All corporations, as well as many governmental bodies (e.g. school districts) have governing boards. While the nature of small non-profits, large multi-national corporations and school boards vary widely, they all have one thing in common. Failure to create, maintain and sustain a strong governing board will ultimately lead to the long term failure of the organization, large or small.
All too often, organizations that appear successful, if for-profit, by making money; if non-profit, by successfully fulfilling their non-profit mission, overlook this critical aspect of their Boards of Directors, because they view their boards as mere advisory committees, and their CEOs, Executive Directors and Superintendents, prefer to work without interference. Sooner or later, either when problems arise, or when the need to replace leadership (whether suddenly or with plenty of notice), the Board is faced with critical decisions which only it can make that are essential to the long term success of the organization.
Three cases in point will exemplify how important a strong governing board is to the long term success of any board governed organization.
Congress received an extensive report about the wide variety of Board failures involved in the Enron scandal. The Permanent Committee on Investigations found the following major Board failures:
- Fiduciary Failure
- High Risk Accounting
- Inappropriate Conflicts of Interest
- Extensive Undisclosed Off-The-Books Activity
- Excessive Compensation
- Lack of Independence
Sadly, over 10 years later, the lessons of Enron go unheeded, despite the passage of Sarbanes-Oxley. Thus, there is no reason to believe another Enron cannot happen.
In Madison, Wisconsin, the School Board is engaged in a search for a new Superintendent. The Board just announced that it has reduced the candidates down to 2 finalists. Yet, one day after this announcement, it has become apparent that the Board’s search process was severely flawed as one of the candidates has been involved in numerous scandals, which the current School Board President stated he did not know about until informed by a reporter. Clearly, the Board was not sufficiently involved in the hiring process to let it go this far without adequately vetting the candidates before deciding upon the finalists.
Finally, on a personal note, as many of my readers know, I spent 17 highly productive years at a non-profit which was governed by an intentionally weak and distant Board. The Board was so weak and distant that when the prior Executive Director retired after 31 years of service, it could not post the the job until a head hunter interviewed 20 staff to determine the needs of the agency, which the Board simply did not know. This lack of Board knowledge was created by the fact that the Board had never evaluated the prior ED during his entire 31 years of service.
The result? The Board hired a new Executive Director without any management experience who was simply not qualified for the job. He fired me about 8 months after he started and then recently resigned after just over a year on the job, and has left the agency diminished and in disarray. Sadly, the Board has failed to acknowledge its own responsibility for this debacle. After failing once again to evaluate the short-lived ED, it has announced that it will use the same flawed process in its next ED search.
The lesson is really quite simple. Boards need to exercise their required statutory fiduciary duties. They cannot do so without sufficient knowledge of the inner workings of the entity which they govern. That requires, at a minimum, an full 360 degree evaluation of the Executive Director/CEO/Superintendent, on an annual basis.
Having served on and led successful Boards of Directors, I am quite familiar with how this can be done both the right way and the wrong way. The best organizations do it the right way.