Optimizing Governance: Board Types
What is Governance Anyway?
Governance is not just another word for management.
Governance is not just another layer of management, a sort of “super-management” or a sober
second look at decisions.
“Governance” is a separate
system, distinct from the
“operational” system.
Both systems exist in every
enterprise or organization,
although they are not
always clearly defined, nor
distinguishable. They
should be.
The operational system is
the system that develops
and delivers products or
services.
Governance is the system by which firms [organizations, entities] are directed and controlled.i
Governance systems exist in every form of social organization, at every level.
Governance exists at international (e.g. IMF, World Bank), national, provincial, municipal, corporate
and social organization levels.
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Why are there different types of Boards?
In economic “principalagent” theory,
governance is all about
how scarce resources
are allocated to the
most effective uses.
“Principals” provide
the resources –
“agents” use the
resources – and
“governance” is the
intermediary, arbitrer
or referee deciding
between them.
In member-based organizations including associations and societies, the principals are the members
– the legal and beneficial owners.
The agents are the CEO, management team and staff.
Governance is typically provided by a governing Board of Directors.
Boards fulfill their governance duties in different ways. It is often instructive to think of there being
five different “types” of Boards.ii
These types of board tend to evolve over time in a predictable and observable fashion, what we call
the “governance journey”.
When organizations are first
founded, their boards are often
“operating”. They make all the day
to day decisions as well as the
strategic, because they have to –
there is no one to delegate to.
Everyone who is central to the
organization is sitting around the
boardroom table already: the
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founders, funders, workers and idea people.
As the organization grows, the operating board strikes various committees to undertake slices of its
work – e.g. staffing, business development, membership, facilities, technology, fund-raising,
standards, discipline, communications. But both the committees and boards are “hands-on”.
As the organization grows further, the board hires staff, and delegates work to the staff. The board
becomes an “intervening” board, meaning that it intervenes in operations when it feels it needs to,
but leaves the rest of operations to staff to run. This is usually when staff does not have the capacity
or competence in specific areas, or when board members have the desire and time to do the work
themselves.
Lots of organizations can survive and even prosper under an operating or intervening board.
Examples include many day care, housing, workers cooperatives and small not-for-profits. There is
no clear line between who “does governance” and who “does operations”, but things get done.
Eventually, though, as an organization succeeds and grows further, the board will hire sufficiently
senior, professional management (led by an Executive Director or CEO) that has the capacity,
competence, desire and time to “do operations” entirely. They seek a complete delegation of
authority for the day to day operations from the board. The board then becomes a “governing”
board, a board that concentrates its time and energy on pure governance:
 Strategic direction: planning, delegations, risk management and resourcing, including setting
high level policy
 Strategic control: oversight, monitoring, evaluation and measurement
A defining feature of a governing board is that they “draw a bright line” between their
responsibilities and those of the CEO and management team.
This separation of duties is central to the board exercising independent oversight and ensuring
accountability of the management and staff, through the CEO.
The longer the CEO and board members remain in place, over time these relationships tend to
become less formal, and this line begins to erode. The board migrates to a “collaborative” board,
where the CEO is driving both the governance and operating agendas, and calls on the board to
provide support, assistance and expertise from time to time.
While initially appealing, and typically the most satisfying board to serve on, the risk to a
collaborative board is that it has lost its independence when it comes to effectively overseeing the
CEO and holding management accountable. In practice it is difficult for these boards to have a real
say in strategy and risk, and even more difficult to replace a non-performing CEO.
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Which brings us to the fifth, and final, type of board, the “advisory” type. Here, all semblance of
board activism and engagement has evaporated – the CEO and management team are “doing” both
governance and operations, and only consult with the board when they seek input, cover, advocates,
or wisdom.
The larger and more complex an organization becomes, and the more principals (owners: members)
it has, the more likely it is to slip up this governance spectrum and be marginalized as a “rubber
stamp” body. The risks are obvious – the organization and its members have put all their eggs in one
basket, there is complete reliance on a potentially “imperial” CEO, and sooner or later, the
operational system will hit a snag and the board will be oblivious and helpless.
A post-script to the governance journey: when these advisory-type boards are hit with a crisis,
scandal or meltdown (as they almost inevitably will be), they tend to overreact. They bluster and fire
the CEO and senior management, even a few board members for good measure (especially if there
has been a member revolt at the AGM), and then they force themselves to re-engage in the
organization. But instead of stopping at a more sustainable governing type, many boards let the
governance “pendulum” swing right through the middle, and revert to operating boards.iii
This, of course, can be just as dangerous, because the board has taken over operations, which they
are ill-equipped to do, and alienated their newly disempowered management team. Another crisis
lies just over the horizon – a second operational failure, this time caused by an overactive, “micromanaging” board.
What can I do to optimize governance?
Once you realize that governance is a journey, and that the most effective type of board depends on
where your organization is on that journey, you can begin to “optimize” or “right size” governance.iv
The first step is to understand what type of board you currently have – while the “Sunday School
answer” to this question is a “5 – governing type” board, you may be surprised by what you discover
by using this simplified diagnostic:
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Questions You Should Ask
Features of an
Operating Type (8-910) Board (one
extreme)
Features of an
Governance Type (4-56) Board (centered)
Features of an
Advisory Type (0-1-2)
Board (other extreme)
6 times (4
quarterly, 1
strategic, 1
evaluation and
development)
½ day for quarterly
meetings (reliant
on the work of
committees); 1
day strategy; 1 day
evaluation &
development
Governance
Committee in
consultation with
the CEO, Chair and
Board
9 – 11

Quarterly, or less

Less than 3 hours

The CEO

7 or less
Rigorous process
of a committee
responsible for
nominations;
skilled based
recruitment
3 (Governance/
Nominating;
Audit/Finance;
HR/
Compensation)
No

The CEO hand
picks them, they
are friends,
associates or have
affinity as CEOs

1 (Audit) or 0

No way, the CEO
wouldn’t allow it
Chair in
consultation with
the CEO,
Governance
Committee and
board members
Chair in
consultation with
the CEO,

The CEO

The CEO
1. How often does the
Board meet?

10-12 times a
year, or more

2. How long are Board
meetings?

More than half a
day, often 1-2 days

3. Who decides when the
Board will meet, how
often and for how long?

The Board

4. How large is the Board’s
size?
5. How are Board members
chosen?

15 or more



6. How many committees
does the Board have?

Anyone who is a
major player gets
a seat:
representation is
more important
than competence
More than 4
7. Does the Board have an
Executive Committee?


8. Who sets the Board’s
agenda?

Yes, this is where
the “real power”
resides
The Board
9. Who decides what
information the Board
will get, in what detail

The Board

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

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and when?
10. How often does the
Board meet “in camera”
without management
11. How often are the Board,
Committees and Chair
evaluated?
12. How long does the Chair
of the Board typically
serve?
13. Who serves as Secretary
and Treasurer?

All the time, for
hours at times


Evaluated … ?


One year, maybe
two at a stretch


Board members –
ladies, get your
pen and pad out!

Governance
Committee and
board members
Each meeting,
briefly, for specific
purposes
Annually

Never

Evaluated … ?
2 – 3 terms of 2 –
3 years each

10 years or more
Staff members:
designated
Corporate
Secretary/
Secretariat or VP
Corporate
Governance; and
CFO as Treasurer

Staff – the CFO is
usually the
Treasurer, legal
counsel the
Secretary
Then go back through the 13 questions and ask yourself what type of Board you should be, what
type of Board would add the most value to your organization, and best use the scarce time and
energy of board members …
If you find that the “optimal” or “right size” answer to many or most of these questions is different
from your current state, you’re probably ready for a governance “makeover”. You may want to
bring someone in from outside to help you, or you may want to take some steps yourself. The
important thing is to pick two or three areas that call for change, and to start changing.
The single most important area that can be changed is the board’s composition and selection,
migrating from a representative board to more of an independent, skills-based, overseeing board.
But without getting so narrowly selected that arms-length independence and democratic member
control is lost!
In our experience, boards of all kinds of organizations ought to undertake this governance diagnostic
every two years, since boards operate in a dynamic environment, and a great board and governance
model even a couple of years ago may not “optimize governance” next year.
i
The Cadbury Committee Report, “The Financial Aspects of Corporate Governance” (London: 1992)
Five types of boards was popularized by David A. Nadler, “Building Better Boards,” Harvard Business Review, May 2004,
pp. 102-111.
iii
The governance “pendulum” was cited by Dominic D'Alessandro during his tenure as President and CEO of ManuLife
Financial.
iv
This governance tool is simplified from tools developed and used by Brown Governance Inc.:
www.browngovernance.com
ii
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