OWNERSHIP AND BOARDS

 

by Caroline Oliver

 

April 2009

 

 

For boards, being special is a matter of profound importance.  I do not say this in order to boost director’s egos.  I say this in order to point out that if boards are simply doing what the Chief Executive and his or her team would do anyway (albeit leavened with advice from a few part-time lay advisers) – we should surely declare them obsolete and save ourselves a lot of time and money.  So are boards special and if so, how?

 

I believe that boards are very special in the sense that they have a very specific purpose which is to serve those who put them there – their owners.  In other words, I concur wholeheartedly with John Carver¹ when he asserts that what is special about board governance is that it is “ownership one step down, not management one step up”.  This article sets out to explain what this means in practice for your board.

 

Why Ownership Matters

 

The theory I am advancing is that boards are created to provide a continuing connection between the interests of those persons to whom the organisaton owes its existence – its owners - and those whom it employs.  And, once a board has done the work of employing the people it needs to get things done, efficiency demands that it sticks to doing its own job – that of governing on behalf of its owners.  Thus the concept of ownership provides not only the fundamental rationale for having boards at all, but also a way to distinguish their work – governance – from that of the executive – management. 

 

Putting the above in more practical terms, we can define “governance” as the wise translation of owners’ wishes into demands for organisational success and safety and “management” as the fulfillment of those demands. 

 

Ownership matters therefore because it provides three fundamentals for the board’s work:

 

1.       The reason for the board’s existence.

2.       The basis for distinguishing the board’s role from the executive’s role

3.       The source for all the board’s decisions

 

Identifying Your Owners

 

If your board sees itself as a sub-set of ownership, the question “Who are our owners?” becomes critical to determining on whose behalf you are governing and therefore what demands you should be placing on the organisation and therefore what kind of an organisation you will end up having.   In other words, a board has to know to whose tune it should rightfully dance.   A board that is not clear about the source of its mandate will flounder and when the board flounders, the whole organisation usually flounders too (or unduly relies upon its executive for its overall direction).  To be successful, an organisation needs to know where it is going and why, and it all starts with the board and its grasp of the concept of ownership

 

Take for example, the board of an orchestra who could determine their owners to be either their long-term sponsors, or their musicians, or members of their local community.  Whichever the board’s decision on ownership, it is easy to see that the result in each case would be a different orchestra with a different repertoire. Different owners create different organisations.

 

Therefore, however you determine who your owners are and whatever your conclusion, it is critical that your board has the discussion and comes to some determination – even if it decides to review that decision later on.

 

So, who are your owners? 

 

First, it is important to understand that a “stakeholder” is not necessarily the same thing as an “owner” for while all owners are stakeholders, not all stakeholders are owners.  To quote John Carver once more, owners are “a special class of stakeholders” – the persons on whose behalf the board operates in everything they do including fulfilling their responsibilities to all other stakeholders. 

 

Anyone with an interest in the organization can be a stakeholder no matter what their motivation and yet, when it comes to providing good governance, motivation is critical.  For, if the board is going to act in owners’ service, it must be sure that they truly be owners by which I mean they are motivated by the desire to secure the long-term health of the organisation as an operating asset for producing what they want to be produced for themselves and others. 

 

Note that such a definition automatically excludes those clients who are only interested in extracting resources for their own immediate use, or those funders who are only interested in contracting for services rendered according to their own agenda, or those employees who are only interested in your organisation for as long as they remain your employees, and those suppliers who are only interested in getting your organization’s custom.

 

Good governance comes not from board members individually reacting to the demands of various groups of stakeholders’ special interests and trying to commandeer the board to fulfil those demands, but from board members collectively determining and demanding organizational performance on the basis of their knowledge of owners’ best interests,

 

What I am suggesting here is that ownership is not just a legal question, it is also a moral question.  Your legal owners (those who legally have the power to hire and fire your board) are unquestionably owners but, morally, that does not mean that your board should automatically take its marching orders from them.  If your legal owners are absent, uncaring or, worse still, irresponsible, that does not excuse the board its moral duty to act as if its owners were present, caring and responsible.  

 

Going further, subject only to the legal owners’ veto, there is nothing to stop your board interpreting itself as being accountable to a moral as well as a legal ownership, by which I mean a wider group of people who, though they may have no right to vote at the annual general meeting, are nevertheless invested in the long-term health of the whole organisation as an operating asset for producing value for themselves and others.   Let us see what this means in practice for boards in a couple of particular situations. 

 

For, self-appointing boards – who have no legal ownership beyond the board members themselves as is the case for many charities – the board’s definition of a wider “moral” ownership is key to determining their organisation’s direction and nurturing future board leadership and therefore the organisation’s sustainability. 

 

For boards in the public sector, the concept of legal and moral ownership can help the board disentangle their relationship with central government from their relationship with their local community (geographic or sectoral) in terms of whose wishes should be seen as the source of their fundamental purpose and whose wishes merely need to be “taken account of” along the way to fulfilling that purpose.  The fact that your organisation may be heavily regulated does not necessarily make central government your owner.  All organisations are regulated to some degree and complying with government regulations in order to keep their licence to operate, does not mean that they are all government owned. 

 

Questions to Help You Identify Your Owners

 

Determining your ownership is therefore a matter of judgement in many cases with no one “right answer”.  Even when it looks very straightforward, such as in the case of a membership association or workers’ cooperative, the board could still determine its moral ownership more widely to include potential as well as actual members.

 

Here are some questions that could help your board identify its owners.  Answering the first question will tell you who your legal owners are.  Answering the next four questions may cause you to consider the possibility of holding yourselves accountable to a wider moral ownership.

 

1)       Who has the legal right to hire and fire us as a board?

2)       What was the motivation of our founders and where does that motivation live on today?

3)       Who cares for our organisation’s value beyond their own personal use of it?

4)       If our organisation were to fail, who would recreate it?

5)       Who do we believe has the moral right to determine our overall purpose?

 

Making Ownership Count

 

Having identifed your owners and connected your authority to theirs through consultation and accountability mechanisms, you will have:

 

Ø       Legitimized your board’s authority

Ø       Clarified your board’s accountability

Ø       Unified your board members in owners’ service

Ø       Created a touchstone for making difficult board choices

Ø       Distinguished your board’s role from the executive role

Ø       Insulated yourselves from pressures that could divert you from achieving your goals on  behalf of all those to whom you are properly accountable

 

With the above in place you are also well equipped to translate owners’ wishes into a comprehensive set of demands for organisational success and safety.   This is no easy task for the demands need to be of a manageable number otherwise monitoring their fulfilment becomes impossible and owner-accountability is lost.  Policy Governance®² is one approach specifically designed to help boards meet this challenge which your board might like to consider.

 

In any case, ownership is where board leadership starts and where it must come back to in terms of accountability.  With a clear common definition of ownership your board will be able to lead together and with confidence.  And, with your whole organisation’s future at stake – the work involved in identifying your ownership has to be worth it.

 

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¹John Carver is the creator of the Policy Governance® model and author of numerous articles and books including Boards That Make a Difference: A New Design for Leadership in Nonprofit and Public Organizations,  Jossey-Bass Publishers. 3rd Edition, 2004. ²Policy Governance® is the registered service mark of John Carver. Used with permission. The ® after Policy Governance is a symbol used to protect the integrity of the principles and practices that make up the Policy Governance model. Its use does not imply any financial obligation to the service mark owner. The authoritative website for the Policy Governance model can be found at www.carvergovernance.com.