Governance as Leadership

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Governance as Leadership

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Governance as Leadership Reframing the Work of Nonprofit Boards

RICHARD P. CHAIT

WILLIAM P. RYAN

BARBARA E. TAYLOR

John Wiley & Sons, Inc.

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This book is printed on acid-free paper. ∞

Copyright © 2005 by BoardSource, Inc.All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photo- copying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through pay- ment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax 978- 646-8600, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, 201-748-6011, fax 201-748-6008.

This publication is designed to provide accurate and authoritative informa- tion in regard to the subject matter covered. It is sold with the understand- ing that the publisher is not engaged in rendering professional services. If professional advice or other expert assistance is required, the services of a competent professional person should be sought.

Wiley also publishes its books in a variety of electronic formats. Some con- tent that appears in print may not be available in electronic books. For more information about Wiley products, visit our web site at www.wiley.com.

Library of Congress Cataloging-in-Publication Data:

ISBN 0-471-68420-1

Printed in the United States of America.

10 9 8 7 6 5 4 3 2 1

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We collectively dedicate this book to the memory of Judith O’Connor.

In addition, we offer these personal expressions of gratitude:

In memory of Henry W. Sherrill, my governance guru.

Richard Chait

To Sue, Nick, and Peter, for governance respite. William Ryan

Always for David. Barbara Taylor

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vii

Contents

about boardsource x about the authors xi preface xv acknowledgments xxv

chapter 1 First Principles 1 Principle One: Nonprofit Managers Have Become Leaders 2 Principle Two:Trustees Are Acting More Like Managers 4 Principle Three:There Are Three Modes of Governance,

All Created Equal 6 Principle Four:Three Modes Are Better Than Two or One 8

chapter 2 Problem Boards or Board Problems? 11 Problems of Performance 12 From Problems of Performance to Problems of Purpose 15

Some Official Work Is Highly Episodic 17 Some Official Work Is Intrinsically Unsatisfying 18 Some Important Unofficial Work Is Undemanding 20 Some Unofficial Work Is Rewarding but Discouraged 22

The Challenge of Reform 23

chapter 3 Type I Governing: Fiduciary 33 Type I Governing 34 The Type I Mental Map 38 The Type I Board 40 Assessing the Problems 45 Conclusion 49

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chapter 4 Type II Governing: Strategic 51 Nonprofits Enter the Marketplace 52 Boards and Formal Strategy:A Type I Approach

to Type II Work 54 Strategic Disillusionment 56 Strategic Thinking: Beyond a Type I Mindset 62 Governing in Type II Mode 65 The Evolution of Strategic Governance 66 Processes and Structures for Type II Governing 68 Implementing Strategy 75 Why Not Just Types I and II? 76

chapter 5 Type III: Generative Thinking 79 The Power of Generative Thinking in Organizations 80 Inside the Black Box of Generative Thinking 82 Toward Generative Governing 89

Leadership as Governance: Executives Displace Trustees 90 Governance by Default:Trustees and Executives Disengage 93 Governance by Fiat:Trustees Displace Executives 94 Type III Governance:Trustees and Executives Collaborate 94

Can Boards Do It? 99

chapter 6 Type III: Generative Governing 101 Using a Type III Mental Map of the Organization 104 Recognizing Generative Landmarks 107

Generative Landmarks 107 Embedded Issues 108 Spotting “Triple Helix” Situations 109

Working at the Boundary 111 Working at the Internal Boundary 111 Working at the External Boundary 115

Looking Back:The Future in the Rear-View Mirror 116 Deliberating and Discussing Differently 119

The Cardinal Rule: Suspend the Rules 120 Promoting Robust Dialogue 124

Mind the Mode 130 The Payoffs 131

viii CONTENTS

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chapter 7 Working Capital That Makes Governance Work 137

Intellectual Capital 142 Reputational Capital 146 Political Capital 150 Social Capital 155 Capitalizing on Trustees 161

chapter 8 Where to Next? 163 Is the Game Worth the Candle? 163 Diagnostics 167 “Attractive Nuisances” 174 A New Covenant 179 Coming Full Circle 181

references 183

index 189

CONTENTS ix

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x

About BoardSource

BoardSource is the premier resource for practical informa- tion,new ideas, and leadership development for board members of

nonprofit organizations worldwide. Through highly acclaimed

programs and services, BoardSource enables nonprofit organiza-

tions to fulfill their missions by helping build strong and effec-

tive boards.As the world’s largest, most comprehensive publisher

of materials on nonprofit governance, BoardSource offers a

wide selection of books, videotapes, CDs, and online tools.

BoardSource also hosts a biennial Leadership Forum, bring-

ing together governance experts, board members, and chief

executives of nonprofit organizations from around the world. In

addition to workshops, training, and our extensive Web site,

BoardSource governance consultants work directly with non-

profit leaders to design specialized solutions for organizations of

all sizes working in diverse communities around the world. For

more information, please visit www.boardsource.org, e-mail

mail@boardsource.org, or call (202) 452-6262.

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About the Authors

richard p. chait

Richard Chait, a professor at the Harvard Graduate School of

Education, has studied nonprofit governance for more than 20

years. He has coauthored two books on the subject, Improving the

Performance of Governing Boards (Oryx Press, 1996) and The Effec-

tive Board of Trustees (Oryx Press, 1993), as well as numerous arti-

cles including two in the Harvard Business Review, “The New

Work of Nonprofit Boards” (September/October, 1996) and

“Charting the Territory of Nonprofit Boards” (January/February,

1989). Chait also conducts research on faculty work life and aca-

demic leadership, most recently editing a volume on The Ques-

tions of Tenure (Harvard University Press, 2002).

Dr. Chait is a member of the Board of Directors of

BoardSource and a trustee and member of the executive com-

mittee of the governing board of Wheaton College (MA).

He was previously a trustee of Goucher College (MD) and

Maryville College (TN). Chait has served as a consultant to the

boards and executives of more than a hundred nonprofit organ-

izations, particularly in education and the arts. In 2004, he was

named one of Harvard University’s “outstanding teachers.”

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william p. ryan

Bill Ryan is a consultant to foundations and nonprofit organi-

zations and a research fellow at the Hauser Center for Nonprofit

Organizations at Harvard University. His work focuses on non-

profit organizational capacity, primarily among human-service

organizations. He has explored how several forces—including

nonprofit access to capital, foundation grantmaking practices,

competition with for-profit firms, and nonprofit governance—

shape the capacity of nonprofits to deliver on their missions.

Ryan is author or coauthor of a number of articles on these

topics, including “The New Landscape for Nonprofits” and

“Virtuous Capital:What Foundations Can Learn from Venture

Capitalists” (both in Harvard Business Review), as well as High

Performance Nonprofit Organizations (John Wiley & Sons, 1999).

Before beginning his consulting practice in 1993, he worked in

urban planning for nonprofit and government agencies in New

York City.

barbara e. taylor

Barbara Taylor is a senior consultant with the Academic Search

Consultation Service, a nonprofit executive search firm whose

clients include colleges, universities, and education-related non-

profits. Until 1996, Taylor was, for twelve years, director and

then vice president for programs and research at the Association

of Governing Boards of Universities and Colleges, an organiza-

tion that serves trustees of higher education institutions.

Dr.Taylor is the author or coauthor of eight books, including

Improving the Performance of Governing Boards (Oryx Press, 1996);

Strategic Indicators for Higher Education (Peterson’s, 1996); and The

xii ABOUT THE AUTHORS

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Effective Board of Trustees (Oryx Press, 1993). She has also pub-

lished numerous papers, book chapters, and case studies concer-

ning governance, strategic planning, and institutional financial

condition, including the Harvard Business Review articles,“Charting

the Territory of Nonprofit Boards” and “The New Work of the

Nonprofit Board.” She has consulted with more than 100 non-

profit organizations on issues of governance, board-CEO and

board-staff relations, and organizational assessment and plan-

ning.Taylor is a trustee emeritus of Wittenberg University.

ABOUT THE AUTHORS xiii

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xv

Preface

Turn back the clock to 1986. One of the authors had an audience with a then education editor of the New York Times

as part of a larger effort to kindle media interest in a study this

researcher had just launched on college boards of trustees. Less

than five minutes into the presentation, the editor interrupted

to proclaim,“Governance is a yawner.What else are you work-

ing on?”

Today, governance has become a front-page story propelled

by a steady flow of articles on acquiescent and negligent corpo-

rate boards, and unbridled (and often unethical) CEOs.A com-

posite picture emerges that depicts boards of directors as insular,

incestuous, and derelict. Nonprofit boards are under attack as

well. Just within the last year, for instance, there have been noto-

rious accounts about self-serving boards of family foundations,

a university board that bungled a presidential search at great

embarrassment and great cost ($1.8 million to settle with the

president-elect), and a prominent independent school board

that paid its headmaster a salary most outsiders regarded as inde-

fensibly excessive.

In the wake of these various scandals, it is safe to say that

almost everyone acknowledges the importance of governance,

at least in theory.What is less clear is whether and how to make

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governing boards important in practice. BoardSource (formerly

the National Center for Nonprofit Boards) has been at the

forefront of these issues with a particular emphasis on feasible,

valuable steps that trustees and CEOs can take to improve in-

stitutional governance.We were invited by BoardSource to con-

sider whether nonprofit governance could benefit from fresh

ideas as a complement to the organization’s work on best prac-

tices. It is this topic, not governance mischief, which is the focal

point of this book. In particular, we were motivated by four

questions:

1. Why is there so much rhetoric that touts the significance

and centrality of nonprofit boards, but so much empirical

and anecdotal evidence that boards of trustees are only

marginally relevant or intermittently consequential?

2. Why are there so many “how-to-govern” handbooks,

pamphlets, seminars, and workshops, but such widespread

disappointment with board performance and efforts to

enhance board effectiveness?

3. Why do nonprofit organizations go to such great lengths

to recruit the best and brightest as trustees, but then per-

mit these stalwarts to languish collectively in an environ-

ment more intellectually inert than alive, with board

members more disengaged than engrossed?

4. Why has there been such a continuous flow of new ideas

that have changed prevailing views about organizations

and leadership, but no substantial reconceptualization of

nonprofit governance, only more guidance and exhorta-

tion to do better the work that boards are traditionally

expected to do?

After many twists and turns, detours and dead ends, these

four questions precipitated this book, one product of a larger

xvi PREFACE

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Governance Futures Project under the aegis of BoardSource

and the Hauser Center for Nonprofit Organizations at Harvard

University.

The book combines two familiar stories—one about leader-

ship and the other about governance—into a new story about

governance as leadership. Strangely enough, governance and

leadership have not been linked before, almost as if each con-

cept has a magnetic field that repels the other. (And remember

that it is like poles, not opposites, that repel.) Nonprofits have

organizational leaders and volunteer trustees.The former lead,

the latter govern.We offer a different formulation: governance

as leadership.

one river, not two streams

A vast intellectual enterprise—with thousands of trade and

scholarly books and hundreds of professional development pro-

grams—has popularized the leadership story, generated new

theory, and inspired new practices. The leadership story has

many contributors: academic disciplines and professions as var-

ied as psychology, sociology, political science, management, and

education; reflections of successful practitioners; analyses of case

studies; and comparative studies across cultures and nations.

From these multiple sources, society has gained a far more

sophisticated and complicated appreciation of leadership.At the

very least, leadership is no longer viewed simplistically, based

upon a single style, model, or aptitude (for example, intelli-

gence, forcefulness, persuasiveness, or charisma). Instead, leader-

ship has become a dynamic, multidimensional concept.

Similarly, the perfect organization was once defined as a

smooth, efficient bureaucracy. Notions are more nuanced now.

Both scholars and practitioners recognize, for instance, that

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