Board ChallengesTools for Effective Decision

MakingBryan K. Singletary

PresidentPractical Energies

Today’s AgendaPolicy Issues

Decision Making Models that Encourage Respectful Disagreement

Avoiding Micro-Managing in the Boardroom

PoliciesUsually, a documented set of broad guidelines, formulated after an analysis of all internal and external factors that can affect a firm's objectives, operations, and plans. Formulated by the firm's board of directors, corporate policy lays down the firm's response to known and knowable situations and circumstances. It also determines the formulation and implementation of strategy, and directs and restricts the plans, decisions, and actions of the firm's officers in achievement of its objectives.

BusinessDictionary .com

ProceduresA procedure is a series of actions or operations that produce a desired result. Procedures are under the jurisdiction of staff.

RolesThe Board leads the cooperative by making

policy decisions.

Ends

The Staff manages the cooperative and implements the decisions of the Board by making decisions on procedures.

Means

RolesIf the Board is spending their time developing procedures for the cooperative, they are not spending their time on leadership of the cooperative.

If the staff is in the business of creating policy for the cooperative, they are missing opportunity to fulfill their role of managing the cooperative and acting on the decisions of the member’s elected representatives.

What should policies look like?

Board Policies should have:ClarityApplicabilityConsistent Use

Clarity

Policies give direction to plans. They are a road map management can follow to reach goals and attain objectives. Well written policy facilitates delegation of authority to the lowest feasible level in the cooperative. Written policy statements must be a major ingredient of each cooperative’s planning activity. These policies should reflect the cooperative’s basic philosophy and serve as guidelines for actions the cooperative takes to attain its established objectives.

http://www.uwcc.wisc.edu/pdf/cir39.pdf

Applicability

Policy should deal with a recognized need. It is the result of careful thought and research; deals with practical and specific matters: does not conflict with other cooperative policies: deals with recurring situations: clearly indicates the conditions, to whom, and to what extent it applies; specifies who is responsible for applying it; and must be concise, legal, and not in conflict with the cooperative’s articles of incorporation and bylaws.

http://www.uwcc.wisc.edu/pdf/cir39.pdf

ConsistencyPolicies set the standard for board behavior. It is important to view policies as proactive tools to establish a standard of board behavior required for governance in today’s electric cooperative boardroom.

Policies are Meaningful

Board policies have direct legal implications for the cooperative, the board, and management.

Therefore, policies should be carefully and thoughtfully crafted in conformance with the cooperative’s articles of incorporation, bylaws, and any and all applicable local, state, and federal laws and regulations before being adopted.

Policy Review / Development

Identify the areas to be covered by policy

Formulate the policy based upon careful consideration of available data

Adopt the policy after thorough review and vetting

Communicate the policy to various stakeholders

Ensure implementation through management reporting

Lather – Rinse - Repeat

Policies Objective

The purpose of the policy Consistent with the cooperative’s mission

Policy The specific policy statement - content

Expectations What is expected of the various players Who does what

Limitations Boundaries and statements limiting based upon

pyramid of authority

Responsibility Personal and compliance responsibility statement

What tools does the board have for making decisions regarding the

future of the cooperative?

Cooperative Decision Making

Strategic DecisionsBOARD

Tactical Decisions

CEO

Operational Decisions

EMPLOYEES

Without a Process

Impacts of not having a decision making process

Members act alone or on their own

perspective

Someone always gets their way

Cliques form after the meeting behind

closed doors to make the REAL

decision

Squeaky wheel syndrome

Decisions are derailed at the last

second

Decisions don’t get made

Meetings go on and on and on…

The Board Process

Desired ResultCarefully defined issues/problems

Multiple options

Pros and cons of each option considered

Careful/prudent process

Fact driven process

Member based

Disinterested

Rational Process for Decision Making

1

•Identify the Decision to Be Made – (Value Gaps)

2

•Gather Data

3

•Identify Alternatives

4

•Forecast Intermediate and Long Term Consequences

5

•Choose from Alternatives

6•A

ct

7

•Evaluate

Rational vs. NormativeSome of the limitations not considered in the

rational model are issues such as not having enough information relevant to the problem and also  the fact that problems can change in a short period of time.

The normative model of decision making takes into account the fact that leaders are bound by certain constraints when making decisions. These constraints include personal and environmental factors that reduce rationality, such as time, complexity, uncertainty and resources.

Create Opportunities to be Rational

Anticipate important decisions and allow time for data acquisition and review

Debate important decisions when the Board is at their best

Define important –Power supply contract revisionsSelection of annual meeting give-aways

1. Identify the Decisions to Be Made

What exactly is the issue/problem?Must be able to create a shared understanding

What is the impact on the cooperative?ReliabilitySafetyCostMember Satisfaction

Who is affected by the issue?

Is there a deadline or time constraint?

2. Gather DataAccurate data is critical to sound decision

making.

Tools- Justified reliance on CEO, staff, attorney and

auditor and their reportsKRTA’s, Balanced Scorecard, ACSI and other

metricsMinutesBooks and recordsHear prudent judgment of others

3. Identify AlternativesIt is very rare to have an issue with a single

solution.

There must be alternatives for every issue/problem.

You should always consider the the do nothing alternative.

4. Forecast Intermediate and Long Term Consequences

Evaluate the pros and cons of each alternative

Utilize a Devil’s Advocate – a respectful contrarian in the Boardroom is a power tool

Seek full board participation

Ask questions

Respectfully and candidly share opinions

4. Forecast Intermediate and Long Term Consequences

Establish a baseline criteria for judging alternatives based upon:Cooperative goalsCultureMember needs

Establish deal killers, and core values

Know when to seek expert assistance

4. Forecast Intermediate and Long Term Consequences

Business Decision Rule

In making business decisions, it is presumed that directors and officers:

ARE NOT INTERESTED (personal gain) in the subject of the business decision;

ARE INFORMED to the extent reasonably believed appropriate under the circumstances; and

RATIONALLY BELIEVE the business decision is in the corporation’s best interest.

5. Choose from AlternativesMake and document your decision

Process and key dataRecord the decision – Minutes

Know that any decision regarding the future is wrong

By using a rational decision making process– you minimize just how wrong you are

It is what an “ordinarily prudent individual” would have done at that time

6. ActConvert your decision from strategy to strategic

initiatives

Define metrics that allow you to meet the obligation of evaluation

“What gets measured gets done.”

7. EvaluateUtilize your metrics to ensure the decision is

performing as forecast

Measure the right stuff

Re-evaluate as required

Things change and what was once a good decision – may not look so good now

This is compounded by lack of re-evaluationSticking to our guns

Does Your Board Have a Culture?

Organizational culture is the behavior of humans who are part of an organization and the meanings that the people attach to their actions. Culture includes the organization values, visions, norms, working language, systems, symbols, beliefs and habits. It is also the pattern of such collective behaviors and assumptions that are taught to new organizational members as a way of perceiving, and even thinking and feeling. Organizational culture affects the way people and groups interact with each other, with clients, and with stakeholders.

In Plain English

It’s the reason you sit in the same chair month after month in the Board Room

Does Your Board Have a Culture?

The things the group thinks are important.

Official and unofficial rules about how we behave.

Accepted reports, metrics and values.

Group think.

Where do you sit for Board meetings? Why?

The Impact of CultureCan become self-limiting

Creates a board that is resistant to change

Circle the Wagons – we defend our decisions because we are a part of the group

Puts folks in their place – new directors are expected to fit in

This is the way we’ve always done it!

Five Elements of Board Culture

1. Trust - Culture conveys both the standards for trust and the penalties for breaches.

2. Purpose - An objective unifies directors in the common pursuit of a long-term vision.

3. Work - Decisions are the work products of boards.

4. Vigilance - Culture conveys how deep directors must dig, how alert they must be and how rigorous their inspection must be.

5. Engagement - Being fully engaged joins directors in collaborative service.

Source: Patrick R. DaileyUnderstanding the Culture of Your Board

1. TrustRarely openly discussed, but always top of mind

Without trust the board is little more than a group of individuals

Lack of trust is like decision rust – it erodes the board’s ability to make rational decisions

2. PurposeHow often does your board discuss the

purpose/mission of the cooperative?

Clear purpose leaves no doubt about what we do – we work for the members

Clearly defines your fiduciary responsibilities

Defines conflict of interest potential

Virtually every cooperative in serious trouble had a board that forgot the purpose of the cooperative

Electric Cooperative PurposeA Compass for the 21st Century

A clear purpose serves as an overarching

standard against which business decisions

can be measured. Much like a compass, it

keeps an organization traveling in the right

direction, and helps it avoid the pitfalls of

short-term distractions that can weaken the

enterprise.

3. WorkDecisions – debating and voting on motions –

are the work product of the board

How agendas are created

How information is shared

How motions are made and debated

Decision making model

Agreement on key board projects

4. VigilanceMust become comfortable with discomfort – risk

is inevitable

Don’t ignore red flags

Agree on what needs to be monitored

Do not become complacent If it ain’t broke don’t fix it!

If it ain’t broke don’t fix it!

“If it ain't broke, don't fix it' is the slogan of the complacent, the arrogant or the scared. It's an excuse for inaction, a call to non-arms.” Colin Powell

How to Remain Vigilant

Advance distribution of the agenda and other documents

Review of information prior to board meetings

Regular reports from management

Ask questions

Attendance at all board meetings

Adequate time to analyze and discuss matters completely

Requesting additional information and asking questions, if necessary

5. Engagement

The unwritten code required for directors to fully contribute within the culture of the board

How actively engaged members are

How they review and prepare for the meeting

How they discuss issues and interact with other board members

The board’s expectation of how directors should contribute to board work products

Please DefinePlease give a definition of:

1. Prepared

2. Actively participates

3. Alert as it relates to board members

Please provide examples of each

Individual vs. Group Decision Making

In establishing objectives, groups are probably superior to individuals because of the greater amount of knowledge available to groups.

In identifying alternatives, the individual efforts of group members encourage a broad search in various functional areas of the organization.

In evaluating alternatives, the collective judgment of the group, with its wider range of viewpoints, seems superior to that of the individual decision maker.

Individual vs. Group Decision Making

In choosing an alternative, group interaction and the achievement of consensus usually result in the acceptance of more risk than would be accepted by an individual decision maker.

Implementing a decision, whether or not it was made by a group, is usually accomplished by individuals.

Liabilities of Group Decision Making

Groups often work more slowly than individuals.

Groups decisions involve considerable compromise that may lead to less than optimal decisions.

Groups are often dominated by one individual or a small clique, thereby negating many of the virtues of group processes.

Overreliance on group decision making can inhibit management’s ability to act quickly and decisively when necessary.

Assets of Group Decision Making

Groups can accumulate more knowledge and facts

Groups have a broader perspective and consider more alternative solutions

Individuals who participate in decisions are more satisfied with the decision and are more likely to support it.

Group decision making processes serve an important communication function as well as a useful political function.

Effective Boards… Know their purpose and make sure that new directors receive

proper orientation

Are vigilant: they are sensitive to risk and demand to be given verifiable facts about industry change

Maintain mutual trust by encouraging constructive (not destructive) debate

Evaluate their own work processes to identify areas of possible improvements

Hold directors and management accountable to engage in important discussions

Effective Boards: Have a common purpose and vision

Understand their role

Understand the pros and cons of group decision making

Encourage respectful debate

Are inquisitive

Tend to make data rich decisions

Seek data that is relevant, complete and credible

Demand full board participation

Still respect common sense and intuition

A Word about Board / Management Conflict

Conflicting views about organization’s objectives

Lack of understanding between board and manager about duties and functions

Failure to properly reward good management

Board’s lack of focus on long-range planning

Failure to recommend and adopt clear cut policies  

Board members’ failure to represent membership

Directors’ assuming board authority outside of board meetings

Tools for the Effective Board

► Realistic mission, vision and values statement; a strategic plan

► The work plan in conjunction with management and the annual budget

► A workable Strategic Plan with goals identified for Management’s direction.

► A realistic budget that implements the strategic and operating plans

MissionWhy we exist

Core ValuesWhat we believe in

VisionWhat we want to be

StrategyOur game plan

Balanced ScorecardImplementation and focus

Strategic InitiativesWhat we need to do

Personal ObjectivesWhat I need to do

The Mission Driven ModelStrategic Planning Process

Coming to agreement on

Vision is critical for Board success

Agreement here is the norm for

most cooperative

s

RolesMission

Why we exist

Core ValuesWhat we believe in

VisionWhat we want to be

StrategyOur game plan

Balanced ScorecardImplementation and focus

Strategic InitiativesWhat we need to do

Personal ObjectivesWhat I need to do

Strategic Planning Process

BOARD

STAFF

Mission

What is your Mission?To provide our members safe,

reliable and affordable electric

service while improving the quality

of life of the communities we

serve.

Vision

What is your vision for the future of your electric cooperative?

1st steps Toward Achieving Your Vision

Must agree on Vision

Evaluate your current state

Defining Value Gaps

Value GapsDefine the value that can be created by executing strategy and achieving the Vision

59

Enhanced Vision

Effective Boards Have agreement in

purpose, mission and vision.

Communicate through policy - expectations and delegations to the CEO

Measure and monitor success of the cooperative through sound data

Stay focused on policy and leave procedure to the staff

Spend time on the big decisions

Make data rich decisions

Don’t just drink the kool-aid

Never forget they work for the members.

Thank You