Board Governance
Tom Glatt, Jr.
G| Glatt Consulting Group, Inc.
Session Focus
In this session we will focus on two things:
1.Defining Governance
2.Governance Models
Defining Governance
What is governance? It depends...
Establishment of policies, and continuous monitoring of their proper implementation, by the
members of the governing body of an organization. It includes the mechanisms required to
balance the powers of the members (with the associated accountability), and their primary
duty of enhancing the prosperity and viability of the organization. -Business Dictionary
Governance is about how power is distributed and shared, how policies are formulated,
priorities set and stakeholders made accountable. -UNESCO
Governance determines who has power, who makes decisions, how other players make
their voice heard and how account is rendered. -Institute on Governance
For our purposes...
Governance is ensuring the organization fulfills and supports its most basic
purpose, which for credit unions is most often defined in terms of principles
and/or in terms of strategic direction and intent.
Governance Purpose vs Means
Governance “purpose”, as reflected on the previous slide, is not the same as the means to
governance. Means include such things as:
• Ensuring representative board composition
• Ensuring Board and CEO effectiveness
• CEO compensation/oversight
• Strategic planning
• Reviewing and discussing reports
It is important to understand that you can engage in these kinds of activities yet fail to fulfill
the purpose of governance.
Three Governance Model Formats
If governance is ensuring the organization fulfills and supports its most basic
purpose, how is that purpose defined? We’ll look at three “models” of
governance and delve into how each can be used to define and govern
purpose. These models are...
1.Cooperative Principles-Based Governance
2.Global Principles-Based Governance
3.Policy Governance
Cooperative Principles
Governance
About This Approach
The Rochdale Principles are a set of ideals for the operation of
cooperatives. They were first set out in 1844 by the Rochdale Society of
Equitable Pioneers in Rochdale, England and have formed the basis for the
principles on which co-operatives around the world continue to operate.
Governance by cooperative principles means ensuring that the credit union
is, in fact, operating within the framework of, and in compliance with the
intent of, seven specific principles.
The Seven Cooperative Principles
1.Voluntary Membership
2.Democratic Member Control
3.Members’ Economic Participation
4.Autonomy and Independence
5.Education, Training and Information
6.Cooperation Among Cooperatives
7.Concern for Community
Governing with Cooperative Principles
Refer to supplemental material slides.
Global Principles-Based
Governance
About This Approach
The G20/OECD Principles of Corporate Governance help policy makers evaluate
and improve the legal, regulatory, and institutional framework for corporate
governance. First issued in 1999, the Principles have become the international
benchmark in corporate governance. They have been adopted as one of the
Financial Stability Board’s Key Standards for Sound Financial Systems and
endorsed by the G20.
Governance by global/OECD principles means ensuring that the credit union is, in
fact, operating within the framework of, and in compliance with the intent of, six
specific principles.
Principles-Based Governance
1.Ensuring the basis for an effective corporate governance framework
2.The rights and equitable treatment of shareholders and key ownership
functions
3.Institutional investors, stock markets, and other intermediaries
4.The role of stakeholders in corporate governance
5.Disclosure and transparency
6.The responsibilities of the board
Governing with Global Principles
Refer to supplemental material slides.
Policy Governance
About This Approach
Policy Governance® is a model of governance designed to empower boards of directors to
fulfill their obligation of accountability for the organizations they govern. Policy Governance
separates issues of organizational purpose (ENDS) from all other organizational issues
(MEANS), placing primary importance on Ends. Under Policy Governance boards demand
accomplishment of purpose, and only limit the staff's available means to those which do not
violate the board's pre-stated standards of prudence and ethics.
Governance by Policy Governance principles means ensuring that the credit union is, in
fact, operating within the framework of, and in compliance with the intent of, ten specific
principles. It also means directing/guiding management and board efforts in certain ways
using specific policy tools.
Policy Governance Principles & Policy
1. Ownership
2. Position of Board
3. Board Holism
4. Ends Policies
5. Board Means Policies
6. Executive Limitations Policies
7. Policy Sizes
8. Clarity and Coherence of Delegation
9. Any Reasonable interpretation
10.Monitoring
Governing with Policy Governance
Refer to supplemental material slides.
Questions?
Tom Glatt, Jr.
President/Strategy Consultant
Glatt Consulting Group, Inc.
Office: (888) 217-5988, Ext. 801
Mobile: (910) 228-3015
Web: www.glattconsulting.com
Email: [email protected]
LinkedIn: www.linkedin.com/in/tomglatt
Twitter: www.twitter.com/tglatt
G| Distinctive strategy consulting for credit unions
Supplemental Material
Seven Cooperative Principles
1.
Voluntary Membership: Credit unions are voluntary, cooperative organizations, offering services to people willing to
accept the responsibilities and benefits of membership, without gender, social, racial, political or religious
discrimination.
2.
Democratic Member Control: Cooperatives are democratic organizations owned and controlled by their members,
one member one vote, with equal opportunity for participation in setting policies and making decisions.
3.
Members’ Economic Participation: Members are the owners. As such they contribute to, and democratically
control, the capital of the cooperative. This benefits members in proportion to the transactions with the cooperative
rather than on the capital invested.
4.
Autonomy and Independence: Cooperatives are autonomous, self-help organizations controlled by their members.
If the cooperative enters into agreements with other organizations or raises capital from external sources, it is done
so based on terms that ensure democratic control by the member and maintains the cooperative autonomy.
5.
Education, Training and Information: Cooperatives provide education and training for members, elected
representatives, managers and employees so they can contribute effectively to the development of the cooperative.
6.
Cooperation Among Cooperatives: Cooperatives serve their members most effectively and strengthen the
OECD Principles
1.
Ensuring the Basis for an Effective Corporate Governance Framework: The corporate governance framework
should promote transparent and efficient markets, be consistent with the rule of law and clearly articulate the division
of responsibilities among different supervisory, regulatory and enforcement authorities.
2.
The Rights of Shareholders and Key Ownership Functions: The corporate governance framework should protect
and facilitate the exercise of shareholders’ rights.
3.
The Equitable Treatment of Shareholders: The corporate governance framework should ensure the equitable
treatment of all shareholders, including minority and foreign shareholders. All shareholders should have the
opportunity to obtain effective redress for violation of their rights.
4.
The Role of Stakeholders in Corporate Governance: The corporate governance framework should recognize the
rights of stakeholders established by law or through mutual agreements and encourage active co-operation between
corporations and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises.
5.
Disclosure and Transparency: The corporate governance framework should ensure that timely and accurate
disclosure is made on all material matters regarding the corporation, including the financial situation, performance,
ownership, and governance of the company.
Policy Governance Principles
1.
Ownership: The board exists to act as the informed voice and agent of the owners, whether they are owners in a
legal or moral sense. All owners are stakeholders, but not all stakeholders are owners, only those whose position in
relation to an organization is equivalent to the position of shareholders in a for-profit-corporation.
2.
Position of Board: The board is accountable to owners that the organization is successful. As such it is not advisory
to staff but an active link in the chain of command. All authority in the staff organization and in components of the
board flows from the board.
3.
Board Holism: The authority of the board is held and used as a body. The board speaks with one voice in that
instructions are expressed by the board as a whole. Individual board members have no authority to instruct staff.
4.
Ends Policies: The board defines in writing its expectations about the intended effects to be produced, the intended
recipients of those effects, and the intended worth (cost-benefit or priority) of the effects. These are Ends policies. All
decisions made about effects, recipients, and worth are Ends decisions. All decisions about issues that do not fit the
definition of Ends are means decisions. Hence in Policy Governance, means are simply not Ends.
5.
Board Means Policies: The board defines in writing the job results, practices, delegation style, and discipline that
make up its own job. These are board means decisions, categorized as Governance Process policies and Board-
Policy Governance Principles
6.
Executive Limitations Policies: The board defines in writing its expectations about the means of the operational
organization. However, rather than prescribing board-chosen means -- which would enable the CEO to escape
accountability for attaining Ends, these policies define limits on operational means, thereby placing boundaries on
the authority granted to the CEO. In effect, the board describes those means that would be unacceptable even if
they were to work. These are Executive Limitations policies.
7.
Policy Sizes: The board decides its policies in each category first at the broadest, most inclusive level. It further
defines each policy in descending levels of detail until reaching the level of detail at which it is willing to accept any
reasonable interpretation by the applicable delegatee of its words thus far. Ends, Executive Limitations, Governance
Process, and Board-Management Delegation policies are exhaustive in that they establish control over the entire
organization, both board and staff. They replace, at the board level, more traditional documents such as mission
statements, strategic plans and budgets.
8.
Clarity and Coherence of Delegation: The identification of any delegatee must be unambiguous as to authority
and responsibility. No subparts of the board, such as committees or officers, can be given jobs that interfere with,
duplicate, or obscure the job given to the CEO.
Policy Governance Principles
9.
Any Reasonable interpretation: More detailed decisions about Ends and operational means are delegated to the
CEO if there is one. If there is no CEO, the board must delegate to two or more delegatees, avoiding overlapping
expectations or causing confusion about the authority of various managers. In the case of board means, delegation
is to the CGO unless part of the delegation is explicitly directed elsewhere, for example, to a committee. The
delegatee has the right to use any reasonable interpretation of the applicable board policies.
10. Monitoring: The board must monitor organizational performance against previously stated Ends policies and
Executive Limitations policies. Monitoring is for the purpose of discovering if the organization achieved a reasonable
interpretation of these board policies. The board must therefore judge the CEO's interpretation for its
reasonableness, and the data demonstrating the accomplishment of the interpretation. The ongoing monitoring of
board's Ends and Executive Limitations policies constitutes the CEO's performance evaluation.
Policy Governance Policy Tools
1.
Ends: Ends define which results are to accrue to whom, and at what result/cost.
2.
Executive Limitations: Executive Limitations are a collection of relevant, CEO-directed statements that clearly
outline board expectations by describing the behavior, efforts, and actions that the board does not want the CEO to
adopt, utilize, or purse in efforts to reach the credit union's Ends. The policy governance model defines executive
limitations as: “The boundaries of acceptability within which staff methods and activities can responsibly be left to
staff.”
3.
Governance: Governance Policies are board-specific policies governing its linkage to staff and its own governing
processes. Such policies serve to clarify the means by which a board will engage in its own governance and
oversight activities. Specifically, governance policy is, “The standards of group and individual behavior to which the
board agrees to hold itself.”
4.
Board-Management Delegation: Board-Management Delegation policies are statements that explain how the
board delegates its authority to the CEO. Specifically, board-management delegation is defined as the methods and
practices (means) of the board that describe not only the nature of delegation but the way in which the proper use of
delegated authority is monitored.