Board Governance

Let's End the Policy-Based Debate
James C. Galvin, Ed.D

This article provided by the Engstrom Institute

Here are some sound bites from conversations I've been in recently with Christian leaders:

• "Don't even get me started on the Carver model."

• "This policy-based stuff is killing some organizations!"

• "We're telling people to stay away from the Carver model."

• "The board has to remain firmly in charge of the organization."

• "I try to not mention the C-word."

These comments represent differing perspectives and assumptions on how boards should function. They reveal a debate that has been brewing for years among ministry leaders, consultants, and board members. Conversations with CEOs or board members about governance can quickly become polarized. Within the first few minutes you might be asked, "Well, are you pro or anti Carver?" Unfortunately, these conversations usually generate more heat than light.

If you are a ministry leader or board member of any faith-based organization, this is an important topic for you. You need to know what the Carver model is and what it is not. You need to know why some are opposed to it. You need to know whether your board should adopt a policy-based approach to governance. So what is policy-based governance and why the debate?

What is the Carver model?

The Policy Governance model developed by John Carver is a complete theory and comprehensive set of principles for how a board should function. According to Carver, the best way for a board to get its work done is by writing and enforcing policies. Policies should be developed in four broad categories: Organizational Ends, Executive Limitations, Board-CEO Linkage, and Governance Process.

• Organizational Endsincludes policies related to mission, strategic goals, and results the organization is trying to achieve.

• Executive Limitationsare policies expressing principles of prudence and ethics. They establish limits to the activities and methods staff may use to achieve the organizational ends.

• Board-CEO Linkagedescribes how the board and CEO will relate and communicate.

• Governance Processincludes policies describing how the board will function.

If you are not familiar with the Carver model, these four categories may seem strange to you. Why do boards need policies in these four areas? Compare your organization to a sports team. You have board members, a CEO, and staff. In football, each team has owners, a coach, and players. The Organizational Ends policies define the goal line for the team. The Executive Limitations describe the out-of-bounds lines. So the first two policy areas define the playing field. The team must score points without going out of bounds. Meanwhile, the board is up in the skybox. Board-CEO Linkage policies set up lines of communication so the coach keeps the owners informed about what is really happening on the field. It also prevents the owners from calling in plays and trying to direct the game from the skybox. Governance Process policies are the rules about what happens in the skybox while watching the game.

After a full set of policies are developed, the board vigilantly monitors the progress of the organization, provides accountability, and continually refines the policies as needed. This allows the board to be freed from operational details and focus on strategic issues and the organization's future.

This policy-based model is in contrast to traditional board governance where a board will meet monthly or quarterly, approve the budget, hear detailed reports about various aspects of the work, approve all major decisions, and attempt to control staff and spending. A traditional approach allows for policies to be developed, but they are usually not collected in one place or regularly updated. The board sees its main role as making decisions and managing the organization instead of setting policies.

Whose side are you on?

Here is the heart of the debate. Some people say traditional governance doesn't work. The Carver model is the best approach and the way all ministry organizations should head. Others say the Carver model is a dangerous fad that has seriously damaged or impaired organizations all across the nation. Traditional governance done well is the way all ministry organizations should go. Can they both be right? Let's take a closer look.

Those in favor of a policy-based approach to governance point out that this is the only complete theory and set of practices for how a board should function. The model simply has no competition. It is widely used among nonprofits and currently gaining ground in business organizations as a result of recent corporate scandals. There is no general theory representing a traditional approach to board governance. Instead, you will only find a large number of best practices and practical tips. Leading researchers point out that most boards function poorly so significant change is needed. (See the sidebar: "Board Effectiveness") The model is useful for moving the board to more strategic discussions and increased effectiveness.

What about organizations that tried it and suffered negative consequences? They would point to misunderstanding the model or poor execution. For example, a board decides to take a policy-based approach. They write a few policies and tell the CEO to do whatever he thinks is best. They relax and stop monitoring organizational performance. With no real accountability, the CEO starts doing whatever he wants. The organization launches new efforts off mission or encounters financial difficulties. The board steps in and blame is affixed on the Carver model. The real problem is not a flawed model but botched implementation.

Those in favor of a traditional approach to governance claim that a policy-based approach simply won't work with most nonprofit organizations. The Carver model may be a good theory, but it is too theoretical. Board members need practical help. Many board chairs can't understand it or envision how it would work. Even if they do understand it, it is just too difficult to implement. It undermines the power of the board and its ability to provide direction and accountability. They tend to see it as little more than a dangerous fad.

Some organizations have been seriously damaged or impaired by attempting to switch to the Carver model. For example, a CEO will approach his board and demand that they move to a policy-based model. The board reluctantly agrees and makes the switch. The CEO begins thinking that he can do whatever he wants as long as he is under budget for the year. When they ask questions about the staff or the work, the CEO begins stonewalling, "That's my job, not yours." The board ends up in the dark and doesn't even know it. When they find out what's been happening, they have to take drastic measures. Had they retained a traditional approach to governance, everything would have been fine.

Other boards can become policy obsessed, spending inordinate amounts of time redoing and refining their policy statements. They might have multiple levels of policies defining how finances will be handled and pages of Executive Limitations. Rather than freeing up themselves and the staff to achieve organizational ends, these board members attempt to use specific and highly detailed policies to control staff and operations. They end up creating a policy straight-jacket.

One side sees policy-based governance as the future and the other as a fad. Could there be more to this debate than meets the eye? Are there deeper underlying reasons why policy-based governance is beneficial for some boards and problematic for others?

Five Ways to Function

As a board, you have a wide range of options for how you will operate. You can choose to function as a working board, managing board, governing board, ratifying board, or failing board. Although most boards don't choose to fail, previous unwise choices result in failure for some boards. These ways to function are illustrated in the accompanying diagram and chart. (See "Five Ways to Function.") As a consultant to faith-based organizations, I've dealt with boards operating in each of these five ways.

• Working boardsnot only do the work of the board, but also do the work of the CEO and volunteers. You will see this way of functioning most clearly with very small organizations or new start-ups. For example, you probably know of a group of people that got together and said, "Somebody ought to do something about this." So they started an organization and formed a working committee or board to coordinate the effort. A working board may or may not have staff or a paid director. In their informal board meetings, they do the work of the organization as well as manage the work.

• Managing boardshave staff with an executive director or CEO. They have formal board meetings and hear reports and actively manage the organization. They make all the big decisions, set the budget, take responsibility for fund raising, and step in whenever problems arise. They like to keep their hands on the wheel. You can find managing boards in organizations of all sizes.

• Governing boardshire an executive director or CEO and delegate responsibility to her. They make a sharp distinction between staff work and board work and spend all of their energies on board work. They use policies as a highly-leveraged tool to shape the organization and help it move forward. They try to stay away from operational decisions and do not micromanage the CEO. These boards follow the Carver model or have been highly influenced by it.

• Ratifying boardsessentially follow the lead of the CEO. The CEO will usually establish the agenda, develop policies to be adopted, and even select future board members. The board essentially functions as a rubber stamp. At times they may disagree or have questions, but they are basically hearing reports and reacting to agenda items the CEO brings before them. Ratifying boards sometimes look like governing boards except that they are not truly leading the organization or providing real accountability.

• Failing boardsare characterized by arguments, strife, disharmony, and lack of effectiveness. This is sometimes accompanied with financial turmoil. Often the world is changing and these boards don't know how to transition their organization or adapt their ministry. A ratifying board can slowly ease into failing mode over a period of years. A managing board can quickly turn into a failing board if their decisions and actions backfire.

To clarify the differences, think of these five ways of functioning as a lifecycle of a board. When an organization is nothing more than an idea passionately held by a small group of people, the group is functioning as a working board. With limited resources and time, they struggle to realize their vision and get the new organization off the ground. Over time they hire staff. Now larger and more established, more management and oversight is needed than in the early days. The board stops doing the work and moves to managing the workers. Raising funds becomes a bigger concern than when they only had volunteers. They slowly begin functioning as a managing board. Then the organization becomes larger or more established and they develop leadership talent in the organization. The CEO is managing the organization and so is the board.

Frustrations increase on both sides but neither knows what to do. Then someone suggests that they make the transition to a policy-based approach. It is new and feels strange because they haven't done it that way before. But if successful, they immediately start functioning as a governing board. Over time, they get a bit lazy and stop watching over the organization so closely. "After all," they might say, "the CEO is doing a great job and we have nothing to worry about." They abdicate their authority and let the competent CEO lead the board as well as the organization. At that point they drift into functioning as a ratifying board. As time goes on they get a new CEO, face a terrible financial crisis, or find their organization becoming increasingly irrelevant. They aren't sure how to respond. Arguments increase, relationships fracture, and board members resign. The organization is in a death spiral and they don't know how to pull out. They take a hard look at themselves and realize they are a failing board.

These five ways of functioning are not true developmental stages, of course, because boards do not go through all of them and they do not have to experience them in this order. A new ministry can be birthed with a fully functioning managing board. A board can move from obvious failure to policy-based governance under good leadership.

What usually happens is that boards swing from managing to ratifying and back again. One season they are micromanaging and the next they are rubber stamping. If you look at the diagram, it is like driving on an icy road. It's hard to keep the car in the center and out of the ditch. These two opposing forces is another factor that makes policy-based governance difficult. It's slippery up there. As a governing board you are continually living in this tension between getting involved and losing touch.

At times, a governing board will need to step in and function as a managing board for a while. For example, if the CEO suddenly resigns with no successor, the board has to make key decisions and manage the organization until a new CEO is named. Afterwards, they can move back to functioning as a governing board.

Which way is best?

You may have already observed that the five basic ways of functioning interact with policy-based governance.

For example, if your organization has a competent CEO and your board wants to move to a higher level and make a more strategic contribution, then the Carver model is exactly what you need. You'll find it will change the quality of deliberation in the board meetings. After the initial shock of starting up, both the CEO and board members will be very enthusiastic about it too.

But let's say you have a small organization with seven ministry staff. You have invited the oldest one to serve as Executive Director and he reluctantly agrees. He is capable of dealing with the staff but is nervous about raising funds and paying the bills. Without question, this organization needs a managing board. This is because the board is actually functioning as the CEO. Attempting to implement a pure, policy-based model may prove problematic. If you are going to delegate all operations to a CEO, you have to have a mature and competent CEO in place. A managing board in this situation needs to be strategic. They need to develop policies and delegate certain areas and closely supervise others.

In the case of a ratifying board, they will approve a move to a policy-based approach, just like they approve everything else. But you may find they do not have the skills or interest in actually doing the work of a board. They joined for other reasons, whether prestige, loyalty, or friendship. Deliberating on policies may seem too difficult and boring.

Before deciding whether or not to shift to a policy-based approach, you have to decide where your board is currently at. If it wants or needs to be a working board or managing board, policy-based governance will appear too theoretical. If it is a ratifying or failing board, policy-based governance is too much work. No matter where your board is, if it aspires to become a governing board, then you need to make sure you have these necessary conditions in place.

You cannot transition to policy-based governance without a competent CEO. Boards that go ahead anyway are delegating all operational authority to someone unable to do it. After a few months or years, lack of results will make the error painfully obvious. That leaves the board with only two choices: hire a new CEO or become a managing board.

You cannot transition to policy-based governance without board members who want to do board work. Some board members upon learning about how to write policies exclaim, "I didn't come on to this board to do this crud!" Of course not, they came on to do staff work. They want to exert control over the organization by making operational decisions. Perhaps your organization has made it a practice of rewarding major donors by inviting them on the board. Going to board meetings might be fun for them, but developing policies and doing board work might not.

You cannot transition to policy-based governance without board members who can stay out of staff work. If your board includes senior field workers, as many organizations do, they may see their role as one of advocating for a constituency rather than developing policies for the whole. Also, some board members just can't stay out of detailed operational matters. As one CEO recently told me, "The model is only as good as the people on the board."

You cannot transition to policy-based governance without at least one board member with significant expertise. The CEO cannot take the board through a transition to policy-based governance, but often he is the one with the most expertise. In this situation, the CEO can tutor the board chair and provide books and articles. When he is ready, he can make it happen. If no one on the board is comfortable leading the transition, then you will have to find an outside resource person who can assist you.

Not every board is ready for policy-based governance. In general, the larger the organization the more you need it. You should not proceed without the necessary conditions for success in place. Also, every organization will have to make adaptations as they apply the principles to their unique context.

Conclusion

So let's end the policy-based debate. Yes, John Carver's Policy Governance model is the best available. No, it is not a dangerous fad. Yes, every board needs written policies. No, not every board is in a position to implement a policy-based approach. It's a matter of fit.

If you want to or need to function as a managing board, then use a traditional approach to governance and the best practices associated with it. If you want to or need to function as a governing board, then use the policy-based approach to governance. Either way, keep working on becoming a better board so that your organization thrives and kingdom work is accomplished.

James C. Galvin, president of Galvin & Associates in Winfield, IL, is an organizational consultant specializing in releasing the potential of faith-based nonprofits. Visit his website at www.galvinandassociates.com or contact him directly at jim@galvinandassociates.com.

Note: For the most complete description of the Carver policy governance model in article-length form, go to: http://www.carvergovernance.com/model.htm. A similar policy board resource is the book Good Governance for Nonprofits by the American Management Association, authored by Laughlin and Andringa.

Five Ways to function

©2003 James C. Galvin & Associates, Inc.