Insights from the boards of larger charities 1 Corp

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1 BUILDING BETTER GOVERNANCE SERIES HANDOUT & OUTPUTS FROM THE BOARD EVALUATION SEMINAR (May 2016) DEFINITIONS: GOVERNANCE an umbrella term for the systems, processes and behaviours that enable trustees to hold the organisation in trust, steer its work and optimise the benefit to its current and future beneficiaries (Cass CCE). BOARD APPRAISAL OR PERFORMANCE REVIEW: Assessing and measuring board performance across a range of areas including collective and individual performance & behaviours and the overall practice, systems and structures of governance including board meetings & committees. To be effective, it requires learning from what works well, what could be done better and taking deliberate actions to improve Nb Board appraisal, board effectiveness reviews, board performance reviews, governance review, board evaluation, board development are often used interchangeably to mean activities that evaluate and support improvements in governance practice Insights from the boards of larger charities 1 Corp organisations that regularly review their arrangements rate their resulting governance more highly Survey results: > 100m ALL undertake governance reviews 25m - 100m 86% < 25m 50% From the study, the top 20 drivers of the performance of governance - in the order of importance and relating to board appraisal - are boards in their governance practice that: 2 Ensure meetings deliver excellent governance 13 Spend time discussing the performance of governance 16 Hold formal reviews of governance 1 Delivering Effective Governance: insights from the boards of larger charities (2012) Compass/Cass Board appraisal handout May

2 18 Review performance of members before re-election 20 Review individuals board members performance But that drivers 13, 18 & 20 are least frequently in place. Board appraisal handout May

3 What the literature says: The use of self-assessment tools is growing (Board Source, 2012) but Cathy Trower author of The Practitioner s Guide to Governance as Leadership cautions that they do little to improve board performance ( we did a self-assessment; we do one every year (or every other year). Yet, no one can really recall where the findings went or what happened as a result. Self-assessments can only drive higher performance if the board takes the time to discuss the findings as well as what needs to improve and describes a path to do so. Then, it re-evaluates and conducts another discussion, all moving toward continuous improvement ) A McKinsey survey in 2004 found that only 17% of nonprofit boards felt them to be as effective as possible. Board members and the executive are often dissatisfied with board performance (Holland, 2003 in Cornforth & Brown, 2014 p31) Research has shown that boards of nonprofit organizations that take time to regularly assess their performance are more effective than those that don t. Board effectiveness is positively associated with performance evaluation (Brown, 2005/7) There is evidence that thoughtful and well grounded board development initiatives can have an impact on board effectiveness (Holland, 2003, Gill et al, 2005 in Cornforth & Brown, 2014, p31) Board and board member effectiveness are positively associated with the use of 3 types of recommended practices (planned recruitment, board member induction & performance evaluation) (Brown, 2005, 2007) A feedback loop of review and improvement starts to generate a culture of learning which is maintained despite the transient nature of boards (Axelrod, 2007) Board performance reviews of individual trustees: such reviews are horizontal in nature (as opposed to the vertical appraisal implicit in employee performance reviews) which suggests that a more sophisticated approach needs to be taken to the design of evaluation methods to encourage acceptance and greater effectiveness (Ingley, 2002) Board evaluations / assessments can be an acid test for a significant number of governance related requirements such as role profiles, expectations of the role, selection processes, induction and training (Kazanjian, 2000). A Pandora s box may be Board appraisal handout May

4 opened revealing sensitive issues such as under performance or incompetent directors and once revealed, they can t be ignored. Kazanjian (2000) also suggests that assessments may interrupt the collegiality and interaction of the board ( the board as a team ); directors may be reluctant to reveal a lack of preparation on a topic, an ignorance of an issue or contribute in a way that might potentially impact on any future peer assessment. Richard Chait (interview in BoardSource, 2010) cites culture as being particularly critical in governance, given the transient nature of boards. when board members explicitly codify and enforce mutual expectations, norms and standards, a culture takes hold. Permanent norms guide transient board members COMMON TYPES OF REVIEW: COLLECTIVE REVIEWS Start simply end of meeting reviews (see SIX PERFORMANCE REVIEW FRAMEWORKS) start the conversation about board performance and help to raise awareness about what might be done differently. INDIVIDUAL TRUSTEE REVIEWS An annual 1:1 conversation led by the Chair with all trustees helps to engage trustees about their individual contribution, their hopes for the future; it provides an opportunity to talk about how the board is performing and some Chairs also use the time to seek feedback on their performance. CHAIR S PERFORMANCE REVIEW The Chair or another trustee can seek feedback on their performance informally or formally (informal requests for feedback, interviews with all trustees, questionnaires etc.) As the board becomes more comfortable with board performance review, activities can become more formalised, lead to the documentation in a Board Development plan which is then monitored. All activities help to develop a culture of continuous review and learning which start to explicitly codify and enforce mutual expectations, norms and standards and a culture takes hold permanent norms guide transient board members (Board Source, 2010). Maintaining a culture of learning when the composition of boards changes so frequently is essential to its future effectiveness and development. Once a culture has begun to develop, boards view all their activities through a lens of action, review and improve for next time so that it becomes an integrated process of board development and continuous improvement. Boards take more ownership of governance (rather than it being imposed on them) and start to hold conversations Board appraisal handout May

5 about where improvements can be made they become less accepting of being controlled. Whatever approach is chosen, it should lead to the gathering of facts, to debate & consensus on priorities with commitment from all members of the board Board appraisal handout May

6 SOME BENEFITS OF PERFORMANCE REVIEW INCLUDE that the activity: Creates a culture of review, learning and development Promotes a model of performance review practice that cascades throughout the organisation (and enhances the benefit to all staff and volunteers and ultimately beneficiaries) Encourages an expectation that trustees will develop in the role (as generalists beyond their specialism ) Sparks conversations about board practice Discourages acceptance of same old, same old board agendas & meetings practice Helps the board to take responsibility for their governance practice Supports the board to understand the skills that will be needed for the future (not those that were needed for the past) Provides a mechanism and process to have conversations with those trustees who are not pulling their weight Encourages feedback about the board and its members and the performance of the chair Board appraisal handout May

7 LIFECYCLE STAGES of a nonprofit organisation 2 Organisation size BIRTH YOUTH ADULTHOOD MATURITY DECLINE Overview Founding idea or vision Run on adrenaline Demand leads to opportuniti es Strategically managed Cause is well established Risk of being taken over by others Needs change Governance Managemen t Led by supporter s Dominate d by founder(s) Board / staff roles modified New leadership Confusion between consensus and consultatio n New staff Board governs Strong leadership Specialists Professionals Highly experienced Policy orientated Older staff Highly experienced New purpose needed to allow rejuvenation Harder to attract quality staff Programme Informal Simple, broad Systems / admin Resources (financial) Few systems Sweat Attempts to systemise Grants, cash Definition Differentiated Systems established Close reporting Accountability Multiple Sophisticated Less entrepreneuria l Antiquated Asset rich Expenses heavy Membership declines Ad hoc Donations fall Time PERFORMANCE REVIEW UNLIKELY TO START BEFORE THE BOARD REACHES ADULTHOOD Part of the life cycle of boards: a young board is unlikely to be giving attention to its governance performance apart from setting up the basics such as role descriptions and other key documentation and process. It s part of the professionalization of boards to start to undertake such reviews as the organization develops. 2 Adapted from Mike Hudson (2004) Managing without profit (DSC) & Susan Kenny Stevens (2001): Non Profit Lifecycles : Stage based wisdom for Non Profit Capacity (Stagewise: Minneapolis) Board appraisal handout May

8 Board reviews can result in a range of areas starting to be reviewed eg the board can find that its trustee role profile needs updating or the committee structure and function doesn t work as effectively as it might. There can be resistance to starting board evaluation / appraisal, reasons can include: We are only volunteers - particularly on boards where recruitment has been difficult why as a pro bono trustee would you submit yourself to appraisal? Time - for a chair with 15 trustees the time commitment to review all board members can be quite substantial. Relationships - chairs can be uncomfortable reviewing people they may know outside the board and who are their peers (horizontal nature of reviews on boards) Resistance - open or covert resistance which can be driven by the Chair Not sure what it might uncover Pandora s Box and once revealed, the issues can t be ignored. Such issues can include poor performance by some board members. Because the board is a team - assessments may interrupt the collegiality and interaction of the board TIMING From ICSA Charities Handbook (2012) Need to ensure that the purpose of any review is made clear and agreed with the trustees. The board needs to consider the best time for a review. It is not advisable to undertake an appraisal during periods of crisis or conflict within the charity. The trustees are unlikely to agree a common purpose for the appraisal and the process risks deepening rather than resolving any conflict. It is also the case that the appraisal would distract the trustees from the primary purpose of addressing the conflict or crisis. Otherwise, if part of a regular review, it should be timed to fit in with the on-going agenda of the board and other business to be dealt with throughout the year. WHO TO UNDERTAKE THE REVIEWS? Staff can contribute but shouldn t lead on board appraisals Trustees themselves have the advantage of knowing each other and the board s processes, but may lack objectivity. Using an external consultant or facilitator brings a fresh perspective. Areas that may be unpalatable if said by a member of the board, Board appraisal handout May

9 might be acceptable if said by someone from outside BUT boards can more reject unpopular or difficult opinions when offered by an external party Nb Boards can sometimes commission an external review with the expectation that no improvements will be recommended (which is unlikely). When the external consultant makes recommendations on practices that might be changed, they can be met with resistance (Ros Oakley, Principal Consultant, Cass CCE + Chief Executive, Association of Chairs, April 2015) Some thoughts: Alice Maynard (Association of Chairs) Good governance comes with a price tag Cyril Houle, ''A good board is a victory, not a gift." Governing Boards: Their Nature and Nurture Sir Andrew Likierman A successful board cannot guarantee that a company will be successful but can make a huge contribution to it being so. An unsuccessful board will mean that at best the company does not reach its potential and at worst, it is destroyed Measuring the Success of the Board (2014) London Business School Nb A point was also made that references are rarely taken up when trustees are appointed. If the trustee has been on a board before, ask for a reference from the chair or a board colleague from that organization. Board appraisal handout May

10 EXTERNAL OUTPUTS FROM THE SEMINAR SERIES Results from the mini survey: There are a lot of current activities being undertaken that contribute to board evaluation/performance review (nb the number in red denotes the number of boards undertaking a particular activity) FORMAL INTERNAL Self assessment 2 1:1s between Trustee & Chair 3 Reviews pre re-election 0 Exit interviews with departing trustees or peer feedback systems contributing to review process Induction programme reviews 1 Formal feedback on chair s performance 3 Committee effectiveness reviews 2 Occasional reviews of particular aspects of governance eg succession planning, meetings practice, diversity audit etc. 6 Reviews of attendance (published) 5 Skills matrix & assessment 6 Closed sessions without the executive 4 External commissioned governance reviews 4 Observation of board meetings (external) with feedback on behaviours, focus, attention to topics etc. 5 Development activities with some analysis of current governance practice (eg at the away day) 5 Exit interviews with departing trustees (external) 0 Requirements by grant-makers & other funders seeking information on governance or offering feedback as part of due diligence 5 Peer review (eg one organization reviewing another s governance) 3 End of meeting short reviews (eg what have we learnt, what was the most useful agenda item etc.) 4 Regular reflection & conversations about governance 4 Light touch undocumented reviews of particular topics 4 Chair regularly seeking informal feedback 5 Informal benchmarking against governance studies (eg Hudson / Cass model) 2 Informal feedback from external parties (eg stakeholders including staff, beneficiaries etc) 3 Informal comparison or benchmarking against other board practice 4 Board appraisal handout May

11 INFORMAL GETTING STARTED ON BOARD PERFORMANCE REVIEW: combined results from the 2015 & 2016 seminars BARRIERS TO INTRODUCING WHOLE BOARD REVIEWS Inertia (lack of time, inertia, commitment, cost) Time or resources ( takes up too much of our limited time together ) Club culture of the board Ignorance about its benefits Getting whole board buy in Scepticism can t see the benefits Lack of buy in from the board we re only volunteers Making the process too rigid and prescriptive ENABLERS TO OVERCOME SUCH BARRIERS Undertaking benchmarking (using a model like Hudson) Looking at best practice elsewhere & comparing Staff demonstrate that it s not that difficult and can be done for free Demonstrate that boards that review their performance are more effective Consider who might undertake a review (could be departing board members) Have a flexible review process that is appropriate and reflects the context Break it down into chunks Emphasise value Positive and supportive Chair Recognition that this could be a means to future funding Share the practices of other boards that are seen to be performing well (to demonstrate the usefulness of a review process) Refreshing board membership Training on good governance Guidance from Charity Commission Create a positive atmosphere (perhaps by undertaking a peer review) Build understanding of the benefits Having evidence of its usefulness Emphasise the benefits (getting to know each other better etc.) Start simply Board appraisal handout May

12 BARRIERS TO INTRODUCING WHOLE BOARD REVIEWS Development stage of the organization (can become stuck in youth phase) Arrogance ( we re doing well enough ) Fear about disclosure (of shortcomings?) Lack of leadership Proprietorial attitude of the Chair ( it s my baby ) particularly a long serving one. Territorial barrier between Chair and CEO Depending on board culture (diversity?) would an internal review get to the real issues? Lack of external oversight, drive or accountability it s a new concept Being guardians but not considering nonprofit s objects (complacency) Founder syndrome Overly close relationship between Chair / CEO or conflict between them Make up of the board (eg board is very cosy and happy with current practice) ENABLERS TO OVERCOME SUCH BARRIERS Reviewing governing documents re terms of office, trustee elections Benchmarking (using a model like Hudson) Ensuring it s part of a continuous development process not just a one off Leadership Integrate into normal board practice so with time not seen as anything out of the ordinary and becomes part of the culture The attitude of the Chair open, engaging, receptive to change. One who models the necessary behaviours (including humility) Clarity about role Have a mechanism to allow some anonymous method to bring issues to the board (including occasional closed sessions) Use an external reviewer and ask the right questions Diversify the board Stakeholders (funders, regulators, sponsors etc.) expect Raising awareness with the board of the theory (if not need for) board evaluation Review of governance stemming from legal requirements such as incorporation Recruit strong new board members Have a board coach Ensure trustees have limited terms of office Commission an external review Ensure Vice Chair (or another trustee) is involved or a Governance Committee) Ensure included in role profile CEO could educate the board on good practice in governance (Charity Commission guidance etc.) Board appraisal handout May

13 BARRIERS TO INTRODUCING WHOLE BOARD REVIEWS The board is too operational and insufficiently strategic (so little time for board development) BARRIERS TO INTRODUCING INDIVIDUAL TRUSTEE PERFORMANCE REVIEW Inertia We re only volunteers! Fear (conflict, questioning of competency) What next Time by the chair to review all the board Why should I be assessed when I m a volunteer Muddling fundraising & governance (ie when a trustee is also a donor) Not introduced skillfully (no discussion, preparation, buy in from the board) No experience or not clear about what good performance looks like Fear of being judged People feel threatened ENABLERS TO OVERCOME SUCH BARRIERS Review focus and impact of current approach and what can be learnt Invest in the board ENABLERS TO OVERCOME SUCH BARRIERS Strong leadership Transparency & openness Good communications Everyone treated consistently De-personalise the review process emphasis the collective benefit Start at the beginning with clarity about this aspect in the role description etc. and expectations of the role Build trusting relationships between board members Chair needs to lead positively Having access to external advice Stagger reviews across several months / years; perhaps add onto trustee meetings Trustees share their development plans Emphasise in recruitment, clarity in role description and induction Introduce and explore the benefits into a conversation at board meetings Committee structure? Ie ensure that the development board is separate from the main one Set expectations at the beginning Chair needs to show the way Include in strategic planning ( staff and board development ) Briefing about the role should include what good looks like (including behaviours) Knowing the process and what to expect Board appraisal handout May

14 BARRIERS TO INTRODUCING INDIVIDUAL TRUSTEE PERFORMANCE REVIEW The skill of the person undertaking reviews or how it s followed up Loss of trustees Transparency of process what is recorded and who would have access to the findings? Insecurity Remote trustees or trustees that have problems physically attending meetings Reluctance of chair in face of high powered trustees Ego of trustees Concerns about what to do with poor performance when uncovered during a performance review ENABLERS TO OVERCOME SUCH BARRIERS Emphasise the positivity of the process for individuals and the board ( we don t expect perfection ) Help the board to get to know each other to break down barriers (and fear of being judged) and therefore be more open to peer review Stress positivity Don t rush it. Put the foundations in place as a board development pathway An effective chair Build a closer relationship with the chair Trustees taking ownership and having an input into the process Build it into the whole picture of board review Taking a non judgmental approach Personal development Using a variety of methods (eg via phone or using time around board meetings) Explored during collective review process Effective recruitment & clarity on role and responsibilities which is regularly refreshed (and performance reviewed) Head off issues before they become intractable use a probationary period style review for new trustees + regular reviews should pick up problems early when easier to address. Board appraisal handout May

15 REFERENCES Cornforth C, Brown W A (2014) Nonprofit Governance Routledge Axelrod A (2007) Culture of Inquiry: Healthy Debate in the Boardroom Boardsource Jansen P, Kilpatrick A (2004) The dynamic nonprofit board McKinsey Quarterly issue 2, p72-81 Bhagat C, Kehoe, C (2014) High performing boards: what s on their agenda? McKinsey Quarterly issue 2, p12-16 Ingley C, van der Walt N (2002) Board Dynamics and the Politics of Appraisal Corporate Governance: an international review (Vol 10, No. 3) Kazanjian J (2000) Assessing Boards and Individual Directors Ivey Business Journal 65(4) Chait R P, Ryan W P, Taylor B E (2005) Governance as Leadership BoardSource Sonnenfeld J A (September 2002) What Makes Great Boards Great Harvard Business Review Nadler, D. A (May 2004) Building Better Boards Harvard Business Review Great Boards, (Winter 2005) Evaluating Individual Trustees Performance Realising the Potential of Governance: the report of the ACEVO Governance Commission (ACEVO, 2013) The Charity Commission, The Hallmarks of an Effective Charity (CC10, 2008) The ICSA Charities Handbook (2012) The Code of Good Governance (2010) Likierman Sir A (2008) Board appraisals: from compliance to success, London Business School Help the Hospices (now Hospice UK) (2012) Board Development Programme Board appraisal handout May

16 Hudson M, Ashworth J in association with Centre for Charity Effectiveness, Cass Business School (2012) Delivering effective governance, insights from the boards of larger charities (distributed by the DSc) Board appraisal handout May

17 Board appraisal handout April