Foundations of Board Leadership and Economic Development

1. Foundations of Board Leadership and Economic Development

2. Foundations of Board Leadership and Economic Development

3. Let’s chat… » Name, board experience, current board service What are some of the most significant challenges faced by board members? What would you change about board service? » »

4. Remember your role…

5. Message Number One… Board governance affects organizational performance... » Example: and community performance (especially rural communities) »

6. Message Number Two… Strengthening accountability is one approach that can strengthen board governance… and can also create a culture that supports the development of trust among members » »

7. Board Decisions Affect Organizational Performance Accountability & Trust Organizational Principles Social Principles Healthy Governance

8. The Journey Ahead The Board Defined » » Fundamental Board Duties » What Makes a Healthy Board Healthy? » Case Study Exercise

9. Board membership is often …a surprise Being a board member for any organization is a little like getting married. First you get on the board; then you realize what you’ve done! Source: Oklahoma State School Board Association, 2004.

10. Incomplete contracts and board service Adverse selection risk(pre-contractual) The risk of recruiting a person who will not accomplish board expectations of service. Moral hazard risk(post-contractual) The risk of recruiting a person who, initially, you believed would accomplish expectations but does not meet expectations for some reason.

11. Implications for Board Service Adverse selection risk(pre-contractual) Develop a solid recruitment plan that outlines the type of service required to minimize transaction costs initially. Moral hazard risk(post-contractual) Choose performance metrics of service that are easy to monitor, a low transaction costs feature.

12. What Is a Board? » Managerial control system » Social system » Team » Bottom line: “It’s not rules and regulations. It’s the way people work together” (Sonnenfeld, 2002)

13. What Are the Basic Duties for Board Members? » Duty of Care—always follow the right process to make decisions. » Duty of Loyalty—be active and protect the organization. All information in meetings remains “in the room” until publicly released. » Duty to Add Value—obligation (not legal liability) to add value to the performance and standing of the enterprise. Source: Berman, H. “A Great Board: Building and Enhancing Nonprofit Boards”. Health Research and Educational Trust: Chicago, IL, 2003.

14. What Makes A Healthy Board Healthy? An appropriate organizationalstructure includes… Understanding of CEO succession management Regular attendance Adequate involvement Appropriate inside/outside ratio Skills/talents Board size Appropriate incentives—no conflicts of interest Age of board members Source: Sonnenfeld, J. “What Makes Great Boards Great”, Harvard Business Review. September, 2002.

15. What Makes A Healthy Board Healthy? An appropriate social structure includes… Create a climate of trust, and candor Evaluate board performance Foster open dissent, not disloyalty Link organizational and board performance to measurable factors—get the strategy right Use a fluid portfolio of roles Ensure individual accountability Source: Sonnenfeld, J. “What Makes Great Boards Great”, Harvard Business Review. September, 2002.

16. Board Governance Behavior A Healthy board… -Works through the properly appointed authority structure -Functions as a policy-forming board rather than administrative -Becomes familiar with the problems of the organization -Voices opinions frankly in board meetings and votes for what is best for ALL stakeholders A Dysfunctional board… -Divulges confidential information -Accepts gifts from suppliers or contractors -Interferes with day-to-day operations -Has developed a clique within to control board activity and strategic direction Source: Oklahoma State School Board Association, 2004.

17. Board Governance Determines Performance Accountability & Trust Organizational Principles Social Principles Healthy Governance

18. Some Final Thoughts…

19. Four “Healthy” Habits of Healthy Board Members You MUSTunderstand it is more important to be respected than popular. You MUST be convinced about your decisions. You MUSTunderstand how your decisions will affect the people around you and the organization as a whole. You MUSTaccept the consequences of your decisions.

20. Top Ten Commandments for a Healthy Board Member -Thou shalt honor thy community -Thou shalt be honest and fair to those who serve you -Thou shalt evaluate fairly those who serve you -Thou shalt not forsake thy job for political gain -Thou shalt be an informed, active member -Thou shalt be prepared for all meetings -Thou shalt not micro-manage -Thou shalt keep thy mouth shut about closed sessions -Thou art not infallible. Thou can learn new tricks -Thou art only one board member, not the big cheese Source: Oklahoma State School Board Association, 2004.

21. And, remember the people in the trenches…

22. Some Additional Board Management Resources Harvard Business School http://harvardbusinessonline.hbsp.harvard.edu/b02/en/home/index.jhtml?_requestid=7516 MIT Sloan Management Review http://web.mit.edu/smr/ Boardsource.com

23. QUESTIONS?

24. The Connection Between Governance and Organizational Performance: The Brady Memorial Hospital Case THE CASE STUDY

26. Situation The Anonymous Letter

27. The Case Exercise Format Team assignments & read case Team answers case questions Discuss case questions

28. Some Case Facts About Brady Memorial Serves a large mix of Medicare patients (62 percent) Estimated 65 percent of local population use larger hospitals nearby Quality problems at the hospital exist; multiple lawsuits filed Recruiting of nurses is difficult because of low wages and benefits Hospital employs 107 people in community; it is the second largest employer About the board ?

29. Case Discussion Questions Does this board exhibit an “appropriate” organizational structure? Does this board exhibit an “appropriate” social structure? Based on your consulting team, identify two strategies that could be used to improve this board.

30. FINAL THOUGHTS Management team temporarily replaced but not fired Board training (financials, governance)