Wednesday, July 11, 2012

Bookie in the Boardroom: What Are the Odds?

By Neil Bohnert
A selection from Origami in the Boardroom and Other Misadventures in Nonprofit Governance©

“Pick a number, any number” should have been the call of the chairman.  It was the end of the meeting and the chairman was about to call for a motion to adjourn.  The attendees were gathering their belongings in the familiar gesture signaling that the meeting was over when the treasurer, having earlier presented a troubling preliminary budget for the coming year, said, “I would like to see the Membership Committee meet to review the basic membership fee.  “We should consider increasing the fee,” and continuing, “It’s been several years since the last increase.”

Someone seized on the suggestion with a hearty, “I agree.  I move we increase the dues by 50 percent.”  A rapid “second” was fired by another director and a succession of comments ensued almost as a single volley.  The cavalry charge was at full gallop.  There were two comments, rather timidly offered, that suggested more study and information would be helpful, but they were ignored and a call for a vote brought the inevitable conclusion, followed by a quick adjournment.

The board had exercised its absolute power with absolutely no information.  While there is a common complaint that boards are slow to make decisions, a worse situation is when boards make uninformed decisions.  Even a player wagering a bet uses something besides intuition before deciding on a number, a horse, a game, or a lottery ticket.

What are the odds?  The odds are not good that this board made the right decision.  Had the board had an assessment and rational recommendation it might have made the same decision, but in this case, there is no way to know.  If this decision was the right one for the organization, it came about entirely by chance—a blind wager.

Why do boards make hasty, uninformed decisions?  It can be any one or a combination of reasons; politics, emotion, group intuition, or simply fatigue and eagerness to end the meeting.  Often, it’s just the easy way out.  What is there to know?  Aren’t we expected to use our collective wisdom to make these decisions?  We all know the answer.  Why waste time with the facts?

So what is a board supposed to do?

Let’s start with understanding the serious fiduciary responsibilities of the board as stewards acting in the best interests of the organization and those it serves.

Let’s start with preparing agendas that include all the important questions before the board.
Let’s start with expecting board agendas to include not only all the important questions to be considered, but also the information needed to support decisions.
Let’s start with using committees to support informed decisions.  Committees should advance recommendations in a format that includes such elements as the background information on the issue, the rationale for the recommendation, the authority for acting, and the measurable outcomes expected.  This will also provide a record of the board’s actions and a basis for measuring performance.

Following these simple habits in preparing for board actions can move a board toward exceptional performance:
§  Distribute all materials to directors in advance of the meeting (set a goal of having it to them one week before the meeting)
§  Distribute nothing at the meeting that requires an informed vote.
§  Include draft motions with the materials in advance of the meeting so directors know what they are being asked to vote on.  This gives them an opportunity to study the material and consider questions.
§  Use committees to study strategic issues and to make recommendations to the board.  Include the recommendations and rationale with the board materials and don’t repeat the report in an oral presentation.  (This also creates a record of board actions and thinking, in case of a challenge or investigation)
§  Do not act on extemporaneous, uninformed (rogue) motions.

The interesting turn to this real-life board misadventure is that at the very next meeting, someone reminded the board that there were several classes of members with different rates and that the board had only changed one, whereupon the board engaged in another identical process of setting dues rates based on no information whatsoever.  No one was the least concerned with the consequences of the decisions.
Let’s get started!

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