Board Assessment

Common sense suggests that individuals and organizations committed to self-improvement are more likely to perform at or near peak capacity and achieve their goals. But a prerequisite of such improvement is having benchmarks to gauge where you’re starting from and knowing your destination so you can measure progress. In the case of governing boards, there is a growing body of research affirming board self-assessment and board ‘focus on results’ as key factors in enhanced board and organizational performance.

There may not be as many instruments for benchmarking board effectiveness as there are consultants, but the number is multiple. Yet, scarcely a handful can claim research validation, and none are lodged within a comprehensive framework of general systems theory. I set out in 2000 to develop such a benchmarking instrument based on substantive research findings that showed significant correlations between governance structures, functions and practices in relation to organizational effectiveness. The resulting ‘Governance Self-Assessment Checklist’ (GSAC) was further refined and elaborated by drawing on commonalities between other instruments based on ‘consensus of experts’.

The Governance Self-Assessment Checklist

The GSAC was designed as an educational, self-diagnostic and strategic planning tool. It solicits responses to 146 items through 12 subscales. The ‘Board Effectiveness Quick Check’ (a summary subscale) surveys 15 of the most critical practices. The remaining subscales cover four basic aspects of governance:

• Board Structure (how the board is constructed and the parameters it establishes for its operation)
• Board Responsibilities (functions, or the ‘what’ of governance)
• Board Processes (‘how’ governance functions are exercised)
• Board Culture (board dynamics/organizational context).

Board responsibilities are tested through six subscales (mission/planning, financial stewardship, human resources stewardship, performance monitoring and accountability, community representation and advocacy, and risk management). Board processes are tested through three subscales (board development, board management and decision-making). It relates more directly, on a day-to-day basis, to the way essential elements of board behavior affect performance than do other instruments that measure more abstract aspects of board performance or those that focus on a single governance dimension such as board responsibilities.

The GSAC was field tested through a series of 20 rigorous case studies and further refined for a final field test conducted with 34 nonprofit and public sector organizations providing more than 300 individual responses from board members and 32 executive directors from a broad cross-section of nonprofit and public sector organizations.

External observers, identified by each of the organizations, rated their respective organizations on 10 aspects of effectiveness: attracting reputable community leaders as board members; acquiring adequate financial resources; making effective use of resources; attracting volunteers for relevant activities; fulfilling stakeholders’ expectations; having high standards of professionalism and accountability; communicating well with stakeholders and the community; adapting to changing needs; benefiting the community; and overall effectiveness.

Practical Application of Research Findings

Research findings reported in Nonprofit Management and Leadership Spring 2005 15(3) validate the GSAC as a reliable instrument for board self-assessment, distinguishing between stronger and weaker governance practices. The research showed strong correlations with external and internal ratings (independent of the GSAC) of organizational effectiveness and strong correlations between the perspectives of board and executive directors, although the latter rated financial stewardship and board management somewhat lower did the boards. Correlations between CEOs’ ratings of overall board performance and independent ratings of organizational effectiveness were somewhat weaker (though still significant) than those for the boards.

The high correlation between the ‘Quick Check’ and the rest of the instrument affirms that it is a reliable means of obtaining a quick snapshot of a board’s current functioning. This may be especially useful for small-budget voluntary organizations that do not have the resources for an in-depth examination of their governance practices. However, only the entire instrument will be able to fully discriminate between relative strengths and weaknesses across the broad spectrum.

Board members in this study were most satisfied with their board culture, community representation and financial stewardship. They were less satisfied with board management, board structure and decision-making…all areas that can affect board culture. Board engagement in planning, performance monitoring, risk management, human resources stewardship, and board development were clearly rated lower by board members than the other seven subscales. Board development was viewed as significantly weaker than all of the other areas. This latter, starting with a self-assessment, is probably a good place for most boards to focus initial attention. Even if you think your board is doing well, there’s usually room for improvement…especially with the normal cycle of board turnover.

Other studies have found that the strongest predictors of board performance correlated with organizational effectiveness are board engagement in strategic planning; a CEO-led common vision; good meeting management; a pro-change core group; program monitoring; financial planning and control; effective resource development; board development; a constructive dispute resolution process; and, low levels of internal conflict. Certain research has also suggested significant correlations between these characteristics and the formalization of board structure.

Although much has been made of the importance of governance models, the fact that we found no relationship between the governance model employed and either board or organizational effectiveness is consistent with other findings?hat the particular model matters less than the fact that the board continually strives to improve its effectiveness by incorporating generally recommended ‘best practices’ in its operations.

Other findings from this study suggest that low attendance and high turnover rate of board members may both be useful proxies for board (in-)effectiveness. On the other hand, CEO job satisfaction may not serve such a purpose. It may simply be a correlate of boards that are clear in their expectations of management (one measure of board competence) or simply ‘allow managers to manage’ (construed as a either competent delegation or an abdication of responsible oversight). We found no differences in organizational effectiveness between organizations of varying board, budget or staff size.

Typical comments abut the utility of the GSAC included the following: ‘It is more directly relevant to how boards are actually structured and operate than other instruments we’ve reviewed’; ‘the differences in scoring between the executive director and board accurately reflect our internal struggle’; ‘the GSAC stimulated much discussion about the board’s roles and responsibilities, what it needs to know, and the format for reporting this information;’ ‘I was very impressed with the depth of the questions and the territory they cover’.

Ethical Governance

This means structures, policy frameworks, board focus, and practices that incorporate five generally accepted pillars of good governance…legitimacy, accountability, transparency, predictability, and stakeholder engagement. These are necessary to engender stakeholder confidence and public trust that the board is faithfully fulfilling its stewardship/fiduciary responsibilities consistent with their expectations. One of the first commandments of effective leadership is having a sound ethical compass.

Conflict of interest guidelines, codes of conduct, confidentiality provisions, and core values statements governing personal and professional conduct and ethical business practices (including responsible fiduciary stewardship) are good examples of this surveyed in the GSAC. Respondent perspectives on compliance with such policy expressions are also solicited. So is their perception of whether the board has a means, sufficiently independent of management, of ensuring integrity in financial management (e.g. CEO expense claims, clear authorities for major expenditures, meeting with auditors independent of management, and periodically changing auditors).

Compliance with laws, regulations and policies, (e.g. employment, taxation, labor standards, occupational health and safety, due process, human rights legislation, anti-discrimination and harassment) is also tested. So are perceptions of whether board members generally fulfill their legal responsibilities to serve the best interests of the corporation; exercise due diligence, care, loyalty, obedience and disclosure; be adequately informed; avoid conflicts of interest; make decisions fairly, objectively and transparently; obtain confidence in the integrity of internal control systems, management reports and management competence; support a fair process for representation of the community and dealing with complaints or grievances; monitor performance; mitigate risks; and properly account for prudent expenditure, the ethical conduct of the corporation’s affairs, and the results of its activities.

Conclusion

Board development is affirmed by research findings and practice wisdom as a key to effective board performance. An infant learns to successfully grasp objects and navigate the world through sensory feedback. So it is with governing boards! They need to assess and improve their performance through feedback measured against established benchmarks and their own past performance.

Our research demonstrated that the GSAC has a high capacity to discriminate between various dimensions of board performance and their relationship to organizational performance. It is a useful tool for boards to assess their own performance, identify strengths and challenges, and begin their journey toward strengthened stewardship.

Mel Gill is president of Synergy Associates, Consultants in Governance and Organizational Development, and the author of Governing for Results: A Director’s Guide to Good Governance. Contact him at mel.gill@synergyassociates.ca.

Note: Some portions of this article are excerpted from Mel’s book. This article first appeared in Association Forum of Chicagoland, Jan/Feb 2006.