At a recent credit union conference, I asked directors who had completed their planning session for the year what their dominant issue had been. Two of the three said it was governance. One director elaborated and said his board hoped a new process would make their role more strategic.
Corporate governance has been a front-page story for the past three years. The ethical and legal misdeeds at major corporations from Enron to the market timing allowed by mutual funds have filled the press. Congress in 2002 responded by passing the Sarbannes Oxley bill to require personal accountability by CEOs and CFOs of all public companies in the presentation of their firms’ financial reports.
The directors of any public company under scrutiny are also subject to questioning about their role. During the congressional hearing on Fannie Mae’s recent examination report, the President and CFO asked to testify and a board member was also at the witness table.
Carver Model for Non-Profit Boards
Credit union interest in governance, while undoubtedly influenced by public company events, has a very different focus. Most of the volunteer board members are trying to enhance their ability to set direction for the credit union in contrast to the compliance-motivated efforts of for-profit companies.
In examining their roles, many boards have turned to a model developed by John Carver and his associates. The Carver Policy Governance model is both a theory and set of practices for non-profit boards, and it has been so appealing that some credit unions have adopted and implemented the model wholesale.
The primary principle of the Policy Governance Model is that the board sets the “ends.” Management is free to adopt any reasonable means in carrying out a board’s end statements, unless the board sets more precise limits through policy.
The undeniable benefit of the Policy Governance Model is that it brings a method for formalizing the relationship of the board and CEO. Before this approach was available, many credit union managers and directors felt their relationship was frequently improvisational and often dysfunctional. As one CEO told me about his rule for relating to volunteer directors, “Either the board changes every five years, or the CEO does.”
Carver’s Policy Governance Model generally has four general components:
Determination of end statements that establish the primary purpose for the organization. Carver describes this as the “highest calling of trustee leadership.”
Policies that set the parameters within which management is empowered to act. These are the means management may use. For Carver the means are not prescribed, only limits that the CEO may not exceed.
Principles and processes that establish how the board is to govern itself.
Policies that describe how the board will connect to the operational activities via the CEO.
The board and management are the leadership team, but their contributions are formally separate and differentiated.
Carver says that the board’s purpose “of inspired ends work is to envision the future, not to memorialize yesterday’s achievements.” This outcome is what the aforementioned directors I spoke to were hoping to achieve when they said their goal was to raise the board’s strategic effectiveness. In carrying out this task the board is to represent the owners. The Carver framework for end statements is to specify a benefit, created for an identified group, at an explicit cost.
Because end statements address what the organization is, rather than what it does, many CEOs find this an ideal approach for defining the boundary between board and management. CEOs are solely responsible for the means. Rarely in the Carver model are strategy and strategic plans about “end” issues. Rather, strategic planning is strictly the purview of management.
Like many models, there is a conceptual clarity to the Carver approach that is very appealing. The dilemma is that in an organization rarely are ends and means clearly separated. Many Carver-inspired end statements of credit unions are broad generalizations. While wonderful expressions of purpose, they could serve virtually any credit union. They do not really separate one credit union apart from another.
The key activity of most CEOs is setting strategy and articulating a clear vision for the staff. This means creating distinctions and differences. The essence of organizational success is implementation, translating direction into competitive priorities from a cornucopia of potential opportunities.
Carver with More Flexibility
Are there other models that can achieve the political balance that Carver offers but with a more realistic view of how credit unions must function to be successful? Different circumstances may warrant different approaches, but I think boards and managers might explore a “partnership” in which both recognize critical roles that each can play in building the organization.
As credit unions move away from their historical field of memberships to broader community efforts, boards can be key contributors connecting with new groups and organizations. They and management can talk about the credit union difference and the cooperative model for helping individuals and communities. Most importantly, the board can help management focus on the best priorities when establishing plans.
The one director at the above conference who described his planning sessions as not focusing on governance listed four areas discussed:
Gaining new members
Reviewing a major sub prime lending initiative
Evaluating an IT solution for the next 10 years
Discussing the ongoing role and scope for branches
The Carver model strongly suggests that boards do not address these kinds of issues. My concern is that ends without adequate means are not ends at all but rather statements of hope. Most people can express good intentions; the real challenge is the heavy lifting to convert ideals into real differences that members can see and use.
Dialogue May Have a Better Outcome than Dictate
The major benefit of Carver has been the explicit way the model addresses the limits on the board’s role, not the CEO’s. Where boards have been micromanaging through detailed review of reports, or have become so unsure of their process that committees proliferate, or individuals and multiple agendas arise, the Carver model can be a beacon of clarity.
But because the Carver model addresses the critical issue of board-management relationships does not mean it is a sufficient model for directing credit union success. That is a much more difficult task than selecting a manager and saying he or she is free to use whatever means are reasonable, unless the board sets further limits. For it is the dialogue between those with vision and those whose hand is on the tiller that will identify ends that are truly feasible and relevant for the credit union.