Global Governance Advisors

Striving For Good Governance Should Be Universal

Posted by Brad Kelly on Jul 5, 2018 3:16:31 PM
Brad Kelly
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There is a wide array of organizations that exist in the market place:

  • for-profit/not-for-profit
  • privately-owned/publicly traded
  • public sector/private sector

And unfortunately, with this variety, there tends to be a false assumption that there shouldn't be a similar array of board governance standards.

The truth is that ALL Boards of Directors operate under the same three fiduciary duties:

  1. Loyalty;
  2. Prudence; and
  3. Impartiality. 

 

Whether you sit on the Board of Alphabet, a charity, or your local condo board, ALL Boards must do their best to adhere to these same duties. Quite often, Board members suspect that because they are “only” on a board for a not-for-profit, start-up, small privately-owned company, etc. they don’t need to adhere to the same expectations/obligations of a larger, more complex organization.

Prudence is defined by Merriam-Webster as “the ability to govern and discipline oneself by the use of reason” which is why the “reasonable person” test is often applied to Board member actions whenever legal action is taken against them.

In any type of organization, Board members often know that there is, or should be, a better way to conduct their Board activities and complete their annual workplans, and it is fair to argue that in such cases, reasonable people should investigate what that improvement should be. Regardless of our level of skill or experience, all Board members experience a time when something doesn’t seem right or does not pass our personal “smell test.” What we often miss is that, if we feel that things could improve, there is a very high probability that there are others on our Board that feel the same way.

However, the identification of problems or shortcomings is a thing that we, as Board members, often shy away from because it requires us to either admit our own failings, the failings of our Board colleagues, or the failings of our entire Board. Whatever the issue, the duty of Prudence should compel us to act. But what is the best way for us to proceed without potentially embarrassing ourselves or our colleagues?

Board Effectiveness Assessments are a current governance best practice and an easy tool that Boards use to identify shortcomings, establish improvement plans, and track their progress. Board Effectiveness Assessments are annual board surveys that help Board members improve their collective ability to oversee their organization and ensure that they are prudently looking for ways to improve. Specifically, there are several benefits that Effectiveness Assessments provide:

  1. Understanding that most problems are often identified by more than one Board member. Collectively completing an effectiveness questionnaire enables members to collect views and opinions on Board practices and mutually identify areas where there are or could be problems.
  2. The surveys safeguard reputations and relationships because individual responses are often kept anonymous and aggregated with the other responses.
  3. Boards easily use the findings to establish proactive development plans that help them become more effective by improve shortcomings.
  4. Year over year results clearly show if a Board is making progress toward improving problematic areas.

 

If, for any reason, your Board has shied away from conducting such an assessment, or has not conducted one for a long while, the duty of prudence should compel us to ask “Why?” Regardless of the type of organization you oversee, the same fiduciary duties apply to ALL Boards, and ALL Boards should reasonably strive to be the most effective they can possibly be while fulfilling their Board duties.

Topics: board of directors, compensation governance, GGA