I enjoy reading Board articles that start of with ‘Red Flag”
A Story[1]: The board of a certain co-operative was holding its regular quarterly board meeting. One of the main decision items on this particular agenda was to approve the annual budget. The Audit and Finance Committee has met on two previous occasions to work through the numbers with management. The Committee was pleased with management’s work and felt the budget was a good reflection of how the co-operative’s strategic plan should be resourced over the coming year. As a result, the agenda item was coming to the board for approval with the full support of the Committee. The board members had received a copy of the budget two weeks ago in their board package.
When it came time at the board meeting to discuss the budget approval item, the first four questions asked by directors were:
1. I don’t know why we need to spend so much money for the CEO to travel?. Shouldn’t she be spending more time in the office with everything we are dealing with?
2. Didn’t we just upgrade the computers 5 years ago? Can’t this expense wait a couple more years?
3. Who decides which people in the organization can have company paid cell phones?
I think that we could maybe save a little money here.
4. I think that it is time we open a new branch on the other side of town. Can we add a capital expense line to the budget for this? It would likely only take about $10M to build and I think we could easily finance a large portion of that.
Red Flag: The type and level of general and financial questions asked in board and committee meetings are:
1. Too few
2. Too many
3. Non-specific
4. Too low a level
5. Too high a level
6. Too detailed
7. Off topic
8. Have nothing to do with the strategic plan or oversight of the organization
The Cause: While not a comprehensive list, when directors ask questions in this manner the typical cause is one of, or a combination of: not understanding the business or strategy of the co-operative, their role and/or their responsibilities; not being provided with or requesting the appropriate information (right level and detail) from management; not understanding the content of the reports they have been given; not preparing properly or diligently; the culture in the boardroom incents these types of questions; the Chair is not ensuring directors ask questions in appropriate ways; directors don’t know what questions to ask, or the manner in which they should ask them; individual directors are not respecting the line between board and management.
Potential Solutions:
* Commit to continuing director development and training including financial governance training for all directors;
* Back up this training with the budget to resource it;
* Refresh and expand the director orientation program for the board and its committees, ensuring it includes orientation designed to help them understand their roles and responsibilities, the organization, the team, the plan, the membership, each committee, the co-operative’s history and its future;
* If an individual director is not fulfilling their role, not preparing appropriately, or is disrespecting the line between the board and management, the Chair should take steps to ensure they do. This could take many different forms of intervention such as training and education, mentoring, reprimanding, and in some cases removal;
* If the Chair is not playing their role as they should, provide training for them.
If this is not effective, replace the Chair with someone more qualified in the role[2];
* If the culture is dysfunctional, take steps to understand and implement cultural change[3];
* If the problem lies with the information received from management, work with management to ensure the board is receiving what it needs for informed decision-making;
* Ensure an effective board evaluation process, including evaluating committees and all chairs, is in place in order to highlight and focus in on problem areas.
