I work with boards across many industries, and I’m always surprised at how often board members and boards as a whole do not understand their accountability. It is not a reflection on the individual board members as much as it is a reflection on the lack of education received by incoming directors.
There are common issues I see in boards in Aged Care.
The first and most obvious issue is inappropriate delegation of responsibility and even accountability to the management team. Instead of the board taking responsibility for developing the organisation’s vision and the mission and the strategic direction of their organisation, they delegate that responsibility to the management team, becoming mere rubber stamps of the organisation’s direction.
It is OK to ask the management team to develop alternative strategies for reaching a strategic objective over the next few years as part of achieving the vision set by the board. The board can then accept or reject the strategic alternatives in executing their accountability for the development of strategy. It is not OK to delegate it all to the management team.
Worse still, I see boards shirking their accountability for managing risk. They allow the management team yet again to assume accountability for setting the contexts in which risk should be managed and the tolerance for risk the organisation is prepared to accept.
It is important for boards to complete a charter of expectations which clearly establishes the role of the board and the management team. To do this well, the board must have set a vision and mission and a strategic objective already, which forms part of the charter of expectations. The key element of the charter of expectations is the description of the risks which the board will manage and therefore what risks they delegate to the management team to manage. The board may need to set up committees to manage those risks and measure the ability of the organisation to carry out any risk treatment plan developed for those risks evaluated as unacceptable.
Another common issue is the lack of financial skills and knowledge held by board members. When they receive financial statements comprising a profit and loss account, balance sheet, and cash flow, they cannot connect changes in one statement with another as different options are discussed. They are surprised by the impact of decisions they make on the financial statements.
Ethics and Policy
Ethics and policy-setting are two further issues which don’t have enough drive and direction from the board in many cases.
Setting the ethics of an organisation is much more effective than publishing a list of values. A code of ethics guides all employees and contractors – including the board – in making decisions which are consistent with their vision and mission. They inform the creation of policies, statement of business principles, and staff regulations. A code of ethics may include about ten statements. An example is:
“Treat people fairly.”
“We are an equal opportunity employer and we show respect for our employees, contractors, suppliers and the community.”
Ethics, by their nature, are personal. Each person interprets actions by others as being ethical or unethical based on their personal values. The code of ethics attempts to leave no doubt what the organisation believes is ethical and unethical.
The next thing many aged care boards need to deal with is policy. Boards do not have to be responsible for creating policy, but they are accountable for it. Quite often the capability and understanding to write policy rests within the management team. The board must, however, set the parameters and intent of a policy and authorise the final form of the policy.
Key Performance Indicators
The most common shortfall of all, however, is also common to management team members. It is to do with continuous improvement. The core of the issue is that neither board members nor management team members understand enough about what makes for a good performance indicator so that they can measure the health of the organisation adequately. They also can’t measure the organisation’s progress in being able to execute its strategy beyond some typical lag financial indicators such as sales, costs, and profit.
The absence of lead indicators across the typical risk contexts of people, assets, reputation, and environment means that the board and the management team are both always reacting. When times are good, it matters only in terms of lost opportunity. When times are bad it can mean taking action when it is too late.
Primary Responsibilities of Board Members
Board members have specific responsibilities which they cannot delegate to the management team. Their primary responsibilities comprise:
- Serving as fiduciaries for all shareholders.
- Directing the business and affairs of the company within the law.
- Overseeing company performance.
- Selecting the CEO and ratifying the selection of officers of the company.
- Reviewing and confirming basic company objectives.
- Approving major policy and management decisions.
- Spending time learning the business of the company, developing informal contacts with management and other directors to build mutual trust.
- Advising management on key issues and requesting advice when they do not have the skills and experience.
In addition they have secondary responsibilities comprising;
- Adopting or changing the governance documents of the company, including bylaws and governance guidelines.
- Approving changes in policies of the company and its subsidiaries.
- Reviewing objectively the work of management, refraining from involvement in day-to-day management.
- Bringing perspective and fresh points of view to the board’s deliberations.
- Providing general guidance based upon experience in special areas of expertise.
Principles of Good Governance
It makes sense for boards to evaluate their behaviour and plan to make changes to improve their performance. The National Association of Corporate Directors has a handy list of principles of board governance against which to evaluate performance.
Consider your own board, and give each one a rating from 1-10, where 1 means “does not meet at all” and 10 means “meets it fully”. Where does your board rate against these criteria? What do you need to improve?