In The Source, a text designed to inspire nonprofit boards to operate at the highest and best use of their collective capacity, the first principle is having a constructive partnership between the board and the chief executive:
Exceptional boards govern in constructive partnership with the chief executive, recognizing that the effectiveness of the board and chief executive are interdependent. The board is a powerful force supporting the organization, while the CEO sees the board as a strategic asset.
I was a member of the group that helped create The Source. There is a reason why constructive partnership is the very first principle. It is the foundation on which exceptional governance is built. Let me explain.
When a board hires a competent chief executive, it already has adopted the basics of role differentiation between board and staff. Delegating management duties to the chief executive also assumes that the board clarifies job duties. Like any supervisor, the board is there to support the manager, set performance expectations, and challenge him or her to propel the organization forward.
How the staff gets its work done is the responsibility of the chief executive. Likewise, how the board manages its own tasks is the responsibility of the chair. In a productive partnership, the chief executive uses the board as a sounding board. Together, the two formulate strategic decisions to guide the organization. However, they need to ensure that the details of implementation are left to appropriate individuals within the professional team.
Detailed “oversight” of the work of the professional staff team is not the role of the board. Some board members invoke this as fiduciary oversight but, in the execution, it bespeaks a lack of trust and a desire to micromanage in the name of properly performing fiduciary oversight. A climate of mutual trust that seeks to support the CEO in the execution of duties is a hallmark of high-performing board. Board meddling takes its toll on leadership and is contrary to good practice for both for-profits and nonprofits.
As Dan Pallotta wrote in a Harvard Business Review article titled “Micro-Meddling Boards Undermine Progress, “This micromanagement and religious devotion to convention all take place in the name of upholding fiduciary duty. In reality, they represent a dereliction of fiduciary duty, because they undermine the organization’s potential….[Trustees] have to give [CEOs] the power to do the things that businesses do, …and then get out of the way and let them lead.”
To create a healthy and productive work environment, it is imperative for the board to adopt practices based on trust, differentiation of roles, and division of responsibility. According to The Source, “Exceptional boards are not just outside examiners, but also powerful forces supporting the organization and its chief executive. … While respecting this division of labor, exceptional boards become allies with the chief executive in pursuit of the mission.”
Part of that division of labor involves the board’s responsibility to establish policy for chief executive performance evaluation and compensation and then conduct annual performance and compensation reviews. Even in the division of labor, the role of ally and evaluator exist in tandem as the board exercises its oversight responsibility and seeks to set the CEO and the organization up for success.
Aside from the annual performance evaluation and compensation review, boards must step back and operate according to well-defined and understood norms for the respective roles and responsibilities of board members and of the CEO. Any micromanagement that is occurring must be replaced by a collaborative, supportive partnership characterized by forthrightness, mutual trust, ongoing dialog, robust discourse, and the ability to discuss concerns whenever they arise. This action is pivotal to good governance.