The company is now raising capital for a contentious project and, at a recent investment roadshow, the Chairman had to be forcefully removed from the room by the company’s broker because he was slurring his speech and talking nonsense. The broker is very angry that he has been made to look bad in front of his potential investors.

The board called a meeting without the Chairman at which the directors resolved to ask the Chairman to account for his behaviour and undertake either resign or cease drinking. However, when the audit committee Chair spoke with the Chairman he explained that he had been unwell and one small glass of wine which reacted with his medication to cause the incident. The Chairman refused to resign or to make any commitment to curb his drinking.

The remaining board members have, again, met without the Chairman present. They are unable to agree on how to proceed. Some want to express a vote of no confidence and seek shareholder support for removing the Chairman; others take a more lenient stance.

What should Ingrid do?

Many readers of this blog will be familiar with my newsletter The Director’s Dilemma. This newsletter features a real life case study with expert responses containing advice for the protagonist. Many readers of this blog are practicing experts and have valuable advice to offer so, for the first time, we are posting an unpublished case study and inviting YOU to respond.

If you would like to publish your advice on this topic in a global company directors’ newsletter please respond to the dilemma above with approximately 250 words of advice for Graham. Back issues of the newsletter are available at http://www.mclellan.com.au/newsletter.html where you can check out the format and quality.

The newsletters will be compiled into a book. If your advice relates to a legal jurisdiction, the readers will be sophisticated enough to extract the underlying principles and seek detailed legal advice in their own jurisdiction. The first volume of newsletters is published and available at http://www.amazon.com/Dilemmas-Practical-Studies-Company-Directors/dp/1449921965/ref=sr_1_1?ie=UTF8&qid=1321912637&sr=8-1

What would you advise?

Julie Garland-McLellan has been internationally acclaimed as a leading expert on board governance. See her website at www.mclellan.com.au or visit her author page at http://www.amazon.com/Julie-Garland-McLellan/e/B003A3KPUO

Here are some tips to help your board to value substance over form and to perform under pressure:

1. Expect the unexpected! Plans made before the crisis or in its early stages may need to be changed. A good way to stay alert to changed requirements is to note and review the assumptions on which each plan was based. Then if a key assumption changes (such as the exchange rate) the plan can be reviewed to see if any change is required. False assumptions are a risky basis for a plan.
2. Watch your people. Uncertainty is unsettling and astute competitors may use this crisis to remove under-performing team members from their employ and entice your best people to replace them. Tell your staff that they are valued and that you will fight to retain them. Unless, of course, they are under performing. In that case, it might be time to review commitments.
3. Understand your business and the key drivers of value creation in it. Be particularly aware of any changes that may threaten a previously unassailable competitive advantage. You may need to delve deeper into the operational aspects of the business than you did in the past.
4. Watch your cash flow. Do not let customers and suppliers use you to subsidise their working capital. Be particularly alert to changes in payment schedules. They could be the first warnings of future defaults. You may find that you can no longer project your cashflow reliably into the future. That is a problem but will only become acute if you cannot cover your obligations as they fall due. Be sure that you are not trading whilst insolvent.
5. Secure your funding. Now is not the time for a capital deficit. Be sure that you have sufficient capital. This is not the best of times for capital raising, but it is an even worse time to be undercapitalised. Expensive and hard-earned capital is better than no capital.
6. Revalue your assets. What are they really worth now? Will future cash-flows justify their carrying values on the books? Again, you may need to dig into detail that was previously left to management.
7. Revisit tip 2 (above). What will be the costs associated with any redundancies? How will these affect cash-flows? What bonuses and other payments (such as long service leave) might impact your cash-flow projections?
8. Talk to your shareholders, donors and/or members. It doesn’t matter if you are a large listed corporation, a family business, a non-profit or something else. These stakeholders will be concerned about the effect of the crisis on their company and you have a duty to keep them well informed.
9. Reassess your board. Is it capable of governing through this crisis? Are additional skills needed? How can you improve the board’s performance?

10.  Revisit your risk management. Things have changed and you must ensure that new risks are identified and plans put in place to manage these. Keep your risk register as current as possible and be sure that appropriate powers for dealing with risks (and opportunities) have been delegated to the right people.

Whilst these are difficult times for all organisations the true test of good governance is that it will help to establish better performance over the long run and to ensue survival in the short term. Here’s hoping that YOUR governance meets that test; good luck!

______________________________________
Julie Garland-McLellan has been internationally acclaimed as a leading expert on board governance. See her website and LinkedIn profiles, and get her books Dilemmas, Dilemmas: Practical Case Studies for Company Directors and Presenting to Boards.

Due diligence shows that the company is profitable (making a small but comfortable surplus every year) and has some funds banked to tide it through any tough times that may arise. The staff are paid reasonable salaries and the CEO earns well but is not over-rewarded. Clients appreciate the CEO’s expertise and the forward bookings are healthy.

On the down side – there is nobody apart from the CEO with any real profile or expertise and most clients specifically request the CEO deliver their programs. Staff seem to join for the experience of working with the CEO and leave after a few years. Board members also seem to churn rather more than normal for a healthy company. A former board member told Herman that she felt her time on the board was un productive as there was nothing to do since the CEO had it all under control.

The CEO is 67 and Herman is concerned that there is no succession plan or viable business without her.

What should Herman do?

If you would like to publish your advice on this topic in a global company directors’ newsletter please respond to the dilemma above with approximately 250 words of advice for Herman. Back issues of the newsletter are available at http://www.mclellan.com.au/newsletter.html (see link below) where you can check out the format and quality.
The newsletters will be compiled into a book. If your advice relates to a legal jurisdiction, the readers will be sophisticated enough to extract the underlying principles and seek detailed legal advice in their own jurisdiction.

The first volume of newsletters is published and available athttp://www.amazon.com/Dilemmas-Practical-Studies-Company-Directors/dp/1449921965/ref=sr_1_1?ie=UTF8&qid=1321912637&sr=8-1

What would you advise?

________________________________

Julie Garland-McLellan has been internationally acclaimed as a leading expert on board governance. See her website at www.mclellan.com.au or visit her author page at http://www.amazon.com/Julie-Garland-McLellan/e/B003A3KPUO

One of the things with the market for governance experts is that almost no one is willing to pay for real, forward-looking expertise, but especially over here in the U.S., the market is almost entirely dominated by a compliance mentality, which means, not ‘How do I improve it?’ or even, ‘How do I make my shareholders happier?” but, ‘What is the minimum I can get away with?

The law firms monopolize the field, because boards would rather pay someone $800 an hour or more to wriggle out of trouble than $200 an hour or less to figure out how not to get into it. (Of course, lawyers are also adept in making sure that their services are seen as indispensable.)

It is also remarkable how many experts have suddenly emerged from the woodwork. Given how few were in the field only five years ago, I wonder how many of these people have real experience, and if so, where they got it. The problem is that there is no professional certification, and prospective employers don’t seem to have very clear criteria for what they should want. (Then again, if all you want is a compliance chief, there are probably quite a few of those around, especially with all the layoffs in the financial sector . . .)

Thoughts, anyone?

For more resources, see the Free Management Library’s topic All About Boards

One of the jobs of the Board is to continuously ensure the high-performance of the organization.  Certainly, there can be many perspectives on what “high performance” means, for example, to always satisfy needs of stockholders or stakeholders or to always achieve strategic goals.  Any project to accomplish significant change in an organization or in one of its major parts should always include focused attention from the Board.  There are numerous ways to ensure a Board is appropriately involved.

1.  Board should be involved in initial planning meetings.

In projects intended to accomplish significant change in an organization, members of the Board certainly should be aware of – and have approved – the final project plans and related contracts.  An appropriate Board member, for example, the Board Chair or a member with skills in the area that is the focus of the project, could participate in the first meeting with personnel leading the change.

2.   Both the Board Chair and the Chief Executive Officer should sign the contract.

Particularly in small- to medium-sized organizations, the Board Chair should sign the contract along with the Chief Executive Officer.  That approach helps ensure that the Board is indeed aware of, and supports, the project.

3.  Educate Board members about at least the basics successful organizational change.

There is a vast amount of research on what it takes to accomplish successful organizational change.  Educate members, for example, provide them a short article, or brief presentation, with follow-up discussion.   See the topic Organizational Change in the Free Management Library.

4.  Involve at least one Board member in the Project Team?

In projects for change, form a Project Team comprised of key personnel to guide development of a project plan and be closely involved in guiding implementation of the plan.  Consider involving at least one Board member, for example, a member with skills in the area that is the focus of the project for change.

5.  Ensure Board members get feedback from the assessment phase of the project.

Early in a major project, there should be assessment activities to closely understand what is going on in the organization or the area that is the focus of the project for change.  The assessment can produce a wealth of learning and insight.   Present the findings and recommendations to the Project Team.  Significant results are important information for all Board members to know about.  Provide that information to all Board members, whether in a meeting and/or a written report.

6.  Include Board development in the project if many issues exist in the organization.

If the assessment activities identify many issues in the organization, then it’s likely that the Board has major problems, as well.  Otherwise, the Board would have been effectively governing and the many organizational issues would not have existed.  One of the most powerful approaches to addressing major problems in the organization is to build up the Board to help to address those problems.

7.  If there are CEO and/or staffing issues, consider forming a Board Human Resources Committee.

A Board Human Resources Committee is responsible to ensure that staffing (including the CEO) is carefully planned and fully utilized.  That includes providing ongoing coaching to the CEO to ensure that his or her role is competently filled.  The Committee can be of tremendous value to the project to coach the CEO through the struggles of making major changes.

8.  All Board members should be copied on project reports.

All Board members have a responsibility to govern the organization.  All Board members should have access to the necessary information to do their jobs.  Consequently, they should be copied on reports about the status of major projects.

9.  The Board should formally approve the Change Management Plan.

The assessment phase of a project should be followed with various action plans to address apparent issues or achieve goals.  Those plans could be included in an overall Change Management Plan.  Formal approval of the Plan by the Board can help to ensure that Board members have seen and will support the Plan.

10.  An appropriate Board Committee could “police” implementation of action plans.

The full Board or an appropriate committee should monitor to ensure that the Change Management Plan is being implemented or changed to be more relevant and realistic, for example, the Board Executive Committee.

11.  Board members should be review results of evaluations of the project.

Finally, the Board should ensure that the project actually addresses the issues and/or goals that are the focus of the project.  They should regularly review results of evaluations of project activities as those activities occur.  Also, they should review results of evaluations of the quality of final results from the project.

What do you think?

For many related, free online resources, see the Free Management Library’s topics:

• All About Boards of Directors
• All About Consulting — Using Consultants, Doing Consulting

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Carter McNamara, MBA, PhD – Authenticity Consulting, LLC – 800-971-2250
Read my blogs: Boards, Consulting and OD, and Strategic Planning.

There are numerous reasons to involve the Board:

1. The Board ensures the project is fully resourced and shows political support.

Board members have full authority for allocation of resources for the organization. Consequently, Board members can ensure that the project has all necessary resources, including people, money and time. Their allocation shows strong political support for change, which can sustain ongoing motivation and momentum for change.

2. The Board ensures that project plans are developed and implemented.

The Board supervises the Chief Executive Officer, having full authority over the CEO. Although employees (including the CEO) usually develop and implement many of the action plans in the project for change, the Board can ensure that those plans are fully developed and completely implemented.

3. Board members provide a wide range of useful expertise.

Board members often have a wide range of useful skills for governing the organization, such as planning, leadership, management, supervision and problem solving. They may also have technical knowledge of the organization or the industry. Those skills can be useful during a project for change.

4. The Board provides time and energy to help implement plans for change.

Employees are already overloaded. Giving them yet more work to do (during your project) can completely overload them such that they collapse altogether, which could significantly damage the organization. Although the Board is responsible to govern the organization by establishing broad plans and policies, Board members still can help with implementation of various plans by helping to develop and oversee development of plans. Plans might be to address issues in strategic planning, marketing, staffing or financial management.

5. The Board provides objective assessment on project issues and results.

Board members usually are not involved a great deal in the day-to-day activities of a project. Consequently, they often retain an objective perspective on the activities and results of the project. Their perspective can be useful when addressing issues in the project and evaluating results of the project.

6. Involvement of Board members is a powerful means to Board development.

One of the best ways to get good Board members is to give them something to do. One of the best ways to get rid of Board members is to give them something to do. Your project can be useful means to give Board members something to do – and, thus, develop the Board.

For many related, free online resources, see the Free Management Library’s topics:

• All About Boards of Directors
• All About Consulting — Using Consultants, Doing Consulting

(In my next post, How to Ensure Board is Appropriately Involved in Projects for Change (Part 2 of 2), we’ll list guidelines for how to get the Board appropriately involved in projects for change.)

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Carter McNamara, MBA, PhD – Authenticity Consulting, LLC – 800-971-2250
Read my blogs: Boards, Consulting and OD, and Strategic Planning.

Graham’s work helped the company grow market share, revenue and profits. He was offered, and accepted, a board seat. He was elected unopposed at the next AGM. Graham performed little due diligence as he knew the domestic operations well and they account for most of the activity.

Once on the board he discovered that the overseas division is very unprofitable and has been losing money for years. The salaries paid to staff in the division are well above market rates. Market demographics and local regulations suggest the division will make losses even if costs are cut. Graham raised this at a board meeting and was informed by the son of the founder that the long established strategy of ‘loss leadership’ for developing this market cannot be questioned or changed. The Chairman closed down the discussion asking for more information to allow informed discussion at the next meeting.

After the meeting the founder sent Graham an email stating that his son was exempt from board oversight and that he, as the major shareholder, was happy for the overseas division to operate at a loss. Discussions with senior staff alert Graham to the fact that the son does little other than attending occasional board meetings (allegedly for the opportunity to combine travel with a holiday and shopping) and is married to a senior executive in his division who is a native of the host country. The Chairman calls Graham and informs him that the major shareholder wants Graham to resign from the board immediately.

What should Graham do?

Many readers of this blog will be familiar with my newsletter The Director’s Dilemma. This newsletter features a real life case study with expert responses containing advice for the protagonist. Many readers of this blog are practicing experts and have valuable advice to offer so, for the first time, we are posting an unpublished case study and inviting YOU to respond.

If you would like to publish your advice on this topic in a global company directors’ newsletter please respond to the dilemma above with approximately 250 words of advice for Graham. Back issues of the newsletter are available at http://www.mclellan.com.au/newsletter.html where you can check out the format and quality.
The newsletters will be compiled into a book. If your advice relates to a legal jurisdiction, the readers will be sophisticated enough to extract the underlying principles and seek detailed legal advice in their own jurisdiction. The first volume of newsletters is published and available at http://www.amazon.com/Dilemmas-Practical-Studies-Company-Directors/dp/1449921965/ref=sr_1_1?ie=UTF8&qid=1321912637&sr=8-1

What would you advise?

________________________________

Julie Garland-McLellan has been internationally acclaimed as a leading expert on board governance. See her website at www.mclellan.com.au or visit her author page at http://www.amazon.com/Julie-Garland-McLellan/e/B003A3KPUO

Boards have the right to delegate the tasks of running the organisation to any person they rationally believe is capable of performing them. When the board delegates those tasks to one of the directors, that person becomes known as a managing director (or MD). When the tasks are delegated to an executive, that person does not automatically become a member of the board. They may be given a title such as chief executive, general manager (or GM), executive officer (or EO) and so on. These job titles report to the board but are not part of it.

This distinction is being eroded by the practice of having chief executives who are appointed to the board, and the use of the title of managing director for senior executives who are managing some part of a company but who do not report directly to the board or carry the responsibility of managing all of the company.

In non-profit and government-sector organisations there used to be a firm tradition that the chief executive did not get a seat on the board. This provided a clear reporting line and a distinction between the group responsibility of the board and the personal responsibility of an executive. In recent times there appears to be an emerging trend towards appointing the person with day-to-day responsibility to the board thereby creating a managing director. This has the advantage of making that person more aware of the director’s liabilities for corporate actions, of the board’s need for information and of the importance of alignment between the aims of the shareholder, the board and the executive. Unfortunately, when the board seat is offered to the chief executive it is not always accompanied by a change in title to managing director, and it is becoming more common to have chief executives who are also directors.

Many boards now find themselves in positions where they have managing directors who are not board members (or, indeed, directors) or where they have a CEO who is a board member. It is important to think through these issues when making new appointments and to align the role and title. Many governance practices are based upon the premise that a CEO is a staff member whom the board can hire and fire and having that person as a board member whom only shareholders (or members) may hire or fire can can create tensions between the way that governance is implemented within the organisation and the way it is intended to be implemented under the relevant guideline.

Keeping expectations and practices aligned is a part of the board’s governance role.

What do you think?

______________________________________

Julie Garland-McLellan has been internationally acclaimed as a leading expert on board governance. See her website at www.mclellan.com.au or visit her author page at http://www.amazon.com/Julie-Garland-McLellan/e/B003A3KPUO

It is an extremely unhealthy situation, but is not unusual for an NPO that never grew up. I’d expect that the same people are doing the same things they’ve done, and where the organization is not providing much more service now than it did a decade (or more) ago.

Besides the fact that the laws of many states prohibit officers from holding posts indefinitely (many require specific terms of office), there should be board turnover on a regular basis … for the health of an organization. The usual is three-year terms, with a six year concurrent total.

Board members of a 501(c)(3) are the representatives of the community. They are responsible for seeing that the NPO is operated in a responsible manner, and that it meets the needs of the community. As a community changes, so do its needs, and NPO boards should change commensurately. A non-changing board (especially where the leadership is entrenched) cannot adequately respond to the changing needs of the community.

I used to say [tongue in cheek, that] I’d like to show up once a quarter, like some of [our board members], make decisions, then come back in 3 months to see how it went….

Boards should, for the most part, only meet once a quarter. Most of the work of a board should be done in committees. The board assigns the tasks; the committees investigate, plan and take any authorized action, then report back to the board.

If an organization functions as ours does, where the VP has most responsibility for admin and/or operations, is he the VP Executive Director? [Are] the ED and the CEO always the same? My role will not be primarily staff management, etc. Am I the CEO, since he is under me?

It sounds as if you and your associate are in the roles most suited to your abilities and preferences, and that the only question is what your titles should be.

You’re the visionary and the decision maker — so you’re the chief executive officer (CEO). Your associate is the nuts-and-bolts type and functions as the chief operating officer (COO). But don’t get hung up on titles.

Executive Director and Deputy Director would work. So would President and Executive Vice President. As long as you have the job descriptions clear — the titles are only as important as you want them to be.

But, there is one more consideration: Typically an organization’s bylaws define the title/job description of the CEO; and, typically, that person is responsible for hiring and firing of all other staff, their periodic evaluations and salary recommendations.

If you’re going to distance yourself from the day-to-day, and if your associate will be responsible for staff oversight, maybe both positions – CEO and COO – should be defined in the bylaws. Ask your attorney to check on your state laws.

We’re in that gray in-between area, as I’m sure you guessed. The mission of the organization is strong, the development role of the board has not been, as is a result of our youth and my gradual recruiting of people who fit that role.

At this stage in the life of your organization, it’s important that you have a board that can share and help shape the vision, as well as provide various kinds of expertise needed by a growing NPO. It is also important that every board member be a donor, and that they give at an appropriate level — based on their ability to give.

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Have a comment or a question about starting, evaluating or expanding your fundraising program? Contact Hank@Major-Capital-Giving.com With over 30 years of counseling in major gifts, capital campaigns, bequest programs and the planning studies to precede these three, he’ll be pleased to answer your questions.

Anyone who does not have voting rights, therefore, is not a Member of the Board.

For someone to be a Member of the Board, “by virtue of the office that they hold,” does not — cannot — restrict their voting rights.

To say that, “Executive directors are usually ex officio members of the board and that they are non-voting members,” is a contradiction. If they are Board Members, they have a vote. If they don’t have a vote, they’re not Board Members.

Of course many well-meaning and well-intentioned NPOs include language in their by-laws about Executive Directors (and/or others) being non-voting Board Members, but that doesn’t make such provisions correct.

When it comes to his/her participation in board activities, the Executive Director does play a very important advisory role, but that’s all it is, or should be — advisory.

Don’t be confused by the use of different terms to refer to the person who oversees the day-to-day operations of an NPO. However that position is defined, whether President or Executive Director or any other designation, if s/he is paid staff, then s/he shouldn’t be a Board Member. It creates too many conflicts of interest.

My observation would be that any Board that makes provisions for others to be non-voting members doesn’t understand the non-profit process or the legal implications, and I would caution against doing something just because others “usually” do it.

Check with an attorney who has expertise in non-profit law, not just any attorney, to be sure what the legal strictures are in your state.

Meanwhile, your E.D. can function as a resource and provide recommendations. That’s always a good idea.
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Have a comment or a question about starting, evaluating or expanding your fundraising program? Contact Hank@Major-Capital-Giving.com With over 30 years of counseling in major gifts, capital campaigns, bequest programs and the planning studies to precede these three, he’ll be pleased to answer your questions.