New Thinking in Governance

1. New Thinking in Governance

2. What does it take to effectively govern an independent school today? What can we learn from new research and thinking about governance?

3. Today’s Context for Governance

4. Recent History of Governance in Nonprofits Nonprofit boards have evolved over the last 25+ years, now existing with a renewed focus on integrity and a more expansive view of leadership. Managing the Nonprofit Organization (Drucker) raised the bar on nonprofit management.Scandals among nonprofit leaders led to greater government oversight, including on compensation. The board role expanded from oversight and support to strategy.The New Work of the Nonprofit Board (Taylor, Chait, and Holland) redefined board work to focus on critical issues and measure success.Based on BoardSourceVideo, “NonProfit Governance: The Last 20 Years” (Apr. 4, 2012) 1990s

5. Recent History of Governance in Nonprofits Focus on accountability and leadership set in (Sarbanes Oxley legislation and IRS compensation compliance focus — 990 form). Bridgespan’s report “The Nonprofit Sector’s Leadership Deficit” revealed an impending shortage in leaders (CEOs and trustees).Governance as Leadership: Reframing the Work of the Nonprofit Board (Chait, Ryan, and Taylor) extended the work of the board beyond oversight, presenting three modes of governance: fiduciary, strategic, and generative. (See next slide.) Based on BoardSourceVideo, “NonProfit Governance: The Last 20 Years” (Apr. 4, 2012) early 2000s

6. Three Modes of Governance Governance as Leadership ushered in a pivotal change in thinking, identifying three simultaneous, mutually reinforcing modes of governance. Based on Richard P. Chait, William P. Ryan, and Barbara E. Taylor, Governance as Leadership: Reframing the Work of Nonprofit Boards

7. Lessons Learned from Higher Education Finding a balance between deference to — and interference with — management: The Penn State crisis illustrates that when issues are high risk, as in this case of ongoing student abuse by a coach, the board will want to be more involved and aware. Embracing difficult conversations and creating and executing a plan: At the University of Virginia, the board and leadership failed to talk through the perceived lack of decision making and action by the president. Attempts to oust her led to community outrage. Donna Orem and Debra Wilson, “The Governance Outlook,” NAIS Trendbook 2013-14 Recent crises reveal tensions between boards and administrative teams, and a lack of transparency. “Boards and school leadership should have constructive conversations… to ensure that if something happens, both groups know what steps will be taken, who will be notified, and when the board as a whole might be brought in.”

8. Need for Innovative Governance in Our Current Context Fast-changing educational landscape As the educational landscape continues to change — declining numbers of school-age children, rise in types of schools, a volatile economy — boards will need to innovate to ensure the sustainability of their schools. • Drivers for boards that spur organizational innovation • “Creating a culture of open and respectful dissent, and… setting goals and priorities for innovation….” • “Linking schools to important entities and stakeholders, providing expertise, administering advice and counsel…. “ • “Establish[ing] the optimum size board for their work…” (Larger board size may increase support and visibility, but larger boards can experience group dynamic problems.) • Kristina Jaskyte, Wiley Periodicals Online, “Boards of Directors and Innovation in Nonprofit Organizations” (2012)

9. Current State of Governance in Nonprofit Organizations Understanding of mission: “27% of board members don’t think their colleagues have a strong understanding of the mission and strategy.” Experience and engagement: “65% don’t think their board is very experienced, and about half don’t think their colleagues are very engaged in their work.” Measurement: “46% have little or no confidence that the performance data they review accurately measure the success of their organizations.” David F. Larcker, Nicholas E. Donatiello, Bill Meehan, Brian Tayan , Stanford Graduate School of Business, “2015 Survey on Board of Directors of Nonprofit Organizations” Areas for Growth “Only 1 in 5 CEOs strongly agrees they have the right board members.” “58% say it is difficult to find people (up from 44% in 2012).” Nonprofit Quarterly, “The Completely Revised Guide to Great Board Recruitment”

10. Current State of Governance in Nonprofit Organizations What a board’s contribution is meant to be“[S]trategic, the joint product of talented people brought together to apply their knowledge and experience to the major challenges facing the institution.” Barbara E. Taylor, Richard P. Chait, Thomas P. Holland, “The New Work of the Nonprofit Board,” Harvard Business Review (Sept.-Oct.1996) What boards often turn into A “collection of high-powered people engaged in low-level activities” due to many reasons (a chief executive who hoards information, lack of trustees’ understanding of the organization’s work, disengagement or lack of accountability by individual trustees, difficulty working as part of a team, etc.), leaving nonprofit board members “discouraged and underused… The stakes remain low, the meetings process-driven, the outcomes ambiguous, and the deliberations insular.”

11. Current State of Governance in Independent Schools Promising Trends “NAIS’s latest governance research has uncovered… growing alignment between boards and heads on key issues facing schools, as well as the strategic actions taken in partnership to address those challenges.” Donna Orem and Debra Wilson, NAIS Trendbook 2013-14 Areas for Growth • Board chairs identified the following areas for improvement: • Building a board that is the right size for the school’s needs. • Achieving the necessary attention, time commitment, and engagement of board members. • Enhancing the diversity of the board in all ways. • Ensuring the required separation of board responsibilities from administration responsibilities. • Enhancing board development.

12. New Thinking About Governance

13. Executive Committees The case to do away with executive committees, given the need for efficiency, duties of every board member, and technology’s ability to bring people together “If any committee of the board knows something, it's the right and responsibility of the full board to know it also. Governance is the legal and moral authority of the full board.”  Given conference-call capabilities, it’s no longer necessary to have a smaller group that could convene in an emergency. Simone Joyaux, “Executive Committees, Beware!” BoardSource Blog (Aug. 18, 2016)

14. Standing Committees The case to reduce the number of standing committees, and to avoid vague objectives, discussion without action, and frustration/burnout In a “zero-based committee structure… the organization reviews its planned work for the board each year and then establishes only those committees that it will need… “Committees should perform regular self-assessments to determine if they are working effectively, achieving their established goals, and providing value to the organization. “Committee chairs and vice chairs should… [translate] the board’s goals for the committee into meeting agendas and work plans.” Eileen Morgan Johnson, ASAE, “The Basics of Board Committee Structure”

15. Standing Committees The case for “a simple three-committee structure consisting of Internal Affairs, External Affairs, and Governance” “This structure has several key advantages: “Each board member serves on just one committee and focuses on interrelated issues. “It requires fewer meetings, making less work for staff […and affording more time for ‘generative thinking.’] “The accountability lines of the three committees are clear.” David LaPiana, “Boards Should Only Have Three Committees!” BlueAvocado.org Guidelines for any committees “…each committee [should] have a clear charter outlining its purpose; …committee work [should] align with the institution’s strategic vision, goals, and priorities; and committees [should] translate their charges into annual work plans…” Donna Orem and Debra P. Wilson, NAIS Trustee Handbook, 10th edition

16. Board Composition The case for boards to include diverse individuals “When a nonprofit's board reflects the diversity of the community served, the organization will be better able to access resources in the community through connections with potential donors and/or [partners]… “A diverse board will improve the nonprofit's ability to respond to external influences that are changing the environment... “…When a nonprofit board is facing a major decision, diverse perspectives on the board are better qualified to identify the full range of opportunities and risks. “Boards that are not diverse risk becoming stagnant:… [I]dentifying and cultivating new board members will be a constant challenge.” Council on Nonprofits, “Diversity on Nonprofit Boards”

17. Board Composition Four reasons for diversity on a board1. “A mission reason: Diversity is a part of the organization's value system and is essential to [its] ability to develop and deliver programs that support its mission… 2. “A business reason: [It] is just good business practice… 3. “The responsible corporation reason: Every for-profit and nonprofit organization has responsibilities beyond its mission to its broader community… 4. “A definitional reason: …[O]rganizations focused on specific groups should clarify and articulate… whether and how to diversify… and their strategies for working and engaging with their communities.” Jan Masaoka, “A Fresh Look at Diversity and Boards,” BlueAvocado.org “The discussion about diversity is an important process through which a board can consider in what ways diversity may be important in achieving its mission and engaging with diverse communities.” See sample policy statements at BlueAvocado.org.

18. Board Composition Steps for building a board of diverse individuals “Communicate… Before asking ‘How do we become more diverse?’ boards must ask ‘Why do we need to become diverse?’… “Act — Develop a case and plan for change…To put your commitment into action, develop a plan that includes strategies, concrete goals, objectives, tasks, and a timeline…. [Then] the task force should create a pipeline of diverse board candidates… “Monitor and measure results …Track your retention rates of diverse members. Conduct exit interviews to further assess your progress and identify areas where you could improve…” BoardSource, “Beyond Political Correctness: Building a Diverse Board,” www.bridgespan.org

19. Board Composition The case for boards to include women For better performance: When “Fortune 500 companies were ranked by the number of women directors on their boards, those in the highest quartile… reported a 42 percent greater return on sales and a 53 percent higher return on equity...” To widen the pool of educated and qualified trustees: “Women earn 57 percent of bachelor’s degrees, over 62 percent of master’s degrees, and 53 percent of degrees such as PhDs, medical degrees, and law degrees in the U.S.” To “bring a new perspective and new ideas to help your organization succeed.” Erica Hersh, Harvard School of Public Health, “Why Diversity Matters: Women on Boards of Directors” (July 21, 2016)

20. Board Composition Diversity of CEOs’ previous board can impact his/her success According to research, “[O]utside CEOs’ prior experience with highly diverse boards can be a very relevant type of human capital that helps them better manage their relationship with the board and improve… performance.” Mark Athitakis, “Why Board Diversity (of Lack of it) Matters to CEOs,” AssociationsNow How heads can encourage boards to embrace diversity “educate our boards on the current discourse about diversity… “work with …governance committees …[to] consider the improvement of board diversity as a desired recruitment criterion “…engage them in developing an institutional diversity statement…” Vince Watchorn, “An Essential Partner in Our Diversity Work: Trustees,” The Head’s Letter (Oct. 2015)

21. Board Composition Including more types of board members beyond current parents “[B]oards should explore a number of obvious, and not so obvious, groups & organizations to identify potential trustees: Current trustees | volunteers to the school | donors Educational leaders from other schools and organizations Professionals in the community Members of other nonprofit boards Organizations representing racial/ethnic groups Board training organizations Donna Orem and Debra P. Wilson, NAIS Trustee Handbook, 10th edition Current parents make up 50% of the average independent school board.

22. Board Composition Including more types of board members beyond local individuals “Because most day schools’ boards meet monthly throughout the school year, they tend to confine trustee selection to the local area, thus limiting their pool. “NAIS recommends that they consider meeting as boarding schools do — longer meetings, less frequently — in order to open up their recruiting base to a national or even international pool of candidates. Also, with the amount of meeting technology available, boards can still get together when they need — just virtually instead of face-to-face.” Donna Orem and Debra P. Wilson, NAIS Trustee Handbook, 10th edition

23. Risk Management Assessing and mitigating risks is becoming an essential board role. “Experts recommend that institutions establish Enterprise Risk Management (ERM) systems, which include: “Identifying risks across the entire enterprise; “Assessing the impact of risks to the operations and mission; “Developing and practicing response or mitigation plans; and “Monitoring the identified risks, holding the risk owner accountable, and consistently scanning for emerging risks.” Sarah Hardesty Bray, “Strategic Questions from Higher Education,” NAIS website

24. Data and Dashboards Creating dashboards that bring clarity in how boards gauge their organization’s success “[R]eaching consensus about what to include in [a dashboard] can be a challenge, but that shouldn’t stop you from trying… 1. “Choose your metrics wisely… Though metrics such as number of beneficiaries reached and outcomes generated are — and should be — dashboard mainstays, consider adding these: [cost per primary outcome, proportion of incoming beneficiaries with intended characteristics, stakeholder loyalty, cash reserves, financial sustainability, progress against key initiatives.] 2. “Format matters…3. “Don’t forget the stories…”Matthew Forti, “Refreshing Your NonProfit Dashboard,” Bridgespan Group (Jan .17, 2012)

25. Recommendations

26. Suggestions Highly Effective Boards Develop goals [rather than projects] to guide their work. Create an assessment protocol to inform progress and identify strengths and weaknesses. Build a board that, first and foremost, supports the mission of the school. If a board is built with an overemphasis on fundraising, it can inadvertently send the message that only the well-to-do have a voice. Ensure trustees represent the past, the present, and the future. Understand the importance of diversity to a board’s effectiveness. They welcome open dissent. One way for boards to achieve diversity is to develop a succession plan for how they will cultivate potential trustees that represent all types of diversity.

27. Suggestions Highly Effective Boards 6. Are driven by data rather than anecdote. 7. Set term limits and actively recruit trustees who are not “insiders.” 8. Operate using a consent agenda model. Board time needs to be spent in professional development to ensure board members understand the context in which they govern, strategy sessions to address the short-term needs of the school, and generative discussions. 9. Orient new trustees and make professional development for all trustees an essential part of board operations. 10. Restrain themselves from having too strong a bias toward action and pause to ask the bigger questions first. Donna Orem, “10 Habits of Highly Effective Boards,” Independent Ideas blog (June 19, 2017)

28. Resources • BoardSourceVideo, “NonProfit Governance: The Last 20 Years” • Richard P. Chait, William P. Ryan, Barbara E. Taylor. Governance as Leadership: Reframing the Work of Nonprofit Boards • Donna Orem and Debra P. Wilson, “The Governance Outlook,” NAIS Trendbook 2013-14 • Kristina Jaskyte, Wiley Periodicals Online, “Boards of Directors and Innovation in Nonprofit Organizations” David F. Larcker, Nicholas E. Donatiello, Bill Meehan, Brian Tayan, Stanford Graduate School of Business, “2015 Survey on Board of Directors of Nonprofit Organizations” • Nonprofit Quarterly, “The Completely Revised Guide to Great Board Recruitment” • Barbara E. Taylor, Richard P. Chait, Thomas P. Holland, “The New Work of the Nonprofit Board,” Harvard Business Review • Simone Joyaux, BoardSource Blog “Executive Committees, Beware!” • Eileen Morgan Johnson, ASAE, “The Basics of Board Committee Structure” • David LaPiana, “Boards Should Only Have Three Committees!” www.BlueAvocado.org • Donna Orem and Debra P. Wilson, NAIS Trustee Handbook, 10th editionCouncil on Nonprofits, “Diversity on Nonprofit Boards” • Jan Masaoka, “A Fresh Look at Diversity and Boards,” www.BlueAvocado.org • Erica Hersh, Harvard School of Public Health “Why Diversity Matters: Women on Boards of Directors” BoardSource, “Beyond Political Correctness: Building a Diverse Board,” www.bridgespan.org • Mark Athitakis, “Why Board Diversity (of Lack of it) Matters to CEOs,” AssociationsNow • Vince Watchorn, “An Essential Partner in Our Diversity Work: Trustees,” The Head’s LetterMatthew Forti, “Refreshing Your NonProfit Dashboard,” The Bridgespan Group Sarah Hardesty Bray, “Strategic Questions from Higher Education,” NAIS website • Donna Orem, “10 Habits of Highly Effective Boards,” Independent Ideas blog