The Three Responsibilities of Governance. Where to Begin? An illogical Sequence

The conversation that happens most often in the boardroom is on the topic of fiduciary responsibility. Why is this? Why does the conversation tend to gravitate to an organization's financial performance, risk assessment and legal compliance? This is especially true in the charitable and non-profit sectors. On the surface, this appears to be good governance, the prudent execution of the responsibilities of the board of directors, each looking at the organization with discerning, well-meaning scrutiny. But is this really how the organization is best served? Is this moving the organization ahead, to do more and go further? 

When we think of governance, we think of risk aversion, safety, prudence and protection. We often consider the role of the director to be the sober-second thought, to keep the organization on track. Perhaps, the unspoken view might be to protect it against an over-zealous management team that might act unwittingly, or worse, recklessly, to put the organization into harm’s way for ego or progress sake.

"With that belief, the role of the board becomes one of pulling back on the reins, slowing the horse and buggy, keeping it “steady as she goes”. To the Nth degree, this is a very fear-based application of the role of the board."

What we believe to be our purpose and how we see our role will ultimately affect our behaviour. Our actions follow our beliefs, in all areas of life, even in the boardroom. And, when others around us share the same beliefs, it’s hard to challenge the norm or step out into something a bit more uncomfortable, a bit more progressive, a bit more high-potential focused. 

I believe the board indeed holds the reins of the organization, but has been charged with more than keeping the wagon out of the ditch, the board is charged with guiding the wagon, as it were, around the track to ultimately win the race. This is a more daunting responsibility. This involves awareness, calculated risk, cunning decision making in real time and the heart of a competitor. These are hardly qualities we routinely look for in board members. Yet, these qualities come to life and become necessary if the board is to live out it’s full mandate. This mandate, to lead and guide the organization into the future is embodied in the three key roles of the board. 

It is well known, but often forgotten that there are three roles of good governance. The board must view the organization in the context of the world around it through three lenses, the generative, strategic and fiduciary lenses. These are not only three perspectives, but form three roles or duties for board members and three conversations to initiate as a team on a regular basis. 

The Generative Responsibility

The first, the generative, is to survey the landscape and see what is possible, what is coming, what might be needed. This is a conversation of opportunity and possibility, in both offensive and defensive terms.  The board must regularly discuss the dynamic environment in which they operate and evaluate both the impact of that environment on the organization as well as the inverse, the impact the organization can have on the changing environment. This is a future-focused set of conversations, without which the mission of the organization will slowly become redundant and its impact will wane. The board must be continually asking “What’s ahead and what opportunity lies around us?”. This is the generative conversation. 

The Strategic Responsibility

The second conversation is the strategic one. Here the board must be continually questioning, debating and advising on the organization’s plan of attack. Given the reality of today, does the sum total of the execution of the organization meet the need and opportunity presented to us? This is not a set-it-and-forget-it exercise. Nor is this the work solely of the executive to take away, craft in a backroom and execute, only to report back the results. I’m not advocating that the board craft the strategy at all, they are indeed too far away from the day to day realities and specifics of execution, but they must know of and inform the strategy. They must assume ownership and responsibility for it. After all, how can you govern that which you do not own. Yet often this area of expertise is unknown or uncomfortable for the board so they defer to management to lead the organization “as you please”. Without this conversation, the board lacks the real ability to assess how the final responsibility, the fiduciary, is accurate and relevant. 

The Fiduciary Responsibility

This third role, that of fiduciary responsibility is the one most boards are comfortable and spend the most time with. This is the traditional governance conversation of responsibility and risk management. It is indeed important. It is the oversight required, often legally, by the shareholders, constituents, members and even by the executive team. It serves a great purpose and requires little, if any explanation. Most boards have a well organized regime to review the financials and the deliverables of the work of the executive team. But without the first two conversations, the generative and the strategic, how does a board member have the confidence to know that the metrics and results presented are those that actually tell the story of success. What if the outcomes we are measuring are not what the market or society actually needs today? What if the secure balance sheet is actually telling a tale of missed opportunity and possibility? How is one to know? 

"All three conversations must occur in the boardroom. All three are important but is there an order to the three?"

If all three are occurring then the order is not important, the fact that the board regularly, and with intentionality, cycles through the three conversations is enough. But the board that is not yet having all three conversations, but is looking to broaden their perspective and enrich their conversation and step fully into their calling, needs to consider where to begin. Understandably, most board members would advocate to begin with the generative conversation. This could be a wide-ranging, all-encompassing macro-environmental scan. A daunting place to begin that often leaves the board members with a massive headache and a sense of overwhelming dread. I propose a more palatable and practical starting point. 

See the conversations in a graphical order.

First consider the three conversations in a graphical order. I would put the generative first, the strategic in the middle and the fiduciary at the end of the train. This makes sense as one informs the next. The board needs to fully comprehend the dynamics of the environment and market to create a strategy for success, then measure the results of the organization against the execution of that strategy.

Begin in the Middle.

However, as I’ve said, that can be a daunting task to begin. It’s much easier to begin in the middle with the strategy. I often say, it’s easier to edit than create. Consider this: if the board is fully versed on the current strategy of the organization as presented by the executive team, they can then evaluate the merits of the strategy through the lens of a generative conversation.

Move Left.

It’s easier to test and use the strategy as a starting place to ask what the organization is implying and believes is true about the environment, and if this is actually true. Or, has something changed, have there been new developments or have we missed something happening in the world around us. This may inform a change of the strategy. So be it. 

Move Right.

From there the board can move to the right in our graphical representation, to the third part of the trifecta, that of measurement and evaluation, the fiduciary conversation. Are we indeed measuring and assessing the strategies, plans and outcomes that really are adding value? Is there a clear link between the results we are measuring and the efficacy of the organization to pursue what is needed in the world around us? In light of the first two conversations, we may realize we are achieving strong results but not the needed results. We might have the wrong metrics. 

"It may at this point become very clear that what once was a strong, stable organization is actually slowly becoming redundant and ineffective. This happens in very small, almost imperceptible degrees. However, focusing on the three conversations around the boardroom table is the best defence against antiquation." 

The first order of business at your next board meeting then is whether or not the board is fully discharging its governance duties by adequately giving airtime to the three conversations. Does the board understand their responsibilities in the three and is there an adequate and ongoing plan to set aside time for what might be the most important duty of the board, to keep the organization relevant? If you are seeking a starting point, consider beginning in the middle. Ask your executive team to fully brief you on the strategy of the organization. What are the strategic priorities, the goals and the objectives to accomplish the mission. From there, look to the left and begin to discuss the environment both now and in the future. Gauge the winds of change and look beyond the horizon. Re-evaluate the strategy to move to the right and consider your governance oversight practices. You might be surprised at what you find. 

May all your conversations be rich and of great value to do more, and go further.