Boards at Their Best
University of Virginia
Board of Visitors
February 20, 2014
Richard Chait
Harvard University
The Question
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The Goal
Consistently
Constructively
Consequential
Governance
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The Components
1. Context: Academic Culture
2. Modes: Roles and Responsibilities
3. Dynamics: Board Culture
4. Mechanics: Structure and Procedure
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Welcome to Wonderland:
The External Environment
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Corporations
Universities
Maximize profits mindful of
social responsibility
Maximize prestige mindful
of public benefit
Expand market share
Expand mind share
Compete on output
Compete on input
Dynamic competition
Stable competition
Newer generally better
Older generally better
Welcome to Wonderland:
The Internal Environment
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Corporations
Universities
Proprietary strategy
Public strategy
Growth by substitution
Growth by accretion
Increase margins
Increase subsidies
Definitive performance metrics
Indicative performance metrics
Concentrated authority
Dispersed authority
Boards of prominent peers
focused on shareholder value
Boards of prominent citizens
swamped by multiple missions
Learn to Drive on the OTHER Side
The Collegial Compromise
What do these companies have in common?
American Cotton Oil
Laclede Gas
American Sugar
National Lead
American Tobacco
North American Utility
Chicago Gas
Tennessee Coal & Iron
Distilling & Cattle Feeding
U.S. Leather
General Electric
U.S. Rubber
Original Components of DJIA
American Cotton Oil
Laclede Gas
American Sugar
National Lead
American Tobacco
North American Utility
Chicago Gas
Tennessee Coal & Iron
Distilling & Cattle Feeding
U.S. Leather
General Electric
U.S. Rubber
Durability
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Top 25 public universities: 152 years.
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Top 25 private universities: 187 years.
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Top 25 private colleges: 181 years.
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University of Virginia: 195 years
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Top 35 regional colleges of Midwest: 123 years.
R.I.P.
American Motors
Arthur Anderson
Bear Stearns
Bethlehem Steel
Circuit City
Data General
Digital Equipment
Eastern Airlines
E.F. Hutton
Enron
Lehman Brothers
Lionel
Litton Industries
Montgomery-Ward
PanAm
Polaroid
Pullman
RCA
Woolworth’s
WorldCom
R.I.P.
Notable Colleges and Universities
Modes of Governance
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The way we think which affect how we organize what we see.
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Think and work in three different modes.
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All three serve important purposes.
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Value added increases as board:
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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 21
Monet Paintings to Bellagio in Las Vegas?
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HIP
Should Boston Museum of Fine Arts lend 21
Monet 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?
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Fiduciary Mode
Board’s central purpose:
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Stewardship of tangible assets
Board’s principal role/responsibility:
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Guardian/oversight.
Board’s core work:
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Determine, 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 Work
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Oversight
Inquiry
Due 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 Mode
Board’s central purpose:
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Strategic partnership with senior management.
Board’s principal role/responsibility:
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Strategist/foresight.
Board’s core work:
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Understand 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 Work
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Strategic Planning
Strategic Thinking
Can 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
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Board’s central purpose:
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Board’s principal role/responsibility:
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Sense-maker/insight.
Board’s core work:
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Decide what merits attention and what it means.
Make sense of circumstances.
Find and frame problems and opportunities.
Reconcile realities, values, and choices.
Generative
Strategic
Fiduciary
Source of leadership
for university
Strategic
partnership w/
management
Stewardship of
tangible assets
Chief role
Sense maker
Strategist
Steward
Core work
Find and frame
challenges, reconcile
values and choices
Scan environment,
shape strategy,
create comparative
advantage
Set mission,
oversee operations,
budget resources,
ensure compliance
Insight
Foresight
Oversight
Board’s purpose
Value added
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The Generative Curve
Sense-making
Problem-framing
Opportunity for
Generative
W ork
Strategies,
Policies
Plans, Tactics,
Execution
Opportunity to
influence
generative
work declines
as issues are
framed and
converted into
strategies,
plans, and
tactics.
Tim e
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GOVERNANCE AS LEADERSHIP
Competition for Students
R econcile social purpose & business m odel
Fiduciary
Strategic
Generative
Opportunity for
Generative
W ork
Com pete on am enities
Add fitness center
Tim e
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GOVERNANCE AS LEADERSHIP
Checklist for Board Engagement
in Decision Making
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Statutory requirement
Fiduciary responsibility
Strategically critical
Symbolically important
Financially significant
Potentially substantial risk
Precedent setting
Implicates core values
Relevant expertise
Legitimation, 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.
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With management, decide what to decide.
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Focus on the “main thing.”
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Get the questions right.
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Develop rolling 12-month agendas for board & committees.
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Wear “tri-focals” to analyze issues in three modes.
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Close trustee and staff knowledge gaps on key issues.
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Ponder what CEO suggests, suggest what CEO should ponder.
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Substitute high value added for low value added activity.
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Apply corporate standards of relevance.
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Board Culture
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Make no mistake, it is the board’s culture—the shared values and beliefs
that delineate acceptable behavior—that ultimately determines how
effective the board can be (Nadler, 2006).
Group dynamics underpins the board’s ability to do all the components
of 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, effective
social systems (Sonnenfeld, 2002).
The main differences between (high and low performing boards) relate
to governance culture, the pattern of beliefs, traditions, and practices
that prevail when board members come together to perform their duties
(Prybil, 2005).
Board Culture
Healthy
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Team players
Distributed influence
Collective wisdom
Institutional perspective
Charismatic listeners
Constructive dissent
Candid exchanges
Confidentiality
Diligence
Mutual accountability
Respect and trust
Clear expectations
Unhealthy
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Huddle of quarterbacks
Dominant inner circle
Individual convictions
Personal preferences
Assertive speakers
Back channel complaints
Reticence or deceit
Seepage
Disengagement
Collective impunity
Disregard and distrust
Ambiguous expectations
Pertinent Practices: Board Culture
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State and apply mutual expectations.
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Orient newcomers to board culture.
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Set goals and benchmarks for board.
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Self-assess Board, committees, overall performance.
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Seek management’s assessment at least annually.
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Collectively interpret and utilize results.
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Fortify role of Governance Committee.
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Establish position description and succession plan for Chair.
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Epitomize performance accountability for university.
Pertinent Practices: Organize to do the Work
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Strategy drives structure, not vice versa.
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Board drives committees, not vice versa.
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Synchronize Board’s work and University’s priorities.
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Selectively deploy task forces.
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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.
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Pertinent Practices: Promote Robust Discourse
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Distribute discussion questions in advance.
Minimize staff presentation, maximize board discussion.
Invite broad participation, elicit constructive dissent.
Vary format
Breakout groups
Anonymous input
One minute memos
Constituent views
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Ask catalytic questions
Advocacy panels
Silent starts
Case studies/hypotheticals
Experiential learning
Catalytic Questions
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What best explains UVA’s recent successes or setbacks?
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What’s UVA’s value proposition?
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Best university or best value?
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What is UVA’s theory of change?
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When and why would we support unprofitable disciplines?
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On what list, yet to be devised, would we want to rank #1?
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How are we smarter as Board and University than a year ago?
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What will be this Board’s legacy?
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Pertinent Practices: Promote Robust Discourse
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Distribute discussion questions in advance.
Minimize staff presentation, maximize board discussion.
Invite broad participation, elicit constructive dissent.
Breakout groups
Anonymous input
Devil’s advocates
Constituent views
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Advocacy panels
Silent starts
Case studies/hypotheticals
Experiential learning
Ask catalytic questions
Synthesize implications for board and management.
Systematize follow-up, milestones, benchmarks.
Effective Boards
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Provide a strategic asset and comparative advantage.
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Pursue elevated purpose to achieve elevated performance.
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Focus on “the main things” and the right questions.
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Partner with the president, share ownership of problems.
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Focus on fusion of thinking not demarcation of territory.
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Accept individual responsibility and collective accountability.
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Model behaviors trustees want the university to exhibit.
Payoffs
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More macro-governance, less micro-management.
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BOV more active, less intrusive.
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BOV adds more value added, derives more value.
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Better work better done.
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Greater ROI for BOV and management.
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Improved performance by BOV.
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Improved performance by UVA.