Boards at Their Best

University of Virginia Board of Visitors

February 20, 2014

Richard Chait Harvard University

The Question

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The Goal

Consistently

Constructively Consequential

Governance

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The Components

1. Context: Academic Culture

2. Modes: Roles and Responsibilities

3. Dynamics: Board Culture

4. Mechanics: Structure and Procedure

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Welcome to Wonderland: The External Environment

Corporations Universities

Maximize profits mindful of social responsibility

Maximize prestige mindful of public benefit

Expand market share Expand mind share

Compete on output Compete on input

Dynamic competition Stable competition

Newer generally better

Older generally better

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Welcome to Wonderland: The Internal Environment

Corporations Universities

Proprietary strategy Public strategy

Growth by substitution Growth by accretion

Increase margins Increase subsidies

Definitive performance metrics Indicative performance metrics

Concentrated authority Dispersed authority

Boards of prominent peers focused on shareholder value

Boards of prominent citizens swamped by multiple missions

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Learn to Drive on the OTHER Side

The Collegial Compromise

What do these companies have in common?

American Cotton Oil Laclede Gas

American Sugar National Lead

American Tobacco North American Utility

Chicago Gas Tennessee Coal & Iron

Distilling & Cattle Feeding U.S. Leather

General Electric U.S. Rubber

Original Components of DJIA

American Cotton Oil Laclede Gas

American Sugar National Lead

American Tobacco North American Utility

Chicago Gas Tennessee Coal & Iron

Distilling & Cattle Feeding U.S. Leather

General Electric U.S. Rubber

Durability

• Top 25 public universities: 152 years.

• Top 25 private universities: 187 years.

• Top 25 private colleges: 181 years.

• University of Virginia: 195 years

• Top 35 regional colleges of Midwest: 123 years.

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R.I.P.

American Motors Lehman Brothers Arthur Anderson Lionel Bear Stearns Litton Industries Bethlehem Steel Montgomery-Ward Circuit City PanAm Data General Polaroid Digital Equipment Pullman Eastern Airlines RCA E.F. Hutton Woolworth’s Enron WorldCom

R.I.P. Notable Colleges and Universities

Modes of Governance

• The way we think which affect how we organize what we see.

• Think and work in three different modes.

• All three serve important purposes.

• Value added increases as board:

• Becomes more proficient in more modes. • Does more work in least familiar mode. • Chooses appropriate mode(s) of work.

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Should Boston Museum of Fine Arts lend 21 Monet Paintings to Bellagio in Las Vegas?

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Should Boston Museum of Fine Arts lend 21 Monet paintings to Bellagio Casino in Las Vegas?

Fiduciary: Travel-worthy? Insurance? Security? Donor restrictions? Financial arrangements? Timeline? Curatorial control?

Strategic: Effect on attendance, image, audiences? Prototype deal? Competitive responses? Patron tie-ins? Vegas in Boston?

Generative: Mission related? What will MFA do for the right price? Public art/private dealer? Venue consistent with values? MFA conservative or iconoclastic? Commercial or civic?

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Fiduciary Mode

Board’s central purpose: • Stewardship of tangible assets

Board’s principal role/responsibility:

• Guardian/oversight.

Board’s core work: • Determine, pursue, and refine mission. • Ensure quality, integrity, sustainability. • Oversee and audit finances, compliance, risk. • Monitor performance and progress. • Safeguard institutional values, reputation, autonomy. • Select, support, and evaluate president.

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Value-Added Fiduciary Work

Oversight Inquiry Due diligence? Scandal free? In compliance? Can we afford it? Clean audit? Budget balanced? Do we manage risk? New program meets market? Is it legal? Can we get the gifts? Staff turnover manageable?

Hold what in trust for whom? Safeguards in place? Voluntary measures to earn trust? What’s the opportunity cost? Insights from audit? Budget matches priorities? Do we take sensible risks? New program serves mission? Is it ethical? Do donors expect too much control? Are staff treated fairly?

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Strategic Mode

Board’s central purpose: • Strategic partnership with senior management.

Board’s principal role/responsibility: • Strategist/foresight.

Board’s core work: • Understand internal and external environments. • Ensure sensible, feasible, comprehensible strategy. • Test consistency of plan, mission, priorities, resources. • Review strategic decisions required to execute. • Monitor performance and progress.

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Value-Added Strategic Work

Strategic Planning Strategic Thinking

Can we see the future?

What’s the plan?

What’s the better program?

What are the planned costs?

Embedded assumptions?

Steps in the process?

Size of markets?

Traditional competitors?

Internal consensus?

Public aspirations?

Do we understand the past?

What’s the idea?

What’s the superior insight?

What are the intended outcomes?

Challenges to status quo?

Sure signs of success?

New markets?

Nontraditional competitors?

Customer appeal?

Proprietary advantages?

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Generative Mode

• Board’s central purpose: • Decide what merits attention and what it means.

• Board’s principal role/responsibility:

• Sense-maker/insight.

• Board’s core work: • Make sense of circumstances. • Find and frame problems and opportunities. • Reconcile realities, values, and choices.

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Generative Strategic Fiduciary

Board’s purpose Source of leadership for university

Strategic partnership w/ management

Stewardship of tangible assets

Chief role Sense maker Strategist Steward

Core work Find and frame

challenges, reconcile values and choices

Scan environment, shape strategy,

create comparative advantage

Set mission, oversee operations, budget resources, ensure compliance

Value added Insight Foresight Oversight

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Opportunity to influence

generative work declines as issues are framed and

converted into strategies, plans, and

tactics.

Opportunity for Generative

Work

Plans, Tactics, Execution

Strategies, Policies

The Generative Curve

Sense-making Problem-framing

Time

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Generative

Fiduciary

Strategic

Compete on amenities

Reconcile social purpose & business model

Add fitness center

Competition for Students

Opportunity for Generative

Work

Time

Checklist for Board Engagement in Decision Making

• Statutory requirement • Fiduciary responsibility • Strategically critical • Symbolically important • Financially significant • Potentially substantial risk • Precedent setting • Implicates core values • Relevant expertise • Legitimation, insulation

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© 2011. Not to be reproduced or distributed without the express permission of the author.

“They can’t find their hidden agenda.”

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Pertinent Practices: Elevated Purpose.

• With management, decide what to decide.

• Focus on the “main thing.”

• Get the questions right.

• Develop rolling 12-month agendas for board & committees.

• Wear “tri-focals” to analyze issues in three modes.

• Close trustee and staff knowledge gaps on key issues.

• Ponder what CEO suggests, suggest what CEO should ponder.

• Substitute high value added for low value added activity.

• Apply corporate standards of relevance.

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Board Culture

• Make no mistake, it is the board’s culture—the shared values and beliefs that delineate acceptable behavior—that ultimately determines how effective the board can be (Nadler, 2006).

• Group dynamics underpins the board’s ability to do all the components

of its job…Directors must define the norms of behavior (Charan, 2005).

• It’s not the rules and regulations. It’s the way people work together… What distinguishes exemplary boards is that they are robust, effective social systems (Sonnenfeld, 2002).

• The main differences between (high and low performing boards) relate to governance culture, the pattern of beliefs, traditions, and practices that prevail when board members come together to perform their duties (Prybil, 2005).

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Board Culture Healthy

• Team players • Distributed influence • Collective wisdom • Institutional perspective • Charismatic listeners • Constructive dissent • Candid exchanges • Confidentiality • Diligence • Mutual accountability • Respect and trust • Clear expectations

Unhealthy

• Huddle of quarterbacks • Dominant inner circle • Individual convictions • Personal preferences • Assertive speakers • Back channel complaints • Reticence or deceit • Seepage • Disengagement • Collective impunity • Disregard and distrust • Ambiguous expectations

Pertinent Practices: Board Culture

• State and apply mutual expectations.

• Orient newcomers to board culture.

• Set goals and benchmarks for board.

• Self-assess Board, committees, overall performance.

• Seek management’s assessment at least annually.

• Collectively interpret and utilize results.

• Fortify role of Governance Committee.

• Establish position description and succession plan for Chair.

• Epitomize performance accountability for university.

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Pertinent Practices: Organize to do the Work

• Strategy drives structure, not vice versa.

• Board drives committees, not vice versa.

• Synchronize Board’s work and University’s priorities.

• Selectively deploy task forces.

• Substantively engage constituents.

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Pertinent Practices: Make Meetings Meaningful

• Specify objectives.

• Organize around strategic themes.

• Highlight opportunities for BOV to add value.

• Create efficiencies. - Consent agendas - Performance dashboards - On-line updates - Committee “flash reports” - Advance surveys - Contacts for clarification

• Seek real-time feedback from management.

Pertinent Practices: Promote Robust Discourse

• Distribute discussion questions in advance. • Minimize staff presentation, maximize board discussion. • Invite broad participation, elicit constructive dissent. • Vary format

• Ask catalytic questions

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Breakout groups Advocacy panels Anonymous input Silent starts One minute memos Case studies/hypotheticals Constituent views Experiential learning

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Catalytic Questions

• What best explains UVA’s recent successes or setbacks?

• What’s UVA’s value proposition?

• Best university or best value?

• What is UVA’s theory of change?

• When and why would we support unprofitable disciplines?

• On what list, yet to be devised, would we want to rank #1?

• How are we smarter as Board and University than a year ago?

• What will be this Board’s legacy?

Pertinent Practices: Promote Robust Discourse

• Distribute discussion questions in advance. • Minimize staff presentation, maximize board discussion. • Invite broad participation, elicit constructive dissent.

• Ask catalytic questions • Synthesize implications for board and management. • Systematize follow-up, milestones, benchmarks.

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Breakout groups Advocacy panels Anonymous input Silent starts Devil’s advocates Case studies/hypotheticals Constituent views Experiential learning

Effective Boards

• Provide a strategic asset and comparative advantage.

• Pursue elevated purpose to achieve elevated performance.

• Focus on “the main things” and the right questions.

• Partner with the president, share ownership of problems.

• Focus on fusion of thinking not demarcation of territory.

• Accept individual responsibility and collective accountability.

• Model behaviors trustees want the university to exhibit.

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Payoffs

• More macro-governance, less micro-management.

• BOV more active, less intrusive.

• BOV adds more value added, derives more value.

• Better work better done.

• Greater ROI for BOV and management.

• Improved performance by BOV.

• Improved performance by UVA.

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