Boards At Their Best - University Of Virginia

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Boards at Their BestUniversity of VirginiaBoard of VisitorsFebruary 20, 2014Richard ChaitHarvard University

The Question3

The nce4

The Components1. Context: Academic Culture2. Modes: Roles and Responsibilities3. Dynamics: Board Culture4. Mechanics: Structure and Procedure5

Welcome to Wonderland:The External Environment6CorporationsUniversitiesMaximize profits mindful ofsocial responsibilityMaximize prestige mindfulof public benefitExpand market shareExpand mind shareCompete on outputCompete on inputDynamic competitionStable competitionNewer generally betterOlder generally better

Welcome to Wonderland:The Internal Environment7CorporationsUniversitiesProprietary strategyPublic strategyGrowth by substitutionGrowth by accretionIncrease marginsIncrease subsidiesDefinitive performance metricsIndicative performance metricsConcentrated authorityDispersed authorityBoards of prominent peersfocused on shareholder valueBoards of prominent citizensswamped by multiple missions

Learn to Drive on the OTHER Side

The Collegial Compromise

What do these companies have in common?American Cotton OilLaclede GasAmerican SugarNational LeadAmerican TobaccoNorth American UtilityChicago GasTennessee Coal & IronDistilling & Cattle FeedingU.S. LeatherGeneral ElectricU.S. Rubber

Original Components of DJIAAmerican Cotton OilLaclede GasAmerican SugarNational LeadAmerican TobaccoNorth American UtilityChicago GasTennessee Coal & IronDistilling & Cattle FeedingU.S. LeatherGeneral ElectricU.S. Rubber

Durability12 Top 25 public universities: 152 years. Top 25 private universities: 187 years. Top 25 private colleges: 181 years. University of Virginia: 195 years Top 35 regional colleges of Midwest: 123 years.

R.I.P.American MotorsArthur AndersonBear StearnsBethlehem SteelCircuit CityData GeneralDigital EquipmentEastern AirlinesE.F. HuttonEnronLehman BrothersLionelLitton olworth’sWorldCom

R.I.P.Notable Colleges and Universities

Modes of Governance The way we think which affect how we organize what we see. Think and work in three different modes. All three serve important purposes. Value added increases as board: Becomes more proficient in more modes.Does more work in least familiar mode.Chooses appropriate mode(s) of work.

Should Boston Museum of Fine Arts lend 21Monet Paintings to Bellagio in Las Vegas?16HIP

Should Boston Museum of Fine Arts lend 21Monet paintings to Bellagio Casino in Las Vegas?Fiduciary:Travel-worthy? Insurance? Security? Donor restrictions?Financial arrangements? Timeline? Curatorial control?Strategic:Effect on attendance, image, audiences? Prototype deal?Competitive responses? Patron tie-ins? Vegas in Boston?Generative:Mission related? What will MFA do for the right price?Public art/private dealer? Venue consistent with values?MFA conservative or iconoclastic? Commercial or civic?17

Fiduciary ModeBoard’s central purpose: Stewardship of tangible assetsBoard’s principal role/responsibility: Guardian/oversight.Board’s core work: 18Determine, pursue, and refine mission.Ensure quality, integrity, sustainability.Oversee and audit finances, compliance, risk.Monitor performance and progress.Safeguard institutional values, reputation, autonomy.Select, support, and evaluate president.

Value-Added Fiduciary Work19OversightInquiryDue diligence?Hold what in trust for whom?Scandal free?Safeguards in place?In compliance?Voluntary measures to earn trust?Can we afford it?What’s the opportunity cost?Clean audit?Insights from audit?Budget balanced?Budget matches priorities?Do we manage risk?Do we take sensible risks?New program meets market?New program serves mission?Is it legal?Is it ethical?Can we get the gifts?Do donors expect too much control?Staff turnover manageable?Are staff treated fairly?

Strategic ModeBoard’s central purpose: Strategic partnership with senior management.Board’s principal role/responsibility: Strategist/foresight.Board’s core work: 21Understand internal and external environments.Ensure sensible, feasible, comprehensible strategy.Test consistency of plan, mission, priorities, resources.Review strategic decisions required to execute.Monitor performance and progress.

Value-Added Strategic Work22Strategic PlanningStrategic ThinkingCan we see the future?Do we understand the past?What’s the plan?What’s the idea?What’s the better program?What’s the superior insight?What are the planned costs?What are the intended outcomes?Embedded assumptions?Challenges to status quo?Steps in the process?Sure signs of success?Size of markets?New markets?Traditional competitors?Nontraditional competitors?Internal consensus?Customer appeal?Public aspirations?Proprietary advantages?

Generative Mode Board’s central purpose: Board’s principal role/responsibility: Sense-maker/insight.Board’s core work: 23Decide what merits attention and what it means.Make sense of circumstances.Find and frame problems and opportunities.Reconcile realities, values, and choices.

GenerativeStrategicFiduciarySource of leadershipfor universityStrategicpartnership w/managementStewardship oftangible assetsChief roleSense makerStrategistStewardCore workFind and framechallenges, reconcilevalues and choicesScan environment,shape strategy,create comparativeadvantageSet mission,oversee operations,budget resources,ensure complianceInsightForesightOversightBoard’s purposeValue added24

The Generative CurveSense-makingProblem-framingOpportunity forGenerativeW orkStrategies,PoliciesPlans, Tactics,ExecutionOpportunity toinfluencegenerativework declinesas issues areframed andconverted intostrategies,plans, andtactics.Tim e25GOVERNANCE AS LEADERSHIP

Competition for StudentsR econcile social purpose & business m odelFiduciaryStrategicGenerativeOpportunity forGenerativeW orkCom pete on am enitiesAdd fitness centerTim e26GOVERNANCE AS LEADERSHIP

Checklist for Board Engagementin Decision Making 28Statutory requirementFiduciary responsibilityStrategically criticalSymbolically importantFinancially significantPotentially substantial riskPrecedent settingImplicates core valuesRelevant expertiseLegitimation, insulation

“They can’t find their hidden agenda.” 2011. Not to be reproduced or distributed without the express permission of the author.

Pertinent Practices: Elevated Purpose.30 With management, decide what to decide. Focus on the “main thing.” Get the questions right. Develop rolling 12-month agendas for board & committees. Wear “tri-focals” to analyze issues in three modes. Close trustee and staff knowledge gaps on key issues. Ponder what CEO suggests, suggest what CEO should ponder. Substitute high value added for low value added activity. Apply corporate standards of relevance.

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Board Culture 32Make no mistake, it is the board’s culture—the shared values and beliefsthat delineate acceptable behavior—that ultimately determines howeffective the board can be (Nadler, 2006).Group dynamics underpins the board’s ability to do all the componentsof its job Directors must define the norms of behavior (Charan, 2005).It’s not the rules and regulations. It’s the way people work together What distinguishes exemplary boards is that they are robust, effectivesocial systems (Sonnenfeld, 2002).The main differences between (high and low performing boards) relateto governance culture, the pattern of beliefs, traditions, and practicesthat prevail when board members come together to perform their duties(Prybil, 2005).

Board CultureHealthy Team playersDistributed influenceCollective wisdomInstitutional perspectiveCharismatic listenersConstructive dissentCandid exchangesConfidentialityDiligenceMutual accountabilityRespect and trustClear expectationsUnhealthy Huddle of quarterbacksDominant inner circleIndividual convictionsPersonal preferencesAssertive speakersBack channel complaintsReticence or deceitSeepageDisengagementCollective impunityDisregard and distrustAmbiguous expectations

Pertinent Practices: Board Culture34 State and apply mutual expectations. Orient newcomers to board culture. Set goals and benchmarks for board. Self-assess Board, committees, overall performance. Seek management’s assessment at least annually. Collectively interpret and utilize results. Fortify role of Governance Committee. Establish position description and succession plan for Chair. Epitomize performance accountability for university.

Pertinent Practices: Organize to do the Work35 Strategy drives structure, not vice versa. Board drives committees, not vice versa. Synchronize Board’s work and University’s priorities. Selectively deploy task forces. Substantively engage constituents.

Pertinent Practices: Make Meetings Meaningful Specify objectives. Organize around strategic themes. Highlight opportunities for BOV to add value. Create efficiencies.- Consent agendas- On-line updates- Advance surveys- Performance dashboards- Committee “flash reports”- Contacts for clarification Seek real-time feedback from management.37

Pertinent Practices: Promote Robust Discourse Distribute discussion questions in advance.Minimize staff presentation, maximize board discussion.Invite broad participation, elicit constructive dissent.Vary formatBreakout groupsAnonymous inputOne minute memosConstituent views 38Ask catalytic questionsAdvocacy panelsSilent startsCase studies/hypotheticalsExperiential learning

Catalytic Questions What best explains UVA’s recent successes or setbacks? What’s UVA’s value proposition? Best university or best value? What is UVA’s theory of change? When and why would we support unprofitable disciplines? On what list, yet to be devised, would we want to rank #1? How are we smarter as Board and University than a year ago? What will be this Board’s legacy?39

Pertinent Practices: Promote Robust Discourse Distribute discussion questions in advance.Minimize staff presentation, maximize board discussion.Invite broad participation, elicit constructive dissent.Breakout groupsAnonymous inputDevil’s advocatesConstituent views 40Advocacy panelsSilent startsCase studies/hypotheticalsExperiential learningAsk catalytic questionsSynthesize implications for board and management.Systematize follow-up, milestones, benchmarks.

Effective Boards41 Provide a strategic asset and comparative advantage. Pursue elevated purpose to achieve elevated performance. Focus on “the main things” and the right questions. Partner with the president, share ownership of problems. Focus on fusion of thinking not demarcation of territory. Accept individual responsibility and collective accountability. Model behaviors trustees want the university to exhibit.

Payoffs42 More macro-governance, less micro-management. BOV more active, less intrusive. BOV adds more value added, derives more value. Better work better done. Greater ROI for BOV and management. Improved performance by BOV. Improved performance by UVA.

30 Pertinent Practices: Elevated Purpose. With management, decide what to decide. Focus on the "main thing." Get the questions right. Develop rolling 12 -month agendas for board & committees. Wear "tri-focals" to analyze issues in three modes. Close trustee and staff knowledge gaps on key issues. Ponder what CEO suggests, suggest what CEO should ponder.