Board of Directors Development Packet

Board of Directors Development Packet

December 2005
INTRODUCTION

Over the past year, the Edna McConnell Clark Foundation has begun to explore more effective approaches to board development. We recognize thatnonprofit governance is a pressing issue today;Sarbanes-Oxley and other legislative efforts are profoundly transforming the sector, and we wanted to understand more about the landscape within which our grantees operate. While much has been written and tools have been created to help advance board development efforts broadly, there is a high degree of dissatisfaction with the resources available. There also seems to be a lack of clarity regarding what constitutes a high-performing board. To advance our learning, we started by commissioning the Bridgespan Group to help us gain a better understanding of the existing frameworks, assessment tools, and strategies. We discussed new ideas for how to think about board development and the Foundation’s role in helping grantees develop their boards. We are still early in our learning but we wanted to share with you the approaches and tools we have developed thus far.

Defining a High-Performing Board and a Framework for Assessment

Bridgespan reviewed existing resources on what constitutes a high-performing board. Seven frameworks (including BoardSource, McKinsey, and the Carver model, among otherleading nonprofit and for-profit sources) served as the basis for this research, supplemented by interviews with experts on nonprofit and for-profit board governance. (We have captured this information if anyone is interested in learning more about a particular approach.) From this research, we defined both the functions of a high-performing board (outlining what boards should do)as well as the requisite conditions (what they need)in order to operate most effectively.

Using this definition of a high-performing board, the team developed a process and tool for boards to determine how well they are performing. This board self-assessment tool uses a simple and straightforward qualitative rating system an organization can use to assess its board's composition, structure, and functioning. While it draws elements of other tools and frameworks, we hope that its simplicity and comprehensiveness will be appealing and useful.

Before getting started, we strongly urge you and/or a third-party board facilitator to invest time up front discussing the best use of this tool in light of your particular board development goals.

Minimum Board Governance Requirements Checklist

In addition to defining a high-performing board and the development of a self-assessment tool, we created a summary checklist of the minimum requirements for regulatory compliance to address the recent Sarbanes-Oxley legislation and the increased focus on nonprofit board governance structures. While these are not “requirements” for all organizations to implement immediately, they are basic governance structures and processes we believe are important.

Through this research, development of tools, and ongoing grantee engagement, we recognize that, ultimately, every organization and every board is unique, but that certain legal and ethical constraints on boards do exist, and some ways boards are more effective than others in how they are structured and function. We have incorporated what we have learned so far into the enclosed tools and resources. We are grateful to those grantees that provided input into this process and helped review drafts of the materials. We look forward to more feedback from you about what here is most useful and relevant, and where we can share relevant learnings together.

Table of Contents

Definitionof a high-performing board

Introduction Facilitator’s Guide to Board Self-Assessment Tool

(with accompanying excel worksheet attached separately)

Board Self-Assessment Tool

Regulatory Requirements and Recommendations

I.Definition of a high-performing board

Boards of directors are a critical element of the functioning of any nonprofit organization. All boards must fulfill their basic governance responsibilities such as financial and legal oversight of the organization, and the hiring and evaluation of the chief executive. High-performing boards, however, can contribute to the success of an organization in many additional ways, such as supporting the organization’s strategic planning efforts, supporting the organization financially, and providing expertise and connections with important constituents.

What is a high-performing board?

From our review of existing materials on what constitutes a high-performing board and interviews with experts on nonprofit board governance, we concluded a high-performing board of directors can be understood in two ways: What the board does, and what the board needs to operate effectively.

“What the board does” outlines the functional responsibilities of the board including the minimal oversight activities that all boards must do as well as the more advanced functions that characterize high-performing boards.

What the board does includes six functional areas:

Financial and legal oversight:
Ensure the organization’s financial health and legal compliance
CEO and board oversight:
Hire and evaluate the CEO, recruit and evaluate the board, and ensure the organization has an appropriate senior team and organizational structure
Adherence to mission:
Approve changes to or expansion of the mission, and monitor adherence to the mission and values
Strategic support:
Engage in and approve the organization’s strategy, monitor achievement of strategic goals and program outcomes, and provide strategic advice and select operational support for strategic goals
Fundraising leadership:
Make direct contributions, and assist in obtaining additional funds
Expertise and community support:
Provide access to non-financial resources in the organization’s area of concern, and enhance the organization’s reputation

“What the board needs to operate effectively” is a set of five conditions that define a high-performing board’s requisites for success. These categories are the less tangible areas of a board’s performance – there’s no checklist of things to do – and yet functioning well in all these areas allows a board to perform well on everything else.

What the board needs to operate effectively includes five requisite conditions:

People:
Ensure board members’ skills and assignments are aligned with the organization’s strategic imperatives and with the members’ own interests, and ensure the staff provides an appropriate amount of support to the board
Decision making process:
Ensure the board and CEO have clarity as to the board’s involvement in decision making processes, and which decisions the board should make
Structures:
Ensure the various structures of the board allow for full and meaningful participation by board members (e.g. agendas, committee structure, meeting schedule)
Information:
Ensure the board receives information in a timely manner, that is pertinent and easy to understand
Culture:
Ensure the culture of the board allows for meaningful participation (e.g. atmosphere of open debate and questioning, full board support of decisions that have been made, an expectation of full and meaningful contributions from all board members)

Sources: BoardSource’s 10 Basic Responsibilities of a Nonprofit Board, 2002; Governance as Leadership by Richard Chait, William Ryan and Barbara Taylor; The Board Member’s Book by Brian O’Connell, 1985; Boards That Make a Difference by John Carver; McKinsey & Company’s The Dynamic Board; MercerDelta’s Beyond Compliance, 2003; Summary of Bain & Company’s work on board effectiveness.

II.Introductionto Board Self Assessment Tooland Facilitator’s Guide

The purpose of this tool is to help a board improve its performance. This assessment tool does not stand alone – it is designed to be part of a process by which the board can discuss its current strengths and weaknessesagainst its core functions and the needs of the business plan, and to identify board development priorities going forward.

Therefore, werecommend before using the toolthat youspend some time discussing your overall board development goals. (If you are using an outside facilitator, it is appropriate to engage that person in this discussion.) This may include identifying critical issues the board is facing, raisingconcerns about the board development process, and/or establishingfuture goals for the board. This initial assessment is a critical first step in determining your “readiness”to engage in board development, as well as to help focus your priorities. You can customize the tool, utilizing all or some of the various sections, for your specific needs. (* Often boards will also survey board members on individual roles and contributions. If you would like an example, we have several, including BoardSource.)

The tool will not yield statistically significant findings – but we hope it will help inform and guide the discussion. Therefore, scores are meant to be suggestive and evocative, not dispositive.

Using the self-assessment

The questionnaire is designed to determine each board member’s level of satisfaction with the performance of the board, and identify future priorities for board development. The tool asks 50 questions, broken into 11 categories. The left hand column of the tool outlines what good practices look like, not prescriptively but in terms of clarity in these 11 categories. The categories represent the 11 areas of a high-performing board:

Financial and legal oversight
CEO and board oversight
Adherence to mission and values
Strategic support
Fundraising leadership
Expertise and community support
People
Decision-making process
Structures
Information
Culture

For each category, the tool asks each board member to state their level of satisfaction with the board’s performance on between two and 11 questions, each of which delineates an element of the category. For example, in the “Financial and legal oversight” category, the assessment asks how satisfied the board member is that the board reviews and approves the organization’s financial plans. If the organization is using a third-party facilitator, that person can provide additional insight into how other organizations view different functions and requisites, and provide ideas as to how to think about what’s most useful in that specific context.

The ensuing conversation should focus on the areas that the members feel are highest priority, as well as the areas where the facilitator (either an internal facilitator or a third-party) feels more investigation is warranted. Each question also includes a space for a board member to indicate how the board can do better in this area.

Facilitators Guide -- Analyzing the results

This tool has been designed to help in aboard self-assessment – a way for the board to determine its alignment and performance along these dimensions. Scores should be viewed relative to the scores of other board members, not in an absolute comparison to a different board of directors.

There are three steps in completing the survey:

Step 1: Ensure all board members complete the assessment

Step 2: Analyze the results

Step 3: Discuss the results with the board

While each step could be completed by a board member or by staff, having an outside party assist with the process – especially with the analysis and discussion – may be a good idea in some cases. For boards or organizations that are using self-assessment as a continuous improvement tool, it may be appropriate to have a well-respected board member facilitate the conversation. But in situations where issues are particularly controversial, or open communication is an issue, an independent third party can make it easier for board members to be candid, and can remove any suspicion that the analysis reflects certain beliefs or agenda.

After all board members have completed the assessment, the scores will be analyzed to answer three questions. First, is there agreement among board members as to the areas where the board is performing well and the areas in need of improvement? Second, for boards that have undertaken this self-assessment in the past, what changes can be seen from the previous assessment? Third, what are identified as the most important priorities for board development?

The first question is answered by two analyses of the scores: determining which questions received the lowest average scores, and determining the questions where board members disagreed most.(*Note: in the attached excel worksheet, the areas of greatest agreement or disagreement can be uncovered using the standard deviation function. However, this tool is not designed to meet the rigors of statistical analysis, but rather is a simple way to look at survey responses across categories for the purposes of board discussion.) The analysis should also examine answers that had a high proportion of “not sure” or “not applicable” answers. These measurements will help answer some of the most important questions: Along which dimensions is the board not performing satisfactorily? In which areas do board members disagree about the board’s performance? What areas do board members not feel are relevant for this particular board?

The second question is answered by comparing the scores to each question with the scores to that question from the previous year, and looking for significant changes. The comparison will allow answers to several important questions: Has there been improvement in the areas that were of concern last year? What new concerns have arisen? Where has the board been successful in addressing last year’s concerns?

The final question is answered by reading the comments and looking for common themes, especially in light of business plan priorities going forward.

Calculating the results

To calculate the results, the facilitator should follow these steps:

Create an Excel spreadsheet with question numbers in rows down the side, and the name of each board member (or, if the survey is to be anonymous to the facilitator, a code for each board member, e.g. A, B, C …) in columns across the top. For an example, see “Board Assessment worksheet.xls”
Enter the number that corresponds to a board member’s responses to each question in the appropriate column. For “not sure” and “not applicable,” enter “NS” and “NA.” For example, if board member A responded “Somewhat satisfied” to question #1, “satisfied” to question #2, and “not sure” to question #3, you would enter “2” in the first row, “3” in the second row, and “NS” in the third row in the first column of the spreadsheet
Remove the “not sure” and “not applicable” responses. We want to know how many of these responses there were – they tell us how well the board understands their responsibilities – but we don’t want these responses to alter the average scores. Go down the rows of the responses and record the number of “NS” and “NA” responses (in the “Board assessment worksheet” file the number of responses in each category should be recorded in columns N and O). After you have recorded the number of these responses and checked to make sure you got an accurate count, delete those responses from the rest of the worksheet. In other words, if board member A had answered “not sure” to question #3, you would now have a “1” in cell N5 (“Number not sure” column, “Question 3” row). You should then delete the “NS” from cell B5 (“Board member A” column, “Question 3” row).
You should now have a spreadsheet that tells you a number that corresponds to the level of satisfaction for each board member and for each question, and that also shows the number of “not sure” and “not applicable” answers. To find the average score, use the “AVERAGE” function in Excel. In the “Board Assessment worksheet.xls” spreadsheet, this function is already entered for you.
Look through the list of questions to see which have the highest and lowest average score. There is no absolute threshold of what scores should be considered low or high enough to warrant discussion – each board will answer the questions differently and have a different range of responses, so you must judge the scores relative only to each other, not relative to how any other board has scored. Also pay attention to any questions that have a high number of “not sure” or “not applicable” answers.
Craft an agenda for your board discussion that focuses on the questions that seem to be areas of concern. It’s also a good idea to show the board the final scores on all of the questions, along with all comments, so they can raise concerns that occur to them.

Facilitating the discussion

After the data have been analyzed to answer these questions, the real work begins. The self-assessment is designed to be a tool to enable a board to become more effective, but the real work of improvement begins with an open and honest discussion about the board’s shortcomings and ways to improve. We recommend that a separate board meeting or a separate section of a meeting be dedicated to discussing the results, with at least two hours set aside. For best results, send each board member a summary of the results, along with any relevant comments included on the surveys, in advance of the meeting.