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June 2010

It Is June 2010: Do You Know Where Your Board Is? Are Members Doing Their Homework?

I believe the Baldrige Criteria for Performance Excellence provide an outstanding roadmap for ensuring good governance, whether you are a publicly traded business, a privately held business, a charity, a hospital, or a school. Not only is Item 1.2 of the Baldrige Criteria focused on this topic (with further ramifications throughout the Criteria), but the Baldrige Program also has a leadership survey, Are We Making Progress as Leaders?, and a guidance document for Boards of Directors.

So why am I highlighting this topic in my June column? Because for most U.S. corporations, it is corporate proxy season, and the topic of governance is hot! Also, because there has been a plethora of recent editorials and guidance documents on the topic, indicating to me that “the leading edge of validated management practice”—which the Baldrige Criteria strive to represent—still is up for debate in the area of governance. So, never afraid to wade into troubled waters, I would like to share my Baldrige-based vital few considerations for good governance.

Some of my recent resources on the topic include a Wall Street Journal editorial by John Brennan, chairman emeritus of Vanguard; a Harvard Business Review column by A.G. Lafley, former chairman and CEO of Procter & Gamble; the National Association of Corporate Directors’ key issues for boards in 2010; and an International Federation of Accountants good-practice guide for governance. So here, in no priority order, are my top ten recommendations to govern at the leading edge of validated management practice:

  • Live by a set of fundamental values. All members of the governance board should be guided by the established set of core values that serve as the bedrock for the organization governed. All organizations should have such a set of core values that will guide their ethical and business decisions.

  • Demonstrate true leadership, and hold yourselves accountable. Boards should establish an internal structure that is responsive to the needs of the organization and then hold themselves accountable to those needs. A critical need for any board is accountability for oversight of the CEO and assurance of proper succession planning, including a smooth transition.

  • Build an appropriate board. The board should have members with all the skills needed to align with organizational requirements and strategy. Members should have the time to exercise their roles. Directors should have the capabilities and will to balance their focus on the short-term needs and long-term sustainability of the organization.

  • Take responsibility for performance and conformance. The performance aspect gives you responsibility for organizational strategy and for stakeholder value creation. The conformance aspect gives you responsibility for oversight in a legal, ethical, fiduciary audit sense.

  • Exercise your role in risk management. Manage the relationship between risk taking and risk avoidance. Manage risk while fulfilling organizational objectives. Involve the whole board in key decisions related to balancing risk and potential reward.

  • Agility and adaptability should be treated as the norm. Directors need to expect a constantly changing environment. Flexibility in oversight and a focus on sustainable success are needed.

  • Balance the interests of key stakeholders. Stakeholder groups will frequently have differing, and possibly conflicting, interests. Understand those differences, and govern with a sense of balance and responsibility for addressing the short term while seeking alignment for the longer term.

  • Measure what is important, and share your metrics. Measures should not be solely financial. Measures should include strategic goals and board self-assessment. Share the results of your board self-evaluation.

  • Reward good performance, and compensate accordingly. Relate pay and incentive packages to long-term performance criteria. Align the interests of the board to those of the permanent shareholders, and compensate the board accordingly. Consider including equity grants in the retirement package

  • Communicate, communicate, communicate! Communication with all stakeholders should be regular, not episodic or solely event-driven. Communication requires speaking, listening, and hearing what is on stakeholders’ minds.

I believe many role-model organizations already practice these management guidelines. I truly wish that more organizations would adopt these guidelines—and I truly believe that doing so can help restore faith in all American enterprises. I also believe using the Baldrige Criteria for Performance Excellence will help you build that faith.



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Dr. Harry Hertz photo

Dr. Harry Hertz, Director
Baldrige Performance Excellence Program

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