Nonprofit Governance:
The Next Generation –
evolution of structure and function
Prepared for:
FEDERATED PRESS
Ruth R. Armstrong M B A
management services
Toronto, Ontario 416-691-7302
66 Glen Davis Crescent Toronto ON M4E 1X5 November 6, 1998
Nonprofit Governance:
The Next Generation –
evolution of structure and function
This paper recognizes that governance has been an important aspect of our nonprofit organizations for over a century. In the recent past as the environment has changed dramatically and governance has become a focus of study, an evolution is occurring.
There is no agreement in the field on the best way to structure a board for effectiveness. There is instead an evolution of diversity of thinking about governance models, structures and functions.
Four governance models are described within a framework and analyzed to suggest that choosing a hybrid model to suit an organization’s specific characteristics has merit.
The conflict between theory and practice further reinforces the inadequacy of theoretical constructs which cannot withstand the reality of human nature, organizational features and environmental pressures. This conflict is explored against key success/failure factors for boards.
Whatever hybrid model is chosen, structural forms such as committees, information, agendas and board meetings must be in alignment with the board’s function, culture and strategy. A discussion of these structural forms suggests a variety of options to consider.
Table of Contents
Acknowledgements Page 1
Introduction Page 2
Models of Governance Page 4
1. Policy Governance Model Page 5
2. Constituency Model Page 6
3. Corporate Model Page 8
4. Emergent Cellular Model Page 9
Tension between Theory and Practice Page 11
Key Success/Failure Factors Page 12
1. Leadership Page 12
2. Legitimacy and Power Page 12
3. Job Definition Page 16
4. Culture Page 17
5. Competence Page 18
6. Management of Board Process Page 18
Structure Page 19
Committees Page 19
Information Page 19
Agendas Page 20
Board Meetings Page 21
Conclusion Page 22
References Page 23
Nonprofit Governance:
The Next Generation — evolution of structure and function
ACKNOWLEDGEMENTS
I wrote this paper after many stimulating conversations where my assumptions were challenged and new insights formed.
I would like to thank:
Michael Armstrong
Marilyn Dumaresq
Leslie Wright
for their insightful contributions to the thinking behind this paper.
The four models of governance were developed within a dynamic working group charged with the task of creating a new governance model for a Health Canada project.
I would like to thank:
Pat Bradshaw
Bryan Hayday
Liz Rykert
for the creativity that flowed from our sessions.
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Ruth Armstrong, VISION Management Services
Nonprofit Governance:
The Next Generation — evolution of structure and function
INTRODUCTION
Seven years ago only two people registered for a York University sponsored workshop on Board Development. Today, workshops on governance are oversubscribed, consultants are being hired at a furious rate to work with boards, and publications about governance are proliferating.
Nonprofit organizations and their boards have been part of the Canadian landscape for over a century. The focus on governance as a field of study however is recent. As all our systems are undergoing radical change, nonprofit governance too is evolving.
This paper explores four models of governance, tension between the theory and practice of governance, and the structures that support governance.
Understanding boards has evolved from exploring grassroots citizen participation in the nonprofit board room to studying more sophisticated governance roles.
The last few decades have seen management boards fulfilling dual governance and management roles as nonprofit organizations have become established. The board’s focus has been to build the organization’s foundation and strength. Often management skills were not available or affordable to a growing organization. In these situations, board members also offered their volunteer skills in a management capacity. Board members did double duty.
Organizations (staff and budgets) have grown and management skills have been hired. Boards often became (and some still are) working boards offering skills (accounting, personnel, program) to supplement limited staff resources. At the same time, boards fulfilled their governance role by developing policies at all levels. Policies and issues however were usually brought to the board by the chief executive officer.
Boards and chief executive officers worked together according to agendas driven by the chief executive officer. Agendas were generally concerned with the health, function and growth of the organization. An internal focus to ensure the continuation and survival of the organization was paramount.
This internal organizational orientation began to shift and expand to include an external focus in response to a drastically changing nonprofit environment. When author John Carver published his book Boards that make a difference in 1990, boards of directors were receptive to a new view of their roles and responsibilities. This new view was timely because of the external pressures nonprofit organizations were facing. The policy governance model has become a dominant model of governance in the 1990s.
cont’d...
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Ruth Armstrong, VISION Management Services
Nonprofit Governance:
The Next Generation — evolution of structure and function
...cont’d
The policy governance roles of a nonprofit board include:
· Establishing the vision, mission and strategic directions;
· Providing fiscal and legal oversight (accountability);
· Selecting, evaluating and terminating (if necessary) the chief executive officer;
· Linking to the external community through a variety of stakeholders;
· Developing and generating necessary resources;
· Ensuring appropriate management systems;
· Attending to board self-management through continuous evaluation and improvement;
· Advocating on behalf of the organization and its mission.
In order for a board to undertake this impressive array of expectations, a policy governance board understands that its policy-making role is at a strategic, not operational, level. Furthermore the board must develop and publish a comprehensive set of policies to ensure continuity. The written record of a board’s policies serves to provide consistent direction for the organization’s values and work as well as clear limitations to the chief executive officer’s authority.
The inventory of roles noted above are at times an overwhelming challenge. Board members as volunteers generally have limited time for and understanding of the organization, are diverse in their skills and perspectives, and are continually coming and going. They often struggle to fulfill their roles. Chief executive officers wonder if this concept of governance is practical as they invest much of their time in helping their boards carry out their responsibilities.
Many sectors and disciplines are re-defining themselves. Boards face a similar challenge. Fortunately, the nonprofit sector has been known for its ability to innovate.
This paper explores the evolution in governance models, structure and function. It highlights the tension between theory and practice. The paper also suggests various structural vehicles to support governance.
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Ruth Armstrong, VISION Management Services
Nonprofit Governance:
The Next Generation — evolution of structure and function
MODELS OF GOVERNANCE
A framework of four models of governance (see Figure 1) was developed by the Governance Working Group[1] charged with recommending a model of governance to fit a newly created multi-stakeholder network organization.
The group’s exploration of the literature and their own breadth of experience in the nonprofit field support the assumption that there is no one best way of designing governance. Indeed a hybrid approach (Armstrong, 1996) offers the flexibility and adaptability needed in today’s turbulent environment.
The four governance models presented below are positioned along two dimensions outlining key features in our nonprofit organizations. One dimension identifies stability and innovation as an orientation. This orientation is often dependent on an organization’s life cycle stage, culture and environment.
The second dimension accounts for the unitary or pluralistic reality of a single organization in contrast to an organization comprised of a network of stakeholders and/or organizations.
Each of these models is described in more detail below.
Figure 1: Four Models of Nonprofit Governance
Unitary VisionStability / Policy
Governance
Model / Corporate
Model / Innovation
Constituency
Model / Emergent
Cellular
Model
Pluralistic Vision
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Ruth Armstrong, VISION Management Services
Nonprofit Governance:
The Next Generation — evolution of structure and function
1. Policy Governance Model
The Policy Governance Model clearly distinguishes between the leadership roles of board and chief executive officer (CEO). The board role is one of stewardship on behalf of its communities. In order to fulfil this role, the board focuses on the vision, mission, values and strategic priorities of the organization, ensures a responsiveness to community stakeholders and empowers staff to carry out the mission within established limitations. The CEO provides operational leadership in managing the organization in fulfilling its mission. The board monitors and evaluates CEO performance according to its policies.
The board governs the organization by articulating and documenting broad policies in four areas:
1. Ends — The focus is on outcomes and results rather than on means (a staff responsibility). Ends include the organization's vision, mission, values and strategic objectives.
2. Executive Limitations — The board establishes parameters or boundaries within which the CEO has unlimited freedom. These boundaries include attention to prudence and ethics in areas such as financial health, staff treatment and communication to board.
3. Board-CEO Relationship — These policies outline the delegation of power from the board to CEO as well as the manner in which the board monitors the performance of the CEO and the organization.
4. Governing Process — This area ensures that the board is attending to its own processes and structures. These policies include expectations of board members, committee structures and the principle of speaking with one voice.
The positive features of this model when it is working effectively are:
Ø There is increased clarity of roles and responsibilities, vision and accountability.
Ø The focus on outcomes and results leads to increased accountability.
Ø An external focus connects the board with other boards and stakeholders.
Ø The leadership role of the board can be satisfying for board members.
Ø This model liberates, empowers and supports the chief executive officer. cont’d...
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Ruth Armstrong, VISION Management Services
Nonprofit Governance:
The Next Generation — evolution of structure and function
...cont’d
Ø The board engages in systems activities by scanning the environment, becoming familiar with “big picture” issues as well as major internal trends and entering into partnerships with other stakeholders.
Ø The board takes on the responsibility of ensuring adequate resources are available to accomplish the mission (fund raising).
This model meets external legal requirements and has become a familiar and comfortable framework for many nonprofit organizations in Canada over the last few years.
The down sides of the Policy Governance Model are becoming more evident as organizations are experimenting with this model:
Ø Board and staff relations are vulnerable and disconnected because of the emphasis on separate and distinct roles. This can interfere with developing a productive board/staff partnership.
Ø The board often feels disconnected from programs and operations—operational information is less relevant in this model.
Ø Staff often mistrust the board's ability to govern because of a perception that the board does not understand the organization's operations. Links between policies, operations and outcomes are often tenuous.
Ø Board or chief executive officer may exercise their power in overriding the other’s role. Power is concentrated in the hands of a few.
This model can be self-limiting in its ability to embrace evolution and change because it assumes one vision (to be articulated and achieved) and it solidifies/perpetuates the status quo through its policy framework.
2. Constituency Model
In this model there is a direct and clear link between the organization’s board and its constituents. The constituents are represented on the governing board and participate in policy development and planning. This participation benefits the constituents by offering them control over policy decisions through their board representative.
This board ranges in size from about fifteen to over forty members. Strict policies govern the composition and election/appointment of board members representing specific constituents.
cont’d...
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Ruth Armstrong, VISION Management Services
Nonprofit Governance:
The Next Generation — evolution of structure and function
...cont’d
This model features centralized decision-making with decentralized input. The time consuming quality of full consultation on major decisions ensures stability and status quo protection.
The board’s relationship to the CEO is not always clearly defined and is vulnerable to changing expectations with changing representatives on the board. Within the larger size board, the board/CEO relationship tends to be similar to the policy governance model, i.e. the board empowers the CEO to manage the operations of the organization within the limitations set by the board.
At times the roles and responsibilities of board and constituents are outlined in written documents of agreement.
The positive features of this model when it is working effectively are:
Ø There is a broad base of participation and power is decentralized.
Ø This model allows a vision to emerge that is inclusive of constituents’ perspectives.
Ø Constituent energy and participation is generally decentralized into committees which are action oriented.
Ø Communication is emphasized because of the need to involve large numbers of diverse stakeholders.
Ø The board tends to have a pulse on “big picture” issues as a result of the broad based input by constituents.
Ø The challenge of dealing with multiple interests and the resulting conflicts is recognized and addressed in a variety of ways (some ways are more successful than others).
The down sides of the Constituency Model are at the opposite ends of some of the model’s positive features:
Ø Because communication is a key cornerstone for this model, there are pressures and demands for communication to be timely, adequate, consistent, clear, accessible, etc. These pressures often create difficulties in meeting high constituent expectations.
Ø Energy can be dispersed throughout a large number of committees and activities and therefore become unproductive.
cont’d...
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Ruth Armstrong, VISION Management Services
Nonprofit Governance:
The Next Generation — evolution of structure and function
...cont’d