Preface

Governance is important work. How-and how well-it's done has significant consequences for nonprofit organizations, their clients, and the communities they serve.

Over the last twenty years we have served on numerous boards, consulted with thousands of boards, conducted research on boards, and written scores of books and articles about boards. We have profound respect for the significant contributions they make. The vast majority of nonprofit organization board members are talented and committed individuals who devote large amounts of time and effort to their roles.

Yet the performance and contributions of most boards are far from optimal.

We will have far more to say about this in Chapter One and throughout this book, but the reason is simple: very few boards base their governance on a set of explicit, precise, and coherent principles. In this book, we provide such principles, drawn from the vast literature in addition to our own consulting work with boards over the past twenty years.

A tremendous amount is known about the process of governing and what boards can do to dramatically improve their effectiveness, efficiency, and creativity in ways that enhance organizational success. And this knowledge, when employed, really does work. Here is one example from the commercial sector:

CalPERS, The California Public Employees Retirement System, is one of the largest pension funds in the country. In 1995 -1996 it asked three hundred companies in its equity portfolio to consider adopting formal governance principles. CalPERS staff issued report cards and formulated and distributed a set of model-that is, benchmark-principles. (If you would like to see the latest version, log on to their Web site at http://www.calpers-governance.org.) A Wilshire Associates study of the "CalPERS effect" examined the performance of sixty-two companies over a ten-year period. Results indicated that whereas the stock of these companies trailed the Standard & Poors 500 Index by 89 percent in the five-year period before implementing CalPERS governance principles, the same stocks outperformed the Index by 23 percent in the five years after they were adopted, contributing approximately $150 million in additional returns to the Fund annually.

It is estimated that about half of the nation's largest commercial enterprises have adopted formal governance principles in some form (Trustee Magazine, July/August, 1998). Yet this is not common practice in the nonprofit sector.

Who Should Read This Book

This book is written from a point of view and has an agenda. Because we believe "principle-based governance" can significantly enhance board performance and contributions-and organizational success-our objective is to stimulate and facilitate the adoption of this approach in nonprofit organizations. The book is targeted at board members and executives who are committed to improving governance practice. This is not "governance-lite," it is a serious book for serious people who are willing to make a significant investment in their board's and organization's future.

What This Book Offers

This is a practical, how-to book. It provides

• A model of governance, which serves as the framework for Chapters Three through Seven
• Sixty-four principles of high-performance governance (and associated practices) for improving your board's performance and contributions
• Getting started recommendations to help your board begin adopting the principles
• Check-ups for assessing the extent your board presently employs the principles of benchmark governance
• Guidelines for transforming your board and implementing principle-based governance

Uses of This Book

• A comprehensive overview of nonprofit organization governance for newly appointed board members
• A "best practice" refresher for experienced board members
• An exemplar of what a truly great board looks like
• A blueprint for transforming your board . designing and implementing specific principles of governing that will dramatically improve its performance and contributions
• A template and set of specific criteria for rigorously assessing the quality of your board's governance quality

Charles Darwin presented a novel notion: in challenging environments where resources are scarce, if an organism has even a tiny edge over others, this advantage is amplified over time. He noted, in Origin of the Species, that a few grains of sand in the balance determine who thrives and who dies. Principle-based governance can tip a nonprofit organization's balance toward success.

This book provides an explicit, comprehensive, and coherent set of governance principles. The most basic principle is that the high-performance board appreciates the importance of governance and takes its work seriously. It devotes the necessary time and effort to governing, and it governs on the basis of agreed-to and explicit principles.

The high-performance board meets its fiduciary obligations by identifying key stakeholders and understanding their needs and expectations. It constantly represents, advances, and protects stakeholder interests, deciding and acting on their behalf, and ensuring that the organization's resources and capacities are deployed in ways that benefit them.

The high-performance board fulfills its responsibility for organizational ends (destination) by formulating a precise, detailed vision of what the organization should become-at its very best-in the future. It also specifies key goals that must be accomplished for the vision to be fulfilled, and makes sure that management develops strategies that are aligned with goals and the vision.

The high-performance board fulfills its responsibility for executive performance by specifying the CEO as its only direct report. It plans for CEO succession, undertaking an effective recruitment and selection process when the position of CEO becomes vacant. It specifies its expectations of the CEO and assesses the CEO's performance annually, providing feedback to improve that performance. It adjusts the CEO's compensation based on performance review results, and it is prepared to terminate the CEO's employment, should the need arise.

The high-performance board fulfills its responsibility for quality by recognizing that product and service quality and client satisfaction are essential to the organization's success. It develops an explicit and precise working definition of quality and then specifies a set of quality indicators and associated standards. With those standards in hand, it reviews management plans for managing and continuously improving both quality and client satisfaction.

The high-performance board fulfills its responsibility for finances by formulating key financial objectives, ensuring that management develops budgets that lead to accomplishing financial objectives, and specifying a set of financial indicators and associated standards. It also ensures that necessary financial controls are in place.

The high-performance board performs its core roles by formulating policies regarding its responsibilities that convey its expectations and directives. It makes decisions regarding matters requiring its attention and input, and it oversees (that is, monitors and assesses) key organizational processes and outcomes.

The high-performance board has an appropriate structure. It is right-sized, having between nine and nineteen members unless there is a compelling reason for a smaller or larger group. Where the organization has multiple boards, it explicitly specifies each board's authority, responsibilities, and roles. It has the right number and type of committees to support and facilitate its work-and it precisely specifies its authority vis-à-vis those committees, so that the board governs and committees perform governance staff work. It specifies the objectives, functions, and tasks of its committees, requiring them to develop annual work plans. It also reviews the need for, and functions of, all committees each year, and periodically assesses the overall governance structure and modifies it if necessary.

The high-performance board has the right composition. It proactively designs and manages its own composition, recruits and selects new members on the basis of explicit criteria, and has an effective new member orientation process. It specifies expectations of members and ensures that members do not represent narrow interests or constituencies. It has fixed member term lengths and limits. It assesses the performance and contributions of individual members. It includes the CEO as a voting member of the board, but ensures that ex officio and inside members hold no more than 25 percent of the board's seats.

The high-performance board has the necessary infrastructure in place. It has an annual governance budget and adequate staff support. It formulates annual governance objectives, employs a formal agenda planning and management process, and ensures board meetings are conducted in a way that optimizes their effectiveness, efficiency, and creativity. It makes sure that the presiding member is carefully selected and understands the role of the chair-and performs it effectively. It has a plan to continually develop board competencies and capacities, holds annual or...