Wednesday, March 2, 2011

The Sad Paradox of Board Governance

This post really got me thinking. In it, Roger Martin describes what he calls the "sad paradox of board governance" in the corporate world. It's worth a full read, but the quick summary is that a publicly-traded company with "bloody-minded" CEO, one who wants to take advantage of the shareholders for his own benefit, winds up getting passive Board directors, because that CEO makes sure no one comes onto the Board who will challenge his authority. While the company with a "romantically-inclined" CEO, one who just wants to do the right thing for shareholders because it is the right thing to do, gets engaged Board directors who will challenge her assumptions because she understands that this is part of good governance and she wants to company to be the best it can be. In other words, when its comes to protecting the interests of the shareholders:

When the shareholders need the directors least, they get them most. And when they need them most, they get them least.

Does the same paradox apply to the association world? When the members needs a watchdog board the most, because they have a "bloody-minded" CEO abusing his position for his own personal benefit, do they wind up with a board full of pushovers and clock-watchers? And when they need that engaged board the least, because they have a "romantically-inclined" CEO working day and night to leverage all of the association's resources for their needs, do they get a board that is overly-engaged, micromanaging, and preventing the CEO from doing all that she could? I think every association professional reading this blog could probably tell one or two stories that support one or both of those scenarios.
But here's the twist. I think the same paradox works in reverse when it comes to associations. When the members need a crackerjack CEO the most, because they have a board comprised of well-meaning but hapless managers, they get just the opposite--a CEO who will take the small-minded orders of the dysfunctional board, and someone who will be quickly disciplined or replaced if they ever stray out of the narrow zone of influence the board has defined for them. But when the members need a gunslinging CEO the least, because they have a board that understands the separation between governance and management, that stays focused on the big picture, and delegates to the CEO in terms of limitations and not prescriptions, that association gets a really talented CEO because that board knows what it's doing and how key an effective CEO is to organizational success.
The sad truth for associations struggling with the some part of the governance/management gap is that there are more ways to fail than there are to succeed.  
  • Hapless board hires crackerjack CEO ---> Hapless board fires crackerjack CEO for "overstepping" his authority ---> FAIL
  • Hapless board hires hapless CEO ---> Association achieves nothing of significance ---> FAIL
  • Crackerjack board hires hapless CEO ---> Crackerjack board fires hapless CEO for being ineffective ---> FAIL
  • Crackerjack board hires crackerjack CEO ---> Association achieves big things ---> WIN!!!
It sort of reminds me of that other paradox, the one about chickens and eggs. When it comes to organizational performance, which comes first? The CEO or the board?

Photo by The Wanderer's Eye


Anne W. Ackerson said...

Reminds me of something a colleague said: boards get the CEO's they deserve (and vice versa). I wrote a bit about it here:

Eric Lanke said...

Thanks, Anne. I really liked this line from your post: "Boards that embrace challenge with the understanding that it can lead to growth will generally hire directors who will challenge them as well as themselves and the staff." Why are boards like this so few and far between?

Post a Comment