News and Views
September 1, 2022
Posted in: WATSON Views
When governance is not working well, directors usually know there is an issue. But unless they are steeped in governance practice, they often aren’t quite sure where to start or how to fix the problem.
When people come to us, they often describe a symptom (e.g., tension between the board and management, meetings that don’t accomplish much, lack of alignment on strategy) but are hard-pressed to identify the root cause. As with many complex structures such as governance, the basic rules are easy to prescribe, but how it works in practice is nuanced based on the organization, its context, and people. This is further complicated by evolving standards of good governance, which inform what is expected of directors to exercise their duty of care.
In thinking about how to help our clients navigate the complexities of governance we decided to peel back the onion and detail, in a comprehensive way, the many elements that go into good governance and how they interrelate. The result is the WATSON Governance Model, or as we like to call it, the W, a straight-forward framework that visually depicts governance in a way that resonates with both boards and management teams across sectors, from non-profits and government agencies to public companies and family businesses.
The Foundation of the WATSON Governance Model
Individuals involved in governance bring a variety of views on what is important, where the board should focus, and how decisions should be made. Without a common language and approach, boards often find themselves muddling through meetings, frustrated by lack of alignment, while eking out slow progress. While shared language and processes are important, the single most important factor differentiating a great board from a good board, is a collective intention to achieve results.
The W (and for that matter, all of WATSON’s work) is founded on our Governing with Intention™ approach. It’s a new way of thinking about governance and is built on three simple tenets:
- Governance is directly connected to Purpose
- Shared Belief in the value of governance
- Mindful Design
Governing with Intention™ Approach
Traditional governance models challenge even the best boards. Infrequent meetings with directors with day jobs (and often multiple board roles) makes it tough for boards to do their best. But from this time-poor model, can come value-rich outcomes. Great boards recognize the constraints and challenges that come with limited interaction and intentionally design their approach to every aspect of their governance. Coming from a centrally held belief that a board can make a difference, they alter their board’s practices – from the simple re-ordering of their meeting agenda to the complex but hugely impactful willingness to challenge the quality of board engagement. What transforms good boards to great boards is the degree of intention they apply to all aspects of their work.
WATSON’s Governing with Intention™ approach is guided by three tenets:
- Governance is directly connected to Purpose.
- Governance is not an end in itself. Governance is the means to an end.
- The end goal is a successful organization, however you define it.
- To govern with intention, you and your board must first understand that the board’s most important goal is to ensure the organization is successful.
2. Shared Belief in the value of governance.
- To be good at governance, every person involved must have an underlying belief that effective governance will have a direct effect on the success of the organization.
- While the board acts as a collective, each director is responsible and recognizes their personal accountability.
- To govern with intention, each person must value governance and be committed to doing it well.
3. Mindful Design
- There is no absolute right or wrong when it comes to what the board does, how it does it, or how management is involved.
- The dialogue needs to shift from the ‘best practice’ to the ‘right practice at the right time’ for the organization.
- To govern with intention, the governance structure, processes, and priorities should be consciously designed with the organization in mind.
So, what does intentional governance look like? And what role does governance play in an organization’s commitment to having a greater impact? Quite simply, it all starts with the board acting with intention. Great boards have a deeply shared belief in their organization’s purpose. Early on in an organization’s life they create the central idea of the organization, and throughout the organization’s life stages and in every board meeting, they look through their purpose-driven lens to (co)create strategy, manage risk, and foster strong leadership. This focus is not always easy to maintain, but great boards remain vigilant and foster a culture of intention.
The 5 Elements of the W
Boards that govern with intention start by understanding that a board’s singular purpose is to ensure the organization achieves its goals. In designing what they do and how they do it, directors consider the evolving external context (Context), what areas the board oversees and how (Organizational Stewardship), what is required of the board and directors to carry out their responsibilities (Board Stewardship), the most suitable structure and processes to do their work (Framework), and how to foster healthy and productive relationships (Dynamics).
WATSON’s W unpacks the world of governance and presents a holistic view of what it takes to govern an organization. The five governance elements include:
- Context: directors must constantly be aware of the context in which the organization is operating, the evolving external environment, legal and regulatory requirements, changes within the sector, and broader social changes. In addition, with an increased focus on director accountability, expectations of directors are evolving. Boards that govern with intention are alert to their continually changing context and emerging standards for good governance.
- Framework: the governance framework refers to the structure, practices, and processes the board puts in place, or has in place, to carry out its responsibilities. A sound framework provides clarity around two areas: structure (board size, composition, term limits, board leadership, and committees) and process (forward calendar, agendas, meetings, information, and decision-making processes).
- Dynamics: governance is ultimately about people – people who must work together as functioning teams to achieve results. The human dynamics in the boardroom, and the relationship between the board and management, are critical elements of board effectiveness and some of the hardest to get right (and remedy when broken).
- Organizational stewardship: to fulfill their responsibility to supervise the management of the business and affairs of the organization, and to exercise their duty of care, directors choose where and how to focus their efforts. Over time, a strong consensus has evolved as to the types of activities in which directors should be involved, including establishing purpose, direction, and strategies, safeguarding and making efficient use of resources, ensuring strong leadership, and monitoring performance. The list of areas the board oversees has evolved over time as new and emerging areas arise – from DEI and ESG, to people and culture.
- Board stewardship: part of every board’s responsibility is to make sure the board itself has the capacity to carry out its responsibilities and appropriately steward the organization. It is the board’s responsibility to ensure a competent and high-functioning board by focusing their efforts on renewal, recruitment, orientation, education, evaluation, and succession planning.
What’s New? Organizational Stewardship
We often describe governance as “the structures and processes by which decisions are made and individuals are held to account.” By its nature, governance is always changing and evolving, responding to social change, public policy, and evolving expectations of what is expected of organizations.
One area of the W that is most dynamic is organizational stewardship – what the board oversees and how. Traditionally, boards have always overseen finance, strategy, compliance, and CEO performance. While it may seem commonplace now, risk was not always on every board’s agenda. In recent years, the areas of risk oversight are broadening to consider new types of risk like cybersecurity, privacy, and climate. Similarly, oversight of leadership has broadened to ensure the right leadership structure is in place and that executive succession, performance management, and compensation practices are robust – all while building more rigorous CEO evaluation and succession planning practices. And oversight of people and culture, now seen as a critical factor of organizational success, has not always been on the board’s radar, with human resources committee mandates growing and gaining significant prominence on the board agenda.
More recently, in response to the growing recognition that organizations should contribute positively to society and consider a broader group of stakeholders and rightsholders (from employees to communities in which organizations operate), organizational oversight has further evolved to include areas like ESG, DEI, and reconciliation. While many organizations have always considered these critical areas, their significance and broad reach is new. Boards that aren’t having conversations around climate change, social impact, and reconciliation have a lot of catching up to do.
The lesson here is, the list is ever growing. And where boards focus their oversight will vary at a given point in time and will change. The most important thing boards can do to ensure effective oversight is pay attention to this list (including future additions) and be intentional about where to focus their efforts.
We also recognize that nothing has come off the list of areas boards are expected to oversee, and we don’t expect it to. We expect the list will continue to grow. This has broad implications on the time commitment required of directors, the breadth and depth of expertise they bring to their role, the importance of structuring meetings and materials so directors are focused on the right things, and the critical need to educate directors on emerging areas.
Intentionality Behind the Design
The five elements that form WATSON’s W are intrinsically linked together and can rarely be addressed in isolation. For example, if you’re constantly bringing new directors up to speed, it may be a function of director terms or the legal structure of your board, as well as recruitment and orientation practices. If you focus your board DEI efforts on recruitment, you miss fundamental structural and cultural factors (think meeting timing, compensation, and the critical role of the chair). If your board-management relationship is fraught with tension, these dynamics may stem from meeting design and the quality of meeting materials rather than the individuals themselves. Understanding the interrelated nature of the governance elements helps to identify and mitigate unapparent issues with far-reaching consequences.
All five elements are equally important. There is however, intentionality to our design that reflects how we think about governance.
Above and Below the Line
Nine times out of 10, when boards come to WATSON for assistance, they start by describing an issue above the dotted line.
“We want a stronger board that adds value to the leadership team; how do we recruit better directors?”
“Can you help us enhance director performance through an evaluation process?”
“We need a more strategic board – can you facilitate an off-site strategy session?”
“Our CEO just announced their retirement; can you help us find our next great leader?”
Although each of these are important components of organizational and board stewardship and must be addressed by the board, when we start to dig deep, we often uncover contributing factors from below the line.
Most boards focus on what they know they have to do. When WATSON thinks about a board’s responsibilities, we look at the elements above the line as the ‘what’ – the board’s work – and those below the line as the ‘how’ – how the board carries out its work. Stewardship activities – the things above the line – tend to fill forward calendars and meeting agendas – what the board must do, year by year, to be successful and fulfill its role governing the organization. Boards need to be prepared to dig down to uncover the underlying contextual, cultural, and structural issues impacting board and organizational stewardship. We find that the issues that trip boards up and impede their ability to be successful in fulfilling their stewardship responsibilities often stem from their governance framework or dynamics. The reality is boards get so caught up in what work they are doing they often forget they have the power to control how they do the work.
Renewal – So Important it Gets its Own Spot on the W
At the end of the day, governance is all about people. Frameworks and processes be damned; without the right people around the table, your board can never achieve its full potential. By giving renewal its own spot on the W, we want to highlight the need to focus on people – from how you recruit, orientation that is more than a 2-inch board manual, tailored education, ongoing evaluation, to a long-term view to succession planning.
The Central Framework
The focus needs to shift from simply putting a structure in place to understanding how the right governance system works for your board and how to structure your board for maximum effectiveness. The governance processes and composition that work for a national non-profit won’t meet the needs of a publicly-traded telecommunications company. Board structure and composition also change over time as systemic sector-wide issues are surfaced and addressed. Professional regulatory bodies are shifting to more public representation (versus registrant), federated non-profits are clarifying and shifting roles, boards across sectors are seeking more diverse directors and embedding inclusion and equity in their board’s practices and culture.
If you’ve seen one board, you’ve seen one board.
Boards need to take this deliberate approach to all aspects of their governance framework – from designing value-adding board committees to being thoughtful about how they structure their meetings and find the right balance between in person, virtual, and hybrid. And where intentionality is most critical yet perhaps the most challenging to execute, is in board leadership and succession (remember, governance is all about people).
The Cornerstones of Governance
It is no coincidence that dynamics and culture sit as the cornerstones of our governance model. Sitting outside the W, these two elements have high impact yet do not always garner adequate board attention.
- Dynamics is one area that has been historically undervalued and understudied in boardrooms. Outside of the boardroom there is a collective acknowledgement of the importance of culture on organizational performance. Only recently has this wisdom been transferred to the boardroom. Intentionally designed culture and attention to director dynamics can make the difference between a value-adding board and a dysfunctional board.
- Context is the other cornerstone that has a dramatic influence on board process, structure, and strategic agility. In governance, no one size fits all and this is no more apparent than in the legal construct and sector norms influencing board structure. Consider the different makeup and requirements of a university board from those of a foundation. Boards that pay attention to context are better prepared to navigate successfully through the external changes happening around them.
And as for the actual W, with a name like WATSON, well, we just couldn’t help ourselves!
Put the W to Work
Tired of the director who feels the need to comment on every mundane thing that comes before the board? Frustrated by board meetings that never accomplish anything? Dreading the thought of a virtual offsite? You are not alone; however, these challenges beg the question: where to begin. Take the case of the overly participatory director. Is it the result of a bad recruitment choice? Ineffective orientation? Burdensome meeting rules? Or is it a function of the board’s culture? When was the last time you provided directors with feedback? Or is your chair playing ostrich, sticking their head in the sand and avoiding the situation?
It’s easy to point the finger at the symptoms of poor governance – unproductive meetings, ineffective committees, a lack of trust between board and management. It is much harder to connect the dots to identify the causes of the underlying issues. There are a lot of pieces to governance and to the board’s work, yet it can be challenging to see their interdependencies, especially when you’re in the thick of it.
Boards can take a proactive approach to their governance by putting the W to good use. WATSON’s W Governance Model was designed to help organizations and boards perform better. Over the years we have watched clients incorporate the W into their governance to help:
- Orient and educate new directors – by bringing a universal model to the table, directors develop a shared understanding of governance and are able to identify how to mindfully design governance practices, processes, and policies.
- Evaluate board and director performance – the comprehensive model helps boards see how the various governance components are interrelated and think about their board functioning in a more holistic way. Over time, boards are better equipped to identify, discuss, and solve governance problems.
- Rise above the fray – boards are most comfortable working in their governance, not on their governance. The W helps them see the forest through the trees and lets them look down at all components of governance to pinpoint where the root of the problem may be.
- Drive focus – when the right framework is in place, there is a foundation of inclusion, and information is timely and trusted, boards can shift the dialogue to the issues that matter most.
- Recruit better directors – boards that have a well-defined purpose (and supporting strategy), an appreciation of their culture, and equitable practices are better equipped to identify the diversity, character, competency, and commitment they need from incoming directors and can be more thoughtful in their recruitment.
A board’s work happens around the table, but its impact extends beyond the boardroom walls. Board decisions shape organizational culture and strategy. Boards guide the management team’s work and focus. They influence the organization’s social impact and how the organization interacts with members, rights holders, and stakeholders. A great board pays attention to all five governance elements and their interdependence. They mindfully design their approach to governance to ensure that the focus is on the dialogue and decisions that matter most to their organization’s success.
5 Quick Wins with WATSON’s W
- Deliberately work ON your governance – task the Governance Committee to evaluate and bring forward ideas on emerging governance practices applicable to your sector (Context)
- Dedicate time – annually set aside time on your forward calendar to discuss how to apply the W to your current governance practices (Framework)
- Define accountability – create clarity around who is responsible for recruiting, supporting, and evaluating individual directors (Board Stewardship)
- Dialogue – shift the conversation to board culture. Establish mutual expectations of the board and management. (Dynamics)
- Determine your role – consider how the board can best add value and what role it should play in the development of strategy, risk, talent, and financial oversight (Organizational Stewardship)