Category: Business Laws & Ethics

An Advisory Board (or Advisory Council or Advisory Committee) is a collection of people formed to advise members of a governing Board of Directors. The Advisory Board does not have formal authority. It cannot issue directives that must be followed as is the case with a governing Board.

There seems to be an increasing number of Advisory Boards. Far too often, an Advisory Board starts out slow and then stalls out completely, or very rarely meets and ultimately is not taken seriously at all.

An Advisory Board can be a tremendous complement to the effectiveness of the governing Board of Directors as it works to address a complex consideration or to undertake very specialized project. Those are the best reasons to form an Advisory Board.

However, sometimes Advisory Boards are used to try maintain formal and visible relationships with people who have particular strong status, for example, people whose terms have expired on the governing Board, leaders in the community, or people having highly respected skills. Those are usually not good reasons to form an Advisory Board – or at least, they’re not good reasons to expect much from an Advisory Board.

The influence that Advisory Board members have in their recommendations to the governing Board depends on the charter, or formal description of the Advisory Board. The most useful Advisory Boards are organized almost as carefully as committees on governing Boards. For example, for Advisory Board “ABC”:

• ABC meets on at least a quarterly basis. Meetings are scheduled by the ABC Chair who also develops agendas for the meetings.
• ABC provides written recommendations to the governing Board regarding operations and coordination of product DEF.
• ABC is comprised of 9 members, each representing a major geographic area of constituents of Product DEF.
• Membership of the ABC is selected on an annual basis by the governing Board.
• ABC members serve a one-year term, which can be renewed two times.
• ABC is facilitated by a Chair who is appointed by the governing Board. The ABC Chair serves a one-year term and is a member of the governing Board.
• ABC recommendations are formed by a vote of the majority of the members of ABC.
• Highlights of, and recommendations from, all ABC meetings will be documented in meeting minutes and provided to the Board Chair of the governing Board within 2 calendar weeks of the ABC meeting.
• Operations of ABC are evaluated annually by a Committee comprised of 3 members of ABC and 2 members of the governing Board.

(The terms of the charter might even be itemized in a set of bylaws for the Advisory Board.)

It’s often best to have a member of the governing Board on the Advisory Board to ensure that the governing Board is always aware of the activities of the Advisory Board. That practice also ensures that Advisory Board members feel some legitimacy in their roles – that they feel that they’re taken seriously by the governing Board.

An Advisory Board is as useful as you expect it to be. If you formally charter the Advisory Board, then its members are more likely to realize that you take the Advisory Board very seriously. If you “park” people on the Board just to somehow keep a relationship with them and then expect that Board to somehow be useful, you’ll likely end up instead with a collection of people who just feel “parked.”

What do you think?

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Carter McNamara, MBA, PhD – Authenticity Consulting, LLC – 800-971-2250
Read my weekly blogs: Boards, Consulting and OD, Nonprofits and Strategic Planning.

The issues surrounding Goldman Sachs highlight many of challenges facing the business ethics industry. There has been a public furor over the integrity of certain industries, such as finance, even though the leaders of those companies can state categorically that they acted legally, and ethically, within the guidelines they have worked within for some time.

However, our common sense notions of what is ethical and what is fair are determined by social norms. What then are the responsibilities of leaders in firms, and in industries whose ethics have been challenged, to acknowledge changes in how our society perceives them? Is it better to batten down the hatches and wait out the storm, or to develop the means to engage in an effective dialogue with these external stakeholders to maintain trust?

Much of the furor over Goldman Sachs rests in our collective ambivalence over Wall Street itself. Is there something inherently unethical about the entire trading industry?

The Senate hearings highlighted a mismatch in how Wall Street sees itself and how it is seen. Goldman’s witnesses said a market maker—someone who matches buyers and sellers—has an obligation to describe accurately the product being traded, but needn’t disclose his own position. Are we surprised that a trader can take the stand and simply say that we were doing what we’ve always been doing?

Maybe they have, and it’s us that are changing our expectations?

Does the nature of the federal bail-out change our definition of what is ethical?

While it may sound trite at first, this gets to the heart of the perceptions of trust and the commitments that were broken. Big boys on Wall Street can do what they have been doing for 200 years. Caveat Emptor.

But when Wall Street is financed by Main Street, new relationships are formed. Firms now have new sets of stakeholders, and they are required, if not by law, then by social convention, to maintain a relationship based on trust.

Trust requires a whole set of expectations that run counter to the caveat emptor trader culture: predictability, looking out for the other person’s interest, etc. It’s when these values clash with our independence and freedom values that drive our entrepreneurial trader side that we see the fireworks.

(The following post applies as much to for-profit Boards as nonprofit Boards — many for-profit Boards, especially in family-owned corporations, operate as working Boards.)

A “working Board” is a personality of a governing Board. There is no clear delineation as to what’s a definitely a working Board or not. However, it’s commonly viewed as a Board where members are doing a lot of staff-related (or employee-related) activities. New organizations often have a working Board.

I sometimes get calls from consultants wanting advice about certain situations when they’re working with Boards. It’s not uncommon that they’ll comment that a Board is a working Board and therefore needs to mature to a “policy Board” where members attend exclusively to strategic priorities and decisions. I often disagree with that assumption.

It’s fine to have a working Board — as long as Board members are also attending to more strategic decisions. So it’s OK that they might be fixing the fax machine one day. However, later on, they should also be discussing the purpose of the organization and its most important priorities.

The personality of a Board depends more on what the organization wants to accomplish than on any natural order that the Board must evolve to a policy Board. The more the organization wants to accomplish in its markets or its communities, the higher the likelihood that more resources will be needed (including more paid staff) to do that, and the higher the likelihood that the Board will need more attention to governing the increasing range and complexity of resources. Thus, the more the organization wants to accomplish, the higher the likelihood that a Board will evolve from a working Board to a policy Board.

Some very smart people have decided that they’d rather their organization was “a rifle than a shotgun” — that it do a few things very well, rather than a lot of things not so well. Those people will have carefully scoped what they want their organization to accomplish using a limited amount of resources. So those very smart people might have a working Board — a Board that does not need to “mature” into a policy Board.

What do you think?

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Carter McNamara, MBA, PhD – Authenticity Consulting, LLC – 800-971-2250
Read my weekly blogs: Boards, Consulting and OD, Nonprofits and Strategic Planning.

What About “Big Names”?

Many Board members believe that adding a very prominent person to the Board will bring great prestige and credibility to the Board. They believe that funders and other organizations will take those Boards much more seriously. Often, that’s a big mistake.

Rarely do those famous people ever show up to the Board meetings. I know of several cases where the “big names” didn’t even know they were on the Boards – the organizations had simply put their names on the lists of Board members!

Nonprofits often believe that big names will impress funders to contribute to the organizations. Funders are much smarter than that. Nonprofits can severely damage their credibility when they can’t prove that the big names were really on the Boards in the first place.

What About “Big Pockets”?

Nonprofits also often believe that “big pockets” (rich people) are more likely to donate to the organization if those people are also on the Board. Usually, the last thing they want is to be burdened with is the responsibility of attending Board meetings. Many times, they’d rather write a check to the nonprofit instead!

You’re far better off to find Board members who actively participate in Board meetings and committees, and who will help find “big pockets.”

Summary

Would you ever hire an employee because he was very popular (a big name) and then expect him/her to never show up for work? Would you ever donate to a nonprofit if that nonprofit also asked you (a big pocket) to come to regular Board meetings?

A dear friend of mine is a highly respected CEO. She said that one of her greatest moments of learning was when she quit acting like she was lucky to even have Board members attend a meeting. Instead, she realized that her organization deserved to have active Board members.

Don’t seek to find prominent or rich people to put on your Board. Instead, find people with passion for the mission and also the time and energy to be active on your Board. They will ultimately bring credibility and funding to your Board through their good work on the Board.

What do you think?

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Carter McNamara, MBA, PhD – Authenticity Consulting, LLC – 800-971-2250
Read my weekly blogs: Boards, Consulting and OD, Nonprofits and Strategic Planning.

As opposed to offering opinions without having all of the background and knowledge, I thought it might be more helpful to start a discussion about the questions:

Many people have written that Toyota’s problem was that it sacrificed a core value of safety for profit. To frame the issue this generally is to miss the point of the real challenge Toyota was facing: not trading one value for the other, but how to effectively balance the two.

No company can sustain profits if it builds unsafe cars. So Toyota cannot jettison safety for profit. Similarly, there is always inherent risk in any product. Even the public assumes some degree of risk. Toyota, as well as any car manufacturer is not expected to make their product 100% safe. So how do they decide what is “safe enough”?

Now we can look at an ethics issue. The ethical dilemma is in how Toyota grappled with that decision. Who had information but didn’t report it up to senior leadership? Why not? Which stakeholders, internal and external, were not included in the decision-making process?

The public on both sides of the Pacific does not begrudge Toyota making a profit. But building complicated machinery that is sold to millions of people demands inclusion of many voices in multiple decision processes. If there is a lesson to be learned, it’s the role that transparency can play in making the tough decision.

Do companies care about the intent of one’s actions, or just the results? While we think that our intentions should matter, if an unethical action takes place, do we really care why?

Let me know what you would do in the following dilemma:

Alternative #1 –

You are taking care of a chatty 3-year old. While strolling past a market your companion sees her favorite food, a banana, in the window of the market. Your friend needs to have a banana…NOW. Unfortunately you have no cash on you, having left your wallet in the car 6 blocks back. The child is now making quite a scene. Would you go into the store and take a banana without paying for it? If so, how would you justify it?

Alternative #2 –

Your are shopping with your 3-year old companion inside the market. She is in the shopping cart. As you pass through the fruits and vegetable section you put a bunch of bananas in the cart. She of course wants one now. You give her a banana to eat while you shop, fully intending to tell the cashier at check-out that your child ate a banana. However, you are understandably distracted during the check-out process and only after getting the groceries in the car and “Precious” into her car seat do you realize that you didn’t mention, or pay for the banana. Do you go back into the store and pay for the now eaten banana? If not, how do you justify it?

The intent of the actions in the two alternatives seem quite different. One seems like shop lifting and the other seems like just another day of parenting. Yet the results are the same: the store is left with one unaccounted for banana.

An ethics issue? In the next post we’ll look at the ramifications inside a company for similar decisions.

Too often, when Board members struggle with attendance, participation or decision making, they simplistically resort to a Board training session or undertake team building to address their problems. Those techniques seldom work to address those problems.

Why Board Training Alone Seldom Restores Boards

It is not uncommon that Board members want a “quick fix” to their issues merely by undertaking a short Board training session. They have the illusion that their problems are the result of members not knowing their jobs. That is like believing that you can stop people from arguing merely by telling them not to do that anymore. If a training session was the solution, then members could easily solve their issues merely by downloading free Board job descriptions from the Web. Besides, if members are not coming to Board meetings, they probably will not attend a Board training either.

Board members rarely struggle because members lack understanding of their legal roles and responsibilities. New information in members’ heads is rarely enough to make a major difference. Instead, members need ongoing guidance, support and accountabilities to actually use that new information. That comes from a combination of activities, for example, evaluating the health of the Board, helping members understand what is required for long-lasting change, Board orientation and Board training for members, refining the organization of the Board, coaching the Board Chair and other leadership roles to drive changes, and then re-evaluating the health of the Board.

Why Team Building Alone Seldom Restores Boards

Team building is conducted to improve the performance of a team, or small group of people. There are a wide variety of approaches to team building. Too often, the approach is to improve performance primarily by trying to improve team members’ feelings, beliefs and perceptions about themselves and each other. That approach rarely works for Boards that have major, ongoing struggles. Actually, that approach to team building can make the situation much worse when the good feelings from team building quickly encounter the same dysfunctional structures on the Board, resulting in even more frustrated – and now cynical – Board members.

We have learned a great deal about what makes for high-performing teams. In addition to respecting themselves and each other, all team members need to have the same clear understanding of certain structures, including:

1. The purpose of the team.
2. How decisions are made and problems are solved, and how communications will be done.
3. Each member’s current roles and responsibilities.
4. What authority and resources the team has to work with.

Lack of the above structures often is the primary cause of prolonged frustration, blaming and conflicts among team members. Teams can be formed to be self-organizing, self-directed or self-managed, but to be successful, they must ensure that they have the above-listed structures in whatever form the team decides to take.

What do you think?

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Carter McNamara, MBA, PhD – Authenticity Consulting, LLC – 800-971-2250
Read my weekly blogs: Boards, Consulting and OD, Nonprofits and Strategic Planning.

In the post, Part 1, we reviewed the first 5 practices. This post is a continuation from that post, and reviews the remaining 5 practices.

6. Ensure strategic plan that includes action plans

The action plan part of an overall strategic plan specifies who is going to do what and by when in order to achieve the more top-level goals in the plan. Too often, strategic plans stop short of producing action plans. Yet, one of the biggest reasons for conflict in the workplace is confusion about roles in the organization. Action plans can help greatly to clarify the working relationship between Board members and their CEO.

7. CEO should participate in certain Board committees

The CEO and other managers can provide great value as members of various Board committees, especially those focused on finances, planning, public relations and human resources. Other committees, such as compensation, audit and governance are best staffed entirely by Board members.

8. CEO should provide information to members before meetings

Some CEOs have learned that one of the best ways to incapacitate a Board is by giving members new materials during a Board meeting, so that members are quickly overwhelmed and confused. As a result, members often end up agreeing with whatever the CEO suggests. Seasoned CEOs share materials with members well before Board meetings.

9. CEO and Board Chair mutually develop Board meeting agenda

Far too often, the CEO develops the agenda. This practice can inadvertently cultivate yet more Board dependence on the CEO – a Board that is not effective. The agenda drives what Board members work on. It it’s not on the agenda, Board members often don’t know about it. The Board Chair and CEO should each draft a version of the agenda and then combine them into the final agenda. Each topic should have a time limit for discussion, debate and decision. If members haven’t addressed the topic within that time, then delegate it and move to the next topic.

10. Annually evaluate the performance of the CEO

Board members often don’t evaluate the CEO unless the CEO is not performing well. Then the evaluation is used as some form of punishment. This can lead to a lawsuit for discrimination. There should always be Board-approved personnel policies that, in part, guide how employees (the CEO is an employee) are hired, evaluate and fired. A fair and equitable performance evaluation of the CEO can greatly clarify mutual expectations and enhance the quality of the working relationship between the Board members and CEO.

What do you think?

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Carter McNamara, MBA, PhD – Authenticity Consulting, LLC – 800-971-2250
Read my weekly blogs: Boards, Consulting and OD, Nonprofits and Strategic Planning.

What’s the difference between a code of conduct and a rulebook? A rulebook certainly sets outer parameters as what is unacceptable behavior. However, since most behavior is within those legal parameters, does (and should) a code of conduct dictate how employees should in fact conduct themselves at work?

Imagine if a supervisor asks an employee how things are going and the employee answers, “great. I have not violated any of the standards in our code today.” We certainly can aspire for more. For example:

• Should the code discuss how employees should conduct themselves at meetings in order to foster open dialog?
• Should the code detail how employees should keep commitments to others and what to do when they can’t meet a deadline or objective?

We would like to think that this type of behavior need not be reduced to writing. Shouldn’t the culture of the organization set norms that guide these types of actions? In fact, if this type of behavior was included in the code and it wasn’t part of the social fabric of the company, it wouldn’t be followed anyway.

The research shows that social norms inside organizations have a tremendous influence on employee behavior..for better and for worse. And yet, in our past-faced world, these social norms evolve quickly and often are not norms that leadership would like to see.

If our codes of conduct are not truly suited to be true “codes of conduct,” then what means are available to companies to set standards of expected behavior that are outside of the 10-20 standards and policies that fill most code documents?

This Part explains the first 5 practices. Part 2 describes the last 5 practices.

Recent and very public “white collar,” stock-fraud crimes have brought much public attention to how governance is supposed to work, but too often doesn’t. The Sarbanes Oxley Act is one example of new regulations intended to strengthen the transparency and accountability of Boards of public corporations. Consensus seems to be that more independent Board members and less involvement of CEOs on Boards is one solution for for-profit and nonprofit Boards.

Some Board members have over-reacted and dramatically distanced themselves from working with their CEOs. Still, the quality of the working relationship and mutual support between Board members and their CEO is critical to the success of a corporation, whether for-profit or nonprofit. We should not expect CEOs to have to work apart from their Boards members — frequently, it’s the CEOs who support members to do their jobs! Here are some practices that CEOs can do for their Boards without losing the diligence and accountability of Board members.

1. Ensure clear descriptions of roles of Board and CEO

Years ago, a person had to hire a consultant to find suggestions or tools to clarify the roles of a Board and its CEO. Now, there is a wealth of resources available on the Internet and bookshelves. An organization should end up with a document that clearly specifies the types of functions and decisions that are driven by, and even those done by, the Board versus executives and other managers. The document should be reviewed once a year during a brief Board training.

2. Recruit Board members based on their strategic expertise

As much as possible, these people should be independent Board members – members who are not or have recently been employees of the organization, are not relatives of the CEO, are not in organizations which have the CEO on their Boards, and are not major customers or vendors. Instead, bring in members who have expertise to address current strategic priorities and, ideally, have been on a Board of a well-respected organization. (Some Boards might be required by investors or other stakeholders to have representatives on the Board. Strive to have some based on their expertise.)

3. Orient Board members to the organization

Frequently, members can serve on a Board for years and still not really know what products and services are offered by the organization. CEOs can significantly increase the effectiveness of Board members by orienting members to the organization, including its history, products and services, customers, collaborators and successes. Note that this is a Board orientation, not a Board training. An orientation is about the unique aspects of the organization. A training is about the role of any governing Board.

4. Annually train members on the role of a governing Board

Because the CEO remains in the organization working with the Board, while Board members come and go according to their term limits, the CEO often understands the role of a Board more than its members do. The CEO can be very useful, for example, in working with the members of a Board Governance Committee as its members conduct a Board training each year, but should not be taking the lead responsibility in this training.

5. CEO should have strong role in strategic planning

Boards that view its members as attending primarily to top-level policy — especially Boards that have over-reacted to recent regulations about governance — will sometimes make the mistake of determining mission, vision, values and top-level goals without the input from the CEO and other employees. That’s a mistake. The most useful strategic planning sessions often involve information, discussions and suggestions from the CEO and employees.

Part 2 will describe the next 5 practices to cultivate a successful strategic partnership between Board members and the CEO.

What do you think?

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Carter McNamara, MBA, PhD – Authenticity Consulting, LLC – 800-971-2250
Read my weekly blogs: Boards, Consulting and OD, Nonprofits and Strategic Planning.