Is your Board too deep into the operation? Generally, we find that Directors are very aware – perhaps too aware – of crossing the line from governance into operations. It can be confusing to try and understand how deep is too deep. Here’s how we think about it.
The governance Board’s role is to:
- identify and mitigate risk
- oversee development and execution of the strategic plan, and
- performance manage the CEO.
That’s it. There is nothing in the governance Board’s role description about making operating decisions. Those decisions are for the operators.
However, for the governance Board to govern effectively, clearly it must understand the operation.
Consider the sources of organizational risk:
How does a Board satisfy itself that there isn’t legal risk from sexual harassment? Or financial risk from an investment in a bleeding-edge technology? Market risk from a competing solution? Or operational risk from cheating on certification standards?
At times, the only way for the Board to understand risks like these is to get into the operation. To see it in action. To observe. Ask questions. Test. That is the Board’s role and executing that role is not getting too deep into the operation.
Consider the strategy of the organization.
How does a Board satisfy itself that investing in the development of a new product is the right strategy for the organization? Only by understanding the business well enough to make a good strategic decision. That could easily include – sometimes with the help of outside experts – going over and verifying information that has already been provided by management on the operation. Is this getting too deep into operations? No. It is the Board executing its role.
Finally, consider how the Board performance manages its CEO – the person with ultimate responsibility for the operations of the organization.
To provide effective performance management, a governance Board must provide its CEO with clear operating goals. It needs to measure operating performance against those goals. And finally, it must provide feedback on the measurements it’s taken.
It is impossible for a Board to set and measure operating performance without getting into the operation – often including getting feedback from people directly reporting to the CEO.
So, how does a Board – or a Director – know if they are too deep into the operation?
Yes, if they making operating decisions.
No, if they are performing their role that includes identifying and mitigating risk; overseeing strategy development and execution; and, performance managing the CEO.