I’m going to challenge you as a director. Ask yourself, can I trust that my board has done its work well enough for management to make big decisions? If the answer is no – you’re most likely not on a high performing board.
I talk to CEOs and board members regularly and when you start talking about the board meetings they participate in, they’re often reports and discussions about the issues facing the organisation. However when you start asking about the decisions that boards are sometimes making, I wonder why management isn’t making them. That’s when the excuses start. These decisions could have a big impact. I’m personally responsible. There’s risk involved. Really directors??
I then look around at some of the people that make decisions in life. Surgeons plunge sharp instruments into people almost daily. Engineers design structures that we walk on every day. People hurtle around streets at speed in big metal boxes capable of crushing others yet we let our families leave the house of a morning. How is it that this risk to the ones we love is ok yet some boards and directors feel management can’t make big decisions? Basically it’s because they’re bad governors.
Snowden and Boone (A Leaders Framework for Decision Making (2007), Harvard Business Review) provide a useful perspective for directors in outlining that simple contexts are the domain of best practice and complex contexts are the domain of experts. A challenge for directors and boards is to recognise the different complexity domains and to apply governance accordingly. These can be viewed through the lens of Mintzberg’s six basic coordinating mechanisms (a summary can be found here) to help directors to apply coordinating methods more appropriately.
A board that is looking to govern matters in simple domains, coordinating mechanisms for improving decision quality include standardisation of work and standardisation of output. These are tools often used in best practice domains as they allow measurement of work. Examples of this include things like a separation of powers policy that requires a process of work for approval and payment of expenses. The standardisation allows comparison between organisations and within an organisation at audit. Standardisation of output may include the use of standardised financial or risk reporting against national standards such as the Australian Standards on Risk Management.
Boards governing matters in complex domains need to focus mechanisms like mutual adjustment, standardisation of skills and standardisation of norms. An example of this is advocacy or stakeholder management where standardised output or work simply fails to properly deal with complexity. In these cases, boards need to focus on establishing policy aimed at ensuring management has the right culture, processes for assessing and maintaining the expertise of the workforce and that it engages in ongoing discussion with management.These draw on the mechanisms of mutual adjustment, the standardisation of skills and standardisation of norms and may include areas like licensing, registration, skills upkeep and continuous learning or ensuring expertise is accessed when it’s not internally available. Boards must focus on culture and ensuring the culture built by management is consistent with the needs of the organisation and must establish systems for open dialogue.
One area that is crucial for good governance is the ability for management and the Board to have an open and honest conversation. The board must create an environment where management can openly discuss issues with the board while continuing to respect the board / management divide.
In professional environments, the complex domain will often be the dominant area of governance however Boards so often spend much of their time discussing the standardisation of work and output rather than discussing the standardisation of skills (and expertise), norms and setting an environment conducive to mutual adjustment.
The final mechanism to be covered is direct supervision. I’d caution boards (and all too often board chairs) who’s repertoire of coordinating mechanisms is so limited that they attempt to resort to direct supervision of a CEO or even worse, the management team. Either those directors need to find a job that they have the skills and attributes for or they have failed spectacularly in their number one job – CEO selection.
Professional governance is about ensuring that people have frameworks, guidance, skills and limits to help them make good management decisions. It’s about supporting and coordinating people to be able to make good quality decisions rather than limiting them. Boards that have failed to put in place appropriate governance systems will invariably lack trust, particularly in areas where directors are not expert and the issues are complex however command and control will never get great results in governance.
I challenge directors to ask themselves what they would need to do to enable management to make decisions. Turn your mind to understanding the complexity and frameworks in which management professionals work and to ensuring management has what it needs to make decisions at the coal face. To be nimble in a rapidly changing environment. To plunge the proverbial knife into management problems while knowing they are trained and have the right support to make good decisions. The next time the board makes a decision, ask what was the failure in governance that prevented management from making a good decision without having to defer to the board.
As a board, if you’ve gotten to the point where you are monitoring, mentoring and guiding rather than deciding, then you’re likely governing on a high performance board.
As always, happy to open debate.
Damian Mitsch, 0403 372 900