creation. One way to stifle the stifle-r, one way to put those concerns to rest, at least for a time, is information.

When you know the concerns, provide a brief report, for example, on the issues and the answers to them: what you are doing to increase cash flow, improve loans, cut costs, delay cash-consuming projects, etc. This information should not be published as a part of the strategic planning process, but published because leaders need to know.

If you are on a long-trip in a motor home, the driver's attention is on the final destination well over the horizon (while also attending to immediate traffic conditions and other dangers). If a fire breaks out in the camper's kitchen, it's difficult to keep driving with an eye on the horizon. Organizational planning can and should be different than strategic planning.

Strategic planning by definition is about the long-term future, understanding what should be in decades ahead (the McKinsey piece talked about century horizons); when you are engaged in planning that is about far horizons, call it "strategic." When, as many executives indicated, they will be focused on near-term issues, then call it what it is, tactical or operational planning; you are skipping strategic planning, for now, to put out the fires.

When you call the annual event, the culmination of a year's worth of research and discussion, "strategic planning," but by necessity conduct shorter-range planning, you risk losing sight of what "strategic" and "strategy" mean. When you name the event based on what you are doing, everyone is tuned in and definitions remain unchanged.

After all, you wouldn't hold a birthday party to celebrate someone's retirement, even though the refreshments and the source for the cake are the same.

While the two planning retreats under discussion are similar, the outcomes are different; the titles we use need to reflect the outcomes.

In times like these, do both levels of planning. Plan to resolve immediate issues. Hold a strategic planning retreat, even if delayed, to collect all that strategic thinking and anticipate all the future issues that could challenge you as you are challenged now.

Who Speaks and for Whom?

2009-03-27T02:18:00.001-04:00

Whether the organization should create one opinion all the leaders can support, or whether it should be a CEO's place to speak, if not for all, for self, is a governance question.

Should a CEO, on such weighty matters as involve positions of the national association, positions or actions of regulator(s), or the political arenas of the Statehouse and the U.S Capitol, be out front alone, or are such questions better handled with input, advice and consent from the Board? Look for direction in your bylaws and in your existing governance policies.

As often is the case, there is more than one right answer. If your organization has not decided, why not make this a "Strategic Issue" at an upcoming board meeting?

Here is an excerpt from my II-B if the next version of the Board Governance Policy model manual for credit unions (also good for other nonprofits):

The CEO is the primary spokesperson for the organization on operational issues, micro issues affecting this organization; designate one or more alternates to speak in your absence.
As spokesperson for the organization on macro matters, issues affecting organizations in this community, in the state, in the nation or the world, on matters of legislation and politics, of positions taken by our trade association, the position and actions of regulatory agencies, the CEO will seek the advice and consent of the Board – we will speak with one voice. This policy, however, does not prohibit the CEO from expressing opinions and taking positions as an individual as long as they carry the note that the opinions and positions expressed are not those of this organization or its board.

A note on free markets to my Congressman

2008-12-11T12:35:00.003-05:00

Governance readers: it is the duty of a governing board and top management to create a viable company and keep it viable. That means understanding the needs in society, and the wants of the people who buy things, and delivering what will sell.

The Honorable Allen Boyd, Congressman, 2^nd District, Florida:

I appreciate how difficult it must be to vote against the bailout for automakers. It's a tough stance knowing that many consumers may be out of jobs if we don't help. Workers "vote," in a way, by where they choose to work. We would still have coal-driven locomotives if we allowed workers to demand their right to shovel coal into their boilers. The goal to protect jobs, companies and industries impedes progress.

In a free market economy, any company, no matter the size, needs to make it on its own. The answer is not the socialism that waits at the bottom of the slippery slope of government bailouts for corporations.

Ultimately, every business owes outcomes to societies (e.g. improved standards of living) that exceed the cost of the resources it takes from society (land, labor and capital).

It is apparent to me that the U.S. Consumer has voted against our existing auto industry in the most effective way they can, by buying someone else's products. Would you or I invest in a company that makes poor-quality goods? Why then, should the U.S. Government "invest" in our automakers through a bailout? You have answered "we should not." I agree.

How to Measure Strategies

2008-11-19T10:57:00.001-05:00

How do you measure success with strategies? This is one of the issues all leaders face. It seems at first more difficult than measuring the progress on a goal, for example. With a goal there is a final measurement (e.g. 5% improvement in something, 10% increase in something) but a strategy is an activity. A strategy is a behavior, process or structure aimed at evolutionary success.

Let's say that your strategy is a pricing strategy, "Keeping our rates at or marginally below the competition." A measuring device could be a journal, of sorts, a notebook or a scrapbook of clippings that chronicle competition's rates and yours.

The measurement of a strategy is first that actions are taken in accord with it, and second, that those actions worked to improve your business. In this case, first, you are actively looking at the rates in the market place. The specific actions you decide to take in this strategy could be identified on your rate sheets that you can later set next to the journal of competitor's rates.

Execution of the strategy would probably be rate adjustments based on the average of competitors' rates, or the general movements of their rates. That execution is evidence the strategy is being followed. A well executed strategy should be positive to the organization's performance. Poor execution under the strategy could make a perfectly good strategy appear to be the wrong strategy.

There need to be adequate records to help you know if the strategy is okay, while the execution was not. In other words, when performance is below expectations, don't automatically assume the strategy is wrong; examine executions under the strategy and evaluate each of those first.

Execution of this fictitious (though maybe common) strategy is simple enough. If company performance does not maintain or improve in spite of good execution, maybe it's the strategy. If your organization is not as efficient as your competitors' this strategy could be disastrous. Research of competitor economics should precede adoption of this and any competitor-linked strategy.

Leadership in the 21st Century--Charlie Rose Interview

2008-11-03T09:30:00.005-05:00

I enjoyed this show and I hope you will too.

What Makes a Vision Statement, Well, Visionary?

2008-10-30T14:46:00.000-04:00

What is a “vision statement” is a common question today. There are many answers to that question, too. I see too many visions that sound like slogans. I see corporations advertise what they say are their vision statements but, as I define them, they can’t be their corporate vision statements.

I’m looking for some “pie in the sky” kinds of things with my clients because we’ve had too many decades of planning driven by the practical and programmable; “if we can’t project it reasonably with numbers, then it doesn’t belong in a plan.” Stepping back to the macro view, the CU “movement” no longer exists. It has been replaced by the need to shore up and keep healthy the share insurance fund; nothing wrong with that, except that it is now the primary driver, the priority-end kept in mind for too many CU leaders today.

That low-level view leads to concerns over efficiency, strong bottom lines, etc. And, yes, those are important, but they also detract leaders from considering the greater questions, like why do credit unions exist? Do the original reasons for forming financial cooperatives still exist today? Do consumers care if we provide a choice? For how long will they care? Until we stop thinking only about the company, and start considering our relation to the world around us, we will never get answers to those and many more questions.

All of humankind dreams; how come we don’t stopped allowing businesses to dream of what can be, and then, in the course of business, go for it, try to make it happen? All the leaders we respect and admire had/have visions of the future that their practical counterparts considered untouchable. Yet, they shared their visions in ways that inspired followers. So, the corporate vision gets translated when shared with the followers, the employees. We want to elevate their minds and hearts above their narrower vision of a clear desk and a satisfied customer/member, to something larger than their department, larger than their company … because all companies raise the standard of living or improve the quality of life, or perish eventually.

Since the term “Pie in the Sky” means something good that is promised and never realized, I prefer to think of the visionary things as conditions that ought to be. If we limit our corporate visioning to things we can control, then we’re back to limiting our dreams to operations, the things we put our hands on and feel like we’re in control. However, not all aspects of operations are within the credit union’s leadership to control. Consider interest rates, labor law’s impact on benefits and ADA’s impact on construction. We can’t control the competition that may cost us anticipated revenue after the budget is cast.

My concept of a corporate vision for any company is one that recognizes the external impact your organization can have on its part of the world. It recognizes that the good you do for members does not stop within their households, but spills over to the community where they live. Starting with the end in mind at the community-level helps not only your member/customer, it also helps your employees, volunteers and the companies who supply the credit union and also live in those communities.

The business plans developed by management will be shaped by the limited resources at hand. Priorities over what to do in the next ten years will leave some of the ideals of the corporate vision “unfunded.” As long as the leadership (board and top management) never lose sight of the corporate vision, the company will find new and innovative ways to put projects and practices in place, over time (twenty or thirty years), to make its communities better.

When we have such a corporate vision, we will see stronger business plans. Business plans encompassing 1, 2 and more years will get better because they are no longer within themselves, inwardly focused on immeasurableness, projections, and mathematical certainties. Our business plans need something higher to aim at and to try to produce – the better world as captured in the corporate vision.

Now There are Four distinct Board Meetings to Hold

2008-04-22T01:52:00.003-04:00

Boards meet. If there were to be no meetings, we would not need boards but a dictator or strong executive. What I mean is, the diversity of a board bears fruit in meetings where particpants are face-to-face in candid communication.
Today, there are several types of meetings boards can have. Here is an outline of four: business, special, executive, and independent directors meeting.
First is the traditional and ubiquitous Business Meeting. This is the meeting boards hold regularly with an agenda of debate, discussion and decisions. Special meetings are business meetings conducted off schedule. Special meetings are most often held because the Board did not finish its business at the regular business meeting or because there is a special discussion or decision required between regularly scheduled meetings. The later is most common when regular meetings are less frequent than monthly.
Executive Sessions are meeting of the board excluding the usual management guests. The most common reason for executive sessions is for the board to talk about, and make decisions about, their direct report -- the executive director/CEO.
The newest board meeting on the landscape is the independent directors meeting. Emerging from the Sarbanes-Oxley Act, this meeting is recognition that corporate boards typically include directors from the ranks of management. Thus, the independent directors meeting is intended to exclude the people who also hold management positions. The absence of managers permits directors to ask questions hey hesitate to ask in front of the experts. Peer discussions may be much more open and the forum allows the independent directors to bring up even the smallest of issues regarding management, when in the formal business meeting, one would not launch a management performance issue until it is more extreme, and then maybe, too late to rectify.
Here is an excerpt from my model Governance Policy Manual (http://danclark.com/products/BdGovPolicyManual.htm), for use by any organization to differentiate their meetings:
Business Meeting: The Board’s business meetings are effective and efficient at discussing big-picture, over the horizon issues, and decisions. The Board wants to make the best of the Board’s power and wisdom while meeting with management’s expertise.
Special Meetings: When the credit union needs Board action between regular business meetings, the Directors will focus on the specific actions noted in the meetings’ call. Minutes will record the actions.
Executive Meetings: The Directors will focus their attentions on the agenda of discussions and actions that the Boards needs to take when only Directors are present. Minutes will record the actions.
Independent Directors Meetings: Directors who are not also employees of the credit union meet with no others present for edification born of candid peer discussions and mentoring. The Board will make no decisions at this gathering. No one will make an official or unofficial record.

Here’e hoping that by holding meetings for uique purposes, your organization benefits from the clarity of purpose.

Ask Dan -- Should the executive staff attend board meetings?

2008-04-08T14:00:00.003-04:00

I received an email from a director I have known a number of years. That means that, he's been around a while and yet, is smart enough to know when he's faced with an issue that has no black and white answer. A good deal of governance is common sense and logical. Yet, implementation of governance, in all its facets, is more art than science, much as leadership is both art and science.

BG asked, "What are your thoughts on having members of the executive staff attend the board meetings?

When I became CEO, I brought them to my first and every meeting thereafter. After the first meeting, I made sure the chair knew my purpose: as new CEO, I needed the two VPs to help me answer questions about operations. As the board moved its attentions from perational to strategic, I wanted the opinions of the VPs to influence strategy because, when we began to implement strategy, they already bought in, understood it, and I has less teaching to do.

Pros:

Expose executives to board interactions for career development.
CEO can let them answer questions when more detail is needed.
CEO doesn’t have to relay the board’s sentiments because they all heard it at the same time.

Cons:

The execs may showboat their area; performing for the boss’s boss - CEO can prevent or handle that.
When given an opportunity to present or answer, they may go into too much detail. Detail may drag the board's discussion into operations instead of keeping it on a strategic level. The chair and CEO can handle that.
Directors may start asking questions of the execs directly. On its face, nothing wrong with that with an observant chair at the helm. In a large board (>7) set up a protocol and hold them to it, Chair. In a small board, let it be; chair and CEO should talk together and monitor for effectiveness.
The directors may begin believing or acting as if they all worked for the board; directors/board may slip into tasking the execs and not just than the CEO. E.g. Some discussion on new markets; top marketer wants to carry out what she believed board was interested in, and it is not what the CEO interprets and wants her to do. Again, chairmen need to provide leadership and listen for slippage into operations. Also, CEOs need to speak up and call it when it happens.
The board may be stiffled from direct confrontation with their employee, the CEO. Call an executive session or independent directors' meeting regularly so no one suspects it's bad news.

Maybe there are more of each. The cons can be controlled, and should be, because, in my opinion, the value of the pros outweigh any greater number of cons. The business meeting does not have to be the board and it's single employee. In other words, there's value to the organization to have the wisdom of the board balanced with the expertise of the management team, especially in the evolved board that maintains a strategic and visionary focus for its meetings. Why only inspire the CEO by focusing on the vision when you can inspire and reinvigorate the whole management team?

Who should decide? Ultimately, the CEO as the sole employee of the board. Yet, keeping in mind that the CEO works for the board, I am sure there is room for mutual understanding. A board that believes as I do should negotiate, cajole, debate it with the CEO. And visa versa. While the board can dictate to the CEO to bring her direct reports, I imagine that demanding it without some level of agreement could work against the board’s best intentions. A smart CEO will listen to the board's reasoning, be confident and secure in the job, and can control the variables and make it work to his advantage, and thereby the organization's advantage.

When is Micromanaging, Not?

2008-03-28T15:56:00.002-04:00

How do you know when governance, a hands-off stance, is no longer right? Leaders of non-profits agree that micromanaging is not desirable. A Board should lead, not manage. Leaders are visionary, guiding and inspiring, and focus on the organization doing the right things. On the other hand, managing means to guide and supervise, and try to get things done right.

In a recent conversation with a director, she told me, apologetically, that for a few years her board had micromanaged. The story was that the Board got involved with operational things. The financials showed stress and it appeared that some of the executive’s staff members were underperforming.

In one case, where deficiencies are not critical, the Board may simply ask more questions that are detailed and request more information than usual. In another case, where deficiencies threaten the organization’s viability, or could, the Board may have to be more ‘directive’ and demanding of the Executive. In either case, diligent governance work includes a better understanding of the issues, obtaining the Executive’s plan to correct them, and follow up on the improvements.

Micromanaging is a continuum from doing management’s tasks, through guiding, to supervising, and to meddling. When a Board is micromanaging, it is not leading. For some directors, micromanaging is like a drug addiction, and like drugs, there are potential side effects:

Erosion of trust between the board and executive
Confusion over roles and responsibilities
Loss of value for the constituencies who provide the funds that pay the executive's salary and benefits

Micromanagement means doing management stuff instead of sticking to leadership stuff. However, from time-to-time, Boards need to drop below their proverbial “30,000 foot level” because of a performance issue. Issues include when the essential ratios are not in desired ranges, excessive turnover in staff, and a significant drop in member satisfaction. In other words, anything thing that left uncorrected will affect the organization's viability.

Fiduciary responsibilities require a Board to pursue anything that may threaten the viability of the organization. A Board would be negligent not to adequately pursue signs of performance issues or negative trends. Therefore, a Board in pursuit of a performance issue is doing its job, and would not be guilty of micromanaging. In other words, serious performance issues are legitimate opportunities for directors to get into the “weeds” for a time, and limited to the area of concern.

Legally, a director or the Board can see anything they want to. Transparency is essential to a Board’s ability to hold the Executive accountable. Inquiry and inspection by a director or Board do not inherently constitute micromanagement. However, doing the wrong things with the answers could be.

A board micromanages when it drops below the governance and strategic level without justification. When a Board has justification to drop below normal levels of discussion and leadership, it is doing its job and not micromanaging. Once the justification disappears, the effective governing Board elevates back to the “30,000 foot level” of leadership.

What is your social purpose?

2008-03-26T14:16:00.004-04:00

I believe that every business, every organization must prove that it represents synergy.

Every organization takes three resources from the society, the communities it serves. Every organization absorbs land meaning, when you occupy a space, a footprint on the ground or an office in a tower, no one else can use it.

The same goes for human resources – when they are working or volunteering for you, they are taken from other enterprises, family life, and more. When organizations pull capital from the community, it is no longer available for other investment or spending options.

Organizations process those resources to produce products and services. Here is the first evidence that the organization is accomplishing something.

Sales and advertising efforts generate output, the point when the customer takes the products or services. This often means revenue to the organization. The output stage often defines success to people in organizations.

Yet, the return of customers depends on outcome, the realization by the consumer that the products and services actually made their lives better. If an organization does not generate an accumulative outcome that exceeds the cost of the inputs of land, labor and capital, the organization will collapse and die.

The highest level of planning, strategic planning, deals with outcomes. Where are the needs in the world, the US, your state, the communities you serve that are not being met? There are needs out there. If your organization can identify a need and make a difference, and it made sense based on what you already do well, shouldn’t you look at it carefully?

Analyze the broad market place on a regular basis, not just your niche but broader. Prove your worth by producing outcomes that benefit the communities you serve.

Four Rules for Writing Winning Vision Statements

2007-07-13T16:30:00.000-04:00

1. Take any successful business you know, including yours, and place it in Baghdad. How's it going to do? What would make your community a better place to live?
A winning vision statement addresses the environment of the organization -- the communities it serves -- and what should be better so the organization can excel.

2. When the world that your employees, volunteers, and customers live in is a better place, they will all positively impact your business. A vision is not projection of trends, nor a projection of your growth, for example. A vision does not include platitudes about the good things that already exist; yes we want to perpetuate them, but conditions that require improvement to achieve will inspire the organization more.
A winning vision statement is a set of ideals & desired conditions of how we want to see things improved.

3. Putting numbers in a vision only makes it too concrete, too practical to be motivational. Nobody really cares if you reach milestones of growth; people care more about making a true difference for others.
A winning vision statement contains no numbers although, it may use a percentage to relate a degree to which a major issue (hunger, racial tension) is resolved.

4. Since most organizations' so called "strategic planning" have so long been bogged down at the level of long-range business planning, it may be practical to take their vision horizon up in stages from 5 to 10 to 20 to 30 years.
A winning vision statement paints a picture of life more than 30 years hence. The words used to describe it make it possible for everybody to see it in their minds, and desire it.

With a lofty vision (ends policy) to look toward, management has the direction it needs to develop business plans (means policies) to make that journey. It will become clearer what other organizations and businesses to align with, partner with, and contribute to.

Whether Board Meetings Soar or Deflate Rides on Meeting Packet

2007-05-27T00:11:00.000-04:00

For several decades, credit union and other non-profit executives have prepared agenda packets for their directors. This helps them prepare for board actions — a good thing. In probably 80 percent of all of them, prepared information passes one time a month from the office to the directors.

In an era focusing on governance, boards have been shifting away from acting on operational issues at their meetings to discussing the long-range future, strategic issues, the mission, etc. This, too, is a good thing.

Unfortunately, having all the data that represents operations delivered in the package known as the board’s meeting materials minimizes—even derails—this important shift from operational focus to strategic discussion. All the information arrives in the same package (whether printed or available in electronic form) because it started out that all the information pertained to the board’s action agenda. Now, it all does not.

It is a given that directors need to have information to monitor the organization's performance. And it’s also true that directors need to have advance information and ideas to stimulate their discussions about the future. But it might be better to deliver the two types of information separately—not as one massive board packet.

Much of my work has to do with focus and mind-set. That is especially true when I facilitate strategic planning retreats. I have determined through experience and experimentation that on a given day, it’s best to start with the longest-term, most general planning ideas and gradually work down to details.

It’s a little like flying a hot air balloon. Since people are mired in daily business and personal issues, it takes a good deal of time to get the minds warmed up to thinking lofty, long-term and in the clouds. Getting people to make the mental shift from managing to visioning is a progressive, often gradual, process to orchestrate. Once up there, it only takes the smallest mention of a short-term concern is like opening the canopy of the hotair balloon and letting all the hot air out.

A board meeting can suffer the same fate. The meeting is a change of venue, a break in one’s day. The board meeting is new context, allowing individuals to rise above the small and short-term, to deal with the large and long-term -- to get on a strategic level, if led there. However, if you start the board meeting on an operational footing, in is unlikely you’ll never reach the strategic level at that meeting.

To effect that high level for the participants of a board meeting, make the meeting materials all about the future. That means delivering all the operational reports in a separate package.
This also means you can hold your board meetings earlier in a month. Since the meeting no longer focuses on operational issues, it does not have to wait to receive operational reports in order to meet. You might even get into a preferred restaurant for the meeting because you are no longer competing for space with other boards later in the month.

Discussions of the long-range future do not rely on any month’s or any quarter’s results. Instead, as directors and executives discuss the long-range future, they do so with a memory of the operational trends displayed in the charts and graphs included periodically in the separate operational reports package.

This idea means change, and change can be a hassle. Nevertheless, if you are serious about having hot, future-oriented board discussions that soar in the clouds of long-term thought, then this is an idea that deserves some serious groundwork to launch it.

What do you think?

True Strategic Planning is Macro, Not Micro

2007-04-17T23:13:00.000-04:00

A community-centered vision gives the business plan something more meaningful to work for than to only benefit the credit union itself. Leading organizations advocate for their communities.

Strategic is a popular word often used to label business planning. Credit union’s do business planning for market share, technology, and growth, for examples. Business planning is necessary and is a micro perspective — what affects an individual credit union.

Micro planning without macro planning is contributing to the fracturing of the credit union movement. While organizational success is the duty of its officers, whose duty is it to preserve a place in society and the economy for credit unions, if not those same officers?

True strategic planning is looking for what’s over the horizon, between the lines, and in the shadows — looking for what is not obvious. Strategic planning is the macro perspective — seeking to preserve the viability of the communities it serves, and the movement. A credit union draws resources and life from its communities; improving its communities is an “enlightened self-interest.”

Boards Bury Visioning in Concrete

2007-03-29T20:53:00.000-04:00

We have attracted good people to be on credit union and nonprofit Boards. They are almost all left-brain dominant who like to do concrete things like solving problems; they prefer not to have free-flowing discussion about intangible things, such as vision statements.

Therefore, in large measure, our leadership boards remain involved in management-level planning and decision-making. First, let’s understand about our two brains. Actually, two parts of our brains. We have a right-hemisphere that is simultaneous, and a left-hemisphere that is sequential. Daniel Pink suggests we see it this way, “the right is the picture, and the left is the thousand words.” We all use both hemispheres all the time, yet one side dominates how we think and act.

Here are observations and facts to consider:

The majority of humans are left-brain dominant. That’s been good for much of human history, helping humans adapt to life on earth through the rigors of science, the industrial revolution, and pyramidal organizational structures.
Boards of nonprofits are more left-brained than the average population. Maybe it’s because in the early days, Boards did all the work, getting satisfaction from completing taks.
Left-brain dominant directors (and managers) prefer to work with familiar problems and solve them. Board agendas bring such decisions to the board. Those decisions keep out the strategic and visionary discussions that may keep their organizations relevant: Relevance = survival.
Boards are accustomed to examining monthly, questioning recent activities, and making management-like decisions because many of them are managers in their vocations. Making decisions on concrete issues is intrinsically satisfying to left-brained dominant folks.
Discussing issues with no immediate and concrete answers frustrate left-brain dominant people, and people naturally avoid frustration.
Strategic thinking is more a right-brain activity. Since right-brain activities are random, unplanned, scattered, artistic, creative, and often off-the-wall, they don’t quite fit the traditional Board agenda.

You get the idea. Read Daniel H. Pink’s, 2005 book, A Whole New Mind. He makes the case that we’re passing into an era in human history that favors right-brained skills. [ buy the book here ]

Restructure Board activities and agenda to focus on strategic and big-picture issues. Recruit directors and more managers with right-brain tendencies and skills.

Get creative or perish. If you don’t believe perishing is a real possibility, you’re not seeing the long-term picture, and I can’t fit in the thousand words here.

2006-10-27T19:27:00.000-04:00

I recently received some interesting questions from someone who has taken an interest in the movement of credit unions to banks.

"Mr. Clark:

"In recent months, I've developed a bit of an avocational hobby writing about the credit union movement, from the perspective of an outsider. Many of my items have been posted at Bruen's Credit Union Blog (http://www.cbruen.com/blog/) Much of my interest in credit unions stems from concern about the bizarre phenomenon of CU-to-bank charter conversions.

"Credit union governance has been a puzzling topic. In the day and age of the World Wide Web, information, misinformation, speculation, conjecture, and hidden secrets can be disseminated much farther than in the pre-Internet era.

"From my lay person's perspective, I'm puzzled at some of the following:"

Q. Unlike most institutions we think of as "democratically controlled", like our local water district, sewer district, or city council, very few credit union boards allow their member/owners to attend their meetings. The only one I've found in my research so far has been [a California] Federal Credit Union. While one can argue the merits or legality of a private-sector board conducting its meetings in private, credit unions put themselves out there to the public as "member owned, democratically controlled" cooperatives.

A. There are variations on democratic control. Since credit unions deal with people’s money, their life savings, their borrowing, and their delinquency, and historically credit union boards have dealt with those things at board meetings, the movement respected member’s privacy by keeping board meetings closed. Maybe that will change because those details rarely come into the board meeting today where a board practices good governance. However, in the various non-profit organizations in which I have held office, the board meetings were in effect closed, not open as your experience has been. Florida has a ‘sunshine’ law. For example, advisory boards to local governments must meet “in the sunshine,” meaning that the principals publish meeting times and locations to the public so anyone can attend.

Q. Unlike most "democratically controlled" organizations, very few credit union boards post minutes of their meetings on their web sites or even on a message wall inside their CU lobby. Again, Los Angeles FCU is one of the few I've found which publishes their minutes.

A. In my experience no boards post their minutes; there are many more non-profit organizations than there are municipal government and quasi-government agencies to list. I wonder what it is you hope to learn by reading a board’s minutes. I found the board’s minutes on the Web site consisted of twelve pages. Rather than reading like a corporate record of essential actions, it reads like the intent is to disseminate insight to the members. It is a unique approach and perhaps is ahead of the times. The same could be done, however, in a newsletter and much less in the corporate record. This being a governance blog, I must add a comment. It appears from the minutes that the Board spent a great deal of its valuable board time, the value being its face-to-face time with management, dealing with details and not taking on the future very much.

Q. Unlike most "democratically controlled" organizations, CU boards can impose major changes to the bylaws without notifying their membership of such proposed changes. There is no mechanism in place for member/owners to submit written comments or to present live testimony for or against such changes.

A. Bylaws help define what powers the owners are delegating to their elected boards. I wonder what you think memberships would want in the bylaws beyond what is in them now. In the early days of the movement, before the 1970s, most credit union memberships made bylaw amendments at their annual meetings. Some regulators provided model bylaws as do Florida and the National Credit Union Administration. I believe all the regulators stand in to represent the memberships when boards adopt non-standard amendments. Perhaps the credit union movement is unique among all other non-profits in that memberships have deferred to regulators or, when they weren’t looking, had the regulators take over that function on their behalf.

Q. If the decisions by the Washington State Court of Appeals for Columbia Community Credit Union are true statements of the law, CU board members actually have no fiduciary duty to the member/owners who elected them to office; apparently their only fiduciary duty is to the (current) credit union as an institution, i.e. its current management team.

A. Since the board of directors cannot represent individual members by sheer numbers, they act as trustees. Members benefit from the care and loyalty exercised by the board of directors for the entity. Since the members vote to let the institution change form, the essential question for all of us — the community and the regulators who in-part protect the community of consumers — is this, do they know what they are doing and understand the impact of their choice? I do not share your definition of the entity as “the current management team.”

What is bizarre to me is that, in the face of conversions of credit unions to banks, bank trade associations and bankers continue to spin the story that credit unions have advantages over banks. Could you explain that apparent contradiction to me?

Boards Need to Design Their Information

2006-06-09T12:59:00.000-04:00

You know the feeling, how some statements or phrases stick with you forever? I heard some words many years back, outside of this context. Now I can see, and maybe you will too, how they relate.

Have you ever thought how simple life could be to have one basic form of information to give to anyone? But, “No.” If you want to join a club, you fill out their form. If you want to borrow money, you fill out that lender’s form. Their forms are user based. And that’s ultimately right because each has their own information needs. In a computer foundation class in college, I learned that, “An information system has to be user based.” It was a reminder to programmers that they should not control the form of output, but the user of the information should.

However, 999 out of 1000 of today’s boards of directors receive information that someone else decided they should have. What would it be like to turn that around?

My challenge today is to have your board take some time to think about what it needs to know and request that in a form it not only understands, but can easily and quickly digest.

I just completed a seminar in which we talked about how overweight board packets get over time. That's why I offer a service to help out(find out more). One board has taken the time to workshop the information. The director described going through the packet one page at a time. Any page that didn’t get at least one director’s vote was removed from future packets. That’s a great start. They plan on another such exercise.

The next step for them could be the top-down approach. Ask the directors what they have to have in two categories. First, based on the type of organization, what are the ubiquitous and primary few measures of organizational health and vitality? Directors need to receive those simply and regularly. Second, based on the organization’s plans, what does the Board need to track performance against the plan?

Like the dashboard on your vehicle, you get just what you need to be safe and know when to get it repaired.

Need a Governance Committee?

2006-06-08T15:49:00.000-04:00

Why have one? The last ten years or so, there’s been a great governance movement among non-profits. Carver’s 1990 book, Boards That Make a Difference, was the spur. In the land of credit unions, my books, Reinventing Credit Unions, 1990 and Who’s Driving Credit Unions?, 1997, both offered similar stimuli moving credit union boards to a more pure governance position.

Many in the business of being a volunteer director did not realize that they have been practicing some level of governance for a while. Now they have projects to examine policies and board/executive power relationships, in order to rewrite the relationship. Some organizations establish a Governance Committee. It is quite common, when a Board establishes a committee, to make it a standing committee. What about making it ad hoc?

When governance is no longer a project, the GC may evaporate. Governance is what every board begins to do when it stops doing everything by itself, and starts getting things done through others. The next stage in the life of a Board is pure governance -- no operational duties, only setting ends and limitations. Once the Board achieves that level of governance, it's no longer a project but a way of accomplishing success for the organization and its beneficiaries. Then, let the committee go.

Policies Serve Two Masters

2006-02-07T18:36:00.000-05:00

A governance policy manual serves two masters. First, it is of greatest importance and value that the operators of an organization find what they need easily in their policies. Second, accreditation reviewers and auditors should be able to find what they need by reading through it when they need to.

Those ‘external’ reviews happen only annually or only once in several years. It is more important to organize the policy manual for the benefit of the operators because they are likely to pick up the book or search the e-file much more often.

In addition, in a recent policy review and enhancement, the directors of a board I was working with all agreed that if they pick the manual up to read cover to cover, it should read with continuity. If that is the desire, and it’s a reasonable one, then organizing governance policies to suit the external reviewers’ checklists makes no sense.

There is a way to assist in accreditation and audit reviews. Take the accreditation standards, for example, and one by one find the provision in the policies. Note the policy reference next to the standard, and note the standard next to the policy statement. If you can get a copy of the auditor's checklist, do that comparison as well.

In the process, you establish that the policies cover all the standards (of course, fill any gaps before the next review). Also, what you have then is a cross reference the reviewers can use to get through their work. In addition, amend the policies to include a parenthetical reference to the standards. Here’s an example, (Ref. COA V.4.02) where COA stands for the Council on Accreditation. Making that notation will avoid an inadvertent deletion later by a board that doesn't know its relation to accreditation.

Committee Recommendations Hit the Table Running

2005-12-17T00:22:00.000-05:00

Today, we need boards to act more right-brained (creative and spontaneous), and a little less left-brained (rigid and procedural). For that reason, I have been helping Chairs of boards see that strenuous adherence to Robert’s Rules can be stifling and hinder their progress.

For example, no one has to make a motion for a board to adopt the recommendation of a committee. The Board Chair can assume the motion, especially if the wording in the Committee’s report, proposal, or resolution is clear, and open the floor to discussion on it.

Since a committee has several members and a majority vote put the proposal forward, it in effect has a second that puts it on the table for discussion. Also, since boards of a dozen or fewer people are close and know each other fairly well, their rules of order only ask that someone put forth a cohesive and understandable proposal, or motion. The Chair need not ask for the traditional “second” that large assemblies require before discussion ensues. (Refer to Robert’s Rules of Order, Newly Revised, Paragraph 48, Boards; Procedure in Small Boards.)

ALso, a model rules of order for a non-profit board is available on my Website at http://www.danclark.com/articles/index.shtml.

Policies vs. Procedures: a definitive difference

2005-06-27T23:47:00.000-04:00

What do you think? You find a couple pieces of paper each with statements printed on them. On the first sheet, one of the statements reads, "Employees will keep their work spaces efficient and neat, presenting a business-like appearance,"

On the second sheet, the statements read like this, “Select files at least seven years old. Shred the contents in a crosscut shredder. Place reusable folders in the cabinet and discard the others.”

What are those statements? They are intrinsically different. The first statement is a guide. It explains “what” is important and “why.” It is a policy statement. The second tells employees how to do a task. It is a procedure.

People accept that Boards are policy-making bodies. People also accept that people who do the work are best able to draft procedures. Somewhere along the way, a myth emerged. Perhaps this common statement best represents that myth, “boards make policy, and management carries it out.” The implication is that boards write policies, and management writes procedures. Taken a step further, one concludes that if a statement comes from the board it is a policy. If a statement comes from management, it must be a procedure.

We know better. Let us today bust that myth. The content of a statement makes it a policy or a procedure; the authorizer does not. Therefore, the first sheet of paper above could show authorization by a Board or by management. Either way, it is a policy.

We can acknowledge that policies emerge from many levels in an organization. In our context of good governance, here is a simple way to differentiate board governance policy from management’s operating policy. If the policy addresses company-wide issues, if it speaks to management, it is a Board governance policy. If the policy statement speaks to employees, it is an operating policy.

The policy example above, guiding employee workspaces, is an example of an operating policy because it speaks to employees. In some organizations, the board could authorize such a statement, but that would not change it to a “governance” policy. It clearly addresses an operational-level issue. In a large or mature organization, the board would delegate operating policies to management through its governance policies.

A model manual is available for credit unions. In the future, there will be one for other non-profit organizations. Join the newsletter now at www.danclark.com to know when it is available.

Penalty: Chair was in Motion

2005-03-09T18:03:00.000-05:00

A director at a board meeting questions the actions of his chair. At a recent meeting, the chair made a motion, and later, seconded another motion. "Can she do that?"

The Answer is, "Maybe."

To know the answer, we need to know what rules of order govern the meeting. Many organizations' bylaws refer to a version of Roberts Rules of Order. However, if your organization's bylaws are silent on rules of order, then order is up to the elected leader of the board.

As an alternative to the often stifling, confusingly detailed Roberts, boards can and should adopt rules of order that make sense for the size and scope of their board's business. One can find within Roberts, "Rules for Small Boards." These rules make a board meeting flow more freely and easily. One example is not requiring a motion be seconded in order for it to be discussed.

Influenced by Roberts, most organizations at least adopt unofficial rules, unwritten rules, that the Chair does not make or second motions. The Chair’s role is to facilitate orderly discussion and debate. Limiting what the chair can do helps to keep a Chairperson from getting too strong, wielding too much power, and frustrating the democratic process.

An informal model of rules of order is available -- click this link -- http://www.danclark.com/articles/index.shtml

Move to Governance -- what gets left behind?

2004-11-07T10:58:00.000-05:00

The other day I had a telephone conference with a client. The purpose was to give an overview of governance to put all the directors on the same knowledge of the subject. There was consensus that a move to a governance policy was right for them. There was difficulty, however, in figuring out how to go about it.

For a while, the Board and top management had been cleansing their existing policies of operational, detailed policies and procedural statements. This was a good thought and a good start. However, in doing it, they could be losing important statements.

The current proposal was for the board to use a model governance manual, customize it for their culture, and adopt it. In adopting that manual that Board would deregulate or delegate all the existing bodies of Board polices to management.

One issue raised by a director had to do with Personnel Policies. A director expressed the fear that statements in the present personnel policies would no longer protect the organization from legal entanglements. It helped to realize that adopting the new Governance policies did not eradicate the old policies—they would still be in place and belong to management. It is unreasonable to assume that management would make radical and dangerous changes to the policies now belonging to them. Further, the new governance policy would include ends policies for management's guidance, and help the board hold management accountable – "management will maintain personnel policies in a manner that prevents legal entanglements." In addition, a review of the personnel policies is a legitimate step in management's performance review.

Consent agenda supports governance

2004-10-28T23:26:00.001-04:00

Today I received a couple questions that are a day-to-day, okay perhaps month-to-month issues in governance. An auditor raised an issue that the Board’s minutes did not show that the Board reviewed two typical pieces of business.

For the non-credit union reader, the Federal Credit Union Act and many state acts specify that the Board set loan rates. We will leave alone at this time that this auditor had written up something that this organization practiced during several previous audit periods.

Essentially, the first question was how can we satisfy the audit recommendation and carry on our business in the way we think proper? And, can a review of delinquent loans appear on a consent agenda? Non-credit union readers can benefit from the following discourse by substituting any high-level former Board decision, or by substituting any monitoring by the board of a substantial operational area.

Here I focus on the organization’s need to make operational decisions at the right level and by the right people in the organization. We are not here considering strict compliance with governing documents (laws, regs, policies). Consent agenda can facilitate decisions appropriately delegated by a board yet requiring action by the board. For example, if required to act on loan rates, a credit union Board can do so without debate or discussion. The Board delegates that duty to a competent executive. The executive can implement the decisions right away. The decisions receive the official blessing of the Board when it approves the consent agenda. For further information of consent agendas, see my Model Rules of Order, at http://www.danclark.com/articles/index.shtml.

Generally, there is no requirement for a Board to approve a report so, let's not put any on the consent agenda. For example, I know of no requirement that a credit union board see and review a detailed delinquency list. While providing detailed lists has been a long-time tradition and may have at times proved valuable, detail was never required. When a credit union was very small, the Board members might have known people on the list; but that's rare today.

A credit union Board may have adequately addressed its fiduciary responsibilities regarding delinquencies (substiute one of your non-profit's traditional health checks) when: (1) the summary of delinquency is a part of monthly reports (2) reports are listed as attachments to the meeting agenda evidencing distribution to the directors (3) there is evidence (trends charts, management narratives) that the board is aware of the status of delinquency (any key performance measure), knows the normal range, and directors discuss and inquire of management when it's out of nominal range.

I look forward to reading the comments of readers on this piece.

What do people think ...

2004-10-16T14:59:00.000-04:00

if they have never been on a board? I recently spent time with my brother and his friends. While I have been on boards or committees it seems all my life, they have not. We did not talk in depth but there was no concept of how a board is constituted and what its powers might be; these are smart guys but they lacked any exposure to the world of non-profit boards.

There would be little for me to talk about to them regarding what I do for organizations. I help organizations evaluate the relationship between the board and the executive and help establish the power and authority criteria that makes it work harmoniously and effectively for them. Much of what gets done in America by volunteers is ultimately guided and decided by volunteer boards of directors.

I intend for this blog to help me flesh out my thinking on the subject of governance and, in the process, hopefully, help readers think through their own thoughts on the matter.
dc www.danclark.com