Today’s AgendaPolicy Issues
Decision Making Models that Encourage Respectful Disagreement
Avoiding Micro-Managing in the Boardroom
PoliciesUsually, a documented set of broad guidelines, formulated after an analysis of all internal and external factors that can affect a firm's objectives, operations, and plans. Formulated by the firm's board of directors, corporate policy lays down the firm's response to known and knowable situations and circumstances. It also determines the formulation and implementation of strategy, and directs and restricts the plans, decisions, and actions of the firm's officers in achievement of its objectives.
BusinessDictionary .com
ProceduresA procedure is a series of actions or operations that produce a desired result. Procedures are under the jurisdiction of staff.
RolesThe Board leads the cooperative by making
policy decisions.
Ends
The Staff manages the cooperative and implements the decisions of the Board by making decisions on procedures.
Means
RolesIf the Board is spending their time developing procedures for the cooperative, they are not spending their time on leadership of the cooperative.
If the staff is in the business of creating policy for the cooperative, they are missing opportunity to fulfill their role of managing the cooperative and acting on the decisions of the member’s elected representatives.
Clarity
Policies give direction to plans. They are a road map management can follow to reach goals and attain objectives. Well written policy facilitates delegation of authority to the lowest feasible level in the cooperative. Written policy statements must be a major ingredient of each cooperative’s planning activity. These policies should reflect the cooperative’s basic philosophy and serve as guidelines for actions the cooperative takes to attain its established objectives.
http://www.uwcc.wisc.edu/pdf/cir39.pdf
Applicability
Policy should deal with a recognized need. It is the result of careful thought and research; deals with practical and specific matters: does not conflict with other cooperative policies: deals with recurring situations: clearly indicates the conditions, to whom, and to what extent it applies; specifies who is responsible for applying it; and must be concise, legal, and not in conflict with the cooperative’s articles of incorporation and bylaws.
http://www.uwcc.wisc.edu/pdf/cir39.pdf
ConsistencyPolicies set the standard for board behavior. It is important to view policies as proactive tools to establish a standard of board behavior required for governance in today’s electric cooperative boardroom.
Policies are Meaningful
Board policies have direct legal implications for the cooperative, the board, and management.
Therefore, policies should be carefully and thoughtfully crafted in conformance with the cooperative’s articles of incorporation, bylaws, and any and all applicable local, state, and federal laws and regulations before being adopted.
Policy Review / Development
Identify the areas to be covered by policy
Formulate the policy based upon careful consideration of available data
Adopt the policy after thorough review and vetting
Communicate the policy to various stakeholders
Ensure implementation through management reporting
Lather – Rinse - Repeat
Policies Objective
The purpose of the policy Consistent with the cooperative’s mission
Policy The specific policy statement - content
Expectations What is expected of the various players Who does what
Limitations Boundaries and statements limiting based upon
pyramid of authority
Responsibility Personal and compliance responsibility statement
Cooperative Decision Making
Strategic DecisionsBOARD
Tactical Decisions
CEO
Operational Decisions
EMPLOYEES
Without a Process
Impacts of not having a decision making process
Members act alone or on their own
perspective
Someone always gets their way
Cliques form after the meeting behind
closed doors to make the REAL
decision
Squeaky wheel syndrome
Decisions are derailed at the last
second
Decisions don’t get made
Meetings go on and on and on…
Desired ResultCarefully defined issues/problems
Multiple options
Pros and cons of each option considered
Careful/prudent process
Fact driven process
Member based
Disinterested
Rational Process for Decision Making
1
•Identify the Decision to Be Made – (Value Gaps)
2
•Gather Data
3
•Identify Alternatives
4
•Forecast Intermediate and Long Term Consequences
5
•Choose from Alternatives
6•A
ct
7
•Evaluate
Rational vs. NormativeSome of the limitations not considered in the
rational model are issues such as not having enough information relevant to the problem and also the fact that problems can change in a short period of time.
The normative model of decision making takes into account the fact that leaders are bound by certain constraints when making decisions. These constraints include personal and environmental factors that reduce rationality, such as time, complexity, uncertainty and resources.
Create Opportunities to be Rational
Anticipate important decisions and allow time for data acquisition and review
Debate important decisions when the Board is at their best
Define important –Power supply contract revisionsSelection of annual meeting give-aways
1. Identify the Decisions to Be Made
What exactly is the issue/problem?Must be able to create a shared understanding
What is the impact on the cooperative?ReliabilitySafetyCostMember Satisfaction
Who is affected by the issue?
Is there a deadline or time constraint?
2. Gather DataAccurate data is critical to sound decision
making.
Tools- Justified reliance on CEO, staff, attorney and
auditor and their reportsKRTA’s, Balanced Scorecard, ACSI and other
metricsMinutesBooks and recordsHear prudent judgment of others
3. Identify AlternativesIt is very rare to have an issue with a single
solution.
There must be alternatives for every issue/problem.
You should always consider the the do nothing alternative.
4. Forecast Intermediate and Long Term Consequences
Evaluate the pros and cons of each alternative
Utilize a Devil’s Advocate – a respectful contrarian in the Boardroom is a power tool
Seek full board participation
Ask questions
Respectfully and candidly share opinions
4. Forecast Intermediate and Long Term Consequences
Establish a baseline criteria for judging alternatives based upon:Cooperative goalsCultureMember needs
Establish deal killers, and core values
Know when to seek expert assistance
Business Decision Rule
In making business decisions, it is presumed that directors and officers:
ARE NOT INTERESTED (personal gain) in the subject of the business decision;
ARE INFORMED to the extent reasonably believed appropriate under the circumstances; and
RATIONALLY BELIEVE the business decision is in the corporation’s best interest.
5. Choose from AlternativesMake and document your decision
Process and key dataRecord the decision – Minutes
Know that any decision regarding the future is wrong
By using a rational decision making process– you minimize just how wrong you are
It is what an “ordinarily prudent individual” would have done at that time
6. ActConvert your decision from strategy to strategic
initiatives
Define metrics that allow you to meet the obligation of evaluation
“What gets measured gets done.”
7. EvaluateUtilize your metrics to ensure the decision is
performing as forecast
Measure the right stuff
Re-evaluate as required
Things change and what was once a good decision – may not look so good now
This is compounded by lack of re-evaluationSticking to our guns
Does Your Board Have a Culture?
Organizational culture is the behavior of humans who are part of an organization and the meanings that the people attach to their actions. Culture includes the organization values, visions, norms, working language, systems, symbols, beliefs and habits. It is also the pattern of such collective behaviors and assumptions that are taught to new organizational members as a way of perceiving, and even thinking and feeling. Organizational culture affects the way people and groups interact with each other, with clients, and with stakeholders.
Does Your Board Have a Culture?
The things the group thinks are important.
Official and unofficial rules about how we behave.
Accepted reports, metrics and values.
Group think.
Where do you sit for Board meetings? Why?
The Impact of CultureCan become self-limiting
Creates a board that is resistant to change
Circle the Wagons – we defend our decisions because we are a part of the group
Puts folks in their place – new directors are expected to fit in
This is the way we’ve always done it!
Five Elements of Board Culture
1. Trust - Culture conveys both the standards for trust and the penalties for breaches.
2. Purpose - An objective unifies directors in the common pursuit of a long-term vision.
3. Work - Decisions are the work products of boards.
4. Vigilance - Culture conveys how deep directors must dig, how alert they must be and how rigorous their inspection must be.
5. Engagement - Being fully engaged joins directors in collaborative service.
Source: Patrick R. DaileyUnderstanding the Culture of Your Board
1. TrustRarely openly discussed, but always top of mind
Without trust the board is little more than a group of individuals
Lack of trust is like decision rust – it erodes the board’s ability to make rational decisions
2. PurposeHow often does your board discuss the
purpose/mission of the cooperative?
Clear purpose leaves no doubt about what we do – we work for the members
Clearly defines your fiduciary responsibilities
Defines conflict of interest potential
Virtually every cooperative in serious trouble had a board that forgot the purpose of the cooperative
Electric Cooperative PurposeA Compass for the 21st Century
A clear purpose serves as an overarching
standard against which business decisions
can be measured. Much like a compass, it
keeps an organization traveling in the right
direction, and helps it avoid the pitfalls of
short-term distractions that can weaken the
enterprise.
3. WorkDecisions – debating and voting on motions –
are the work product of the board
How agendas are created
How information is shared
How motions are made and debated
Decision making model
Agreement on key board projects
4. VigilanceMust become comfortable with discomfort – risk
is inevitable
Don’t ignore red flags
Agree on what needs to be monitored
Do not become complacent If it ain’t broke don’t fix it!
If it ain’t broke don’t fix it!
“If it ain't broke, don't fix it' is the slogan of the complacent, the arrogant or the scared. It's an excuse for inaction, a call to non-arms.” Colin Powell
How to Remain Vigilant
Advance distribution of the agenda and other documents
Review of information prior to board meetings
Regular reports from management
Ask questions
Attendance at all board meetings
Adequate time to analyze and discuss matters completely
Requesting additional information and asking questions, if necessary
5. Engagement
The unwritten code required for directors to fully contribute within the culture of the board
How actively engaged members are
How they review and prepare for the meeting
How they discuss issues and interact with other board members
The board’s expectation of how directors should contribute to board work products
Please DefinePlease give a definition of:
1. Prepared
2. Actively participates
3. Alert as it relates to board members
Please provide examples of each
Individual vs. Group Decision Making
In establishing objectives, groups are probably superior to individuals because of the greater amount of knowledge available to groups.
In identifying alternatives, the individual efforts of group members encourage a broad search in various functional areas of the organization.
In evaluating alternatives, the collective judgment of the group, with its wider range of viewpoints, seems superior to that of the individual decision maker.
Individual vs. Group Decision Making
In choosing an alternative, group interaction and the achievement of consensus usually result in the acceptance of more risk than would be accepted by an individual decision maker.
Implementing a decision, whether or not it was made by a group, is usually accomplished by individuals.
Liabilities of Group Decision Making
Groups often work more slowly than individuals.
Groups decisions involve considerable compromise that may lead to less than optimal decisions.
Groups are often dominated by one individual or a small clique, thereby negating many of the virtues of group processes.
Overreliance on group decision making can inhibit management’s ability to act quickly and decisively when necessary.
Assets of Group Decision Making
Groups can accumulate more knowledge and facts
Groups have a broader perspective and consider more alternative solutions
Individuals who participate in decisions are more satisfied with the decision and are more likely to support it.
Group decision making processes serve an important communication function as well as a useful political function.
Effective Boards… Know their purpose and make sure that new directors receive
proper orientation
Are vigilant: they are sensitive to risk and demand to be given verifiable facts about industry change
Maintain mutual trust by encouraging constructive (not destructive) debate
Evaluate their own work processes to identify areas of possible improvements
Hold directors and management accountable to engage in important discussions
Effective Boards: Have a common purpose and vision
Understand their role
Understand the pros and cons of group decision making
Encourage respectful debate
Are inquisitive
Tend to make data rich decisions
Seek data that is relevant, complete and credible
Demand full board participation
Still respect common sense and intuition
A Word about Board / Management Conflict
Conflicting views about organization’s objectives
Lack of understanding between board and manager about duties and functions
Failure to properly reward good management
Board’s lack of focus on long-range planning
Failure to recommend and adopt clear cut policies
Board members’ failure to represent membership
Directors’ assuming board authority outside of board meetings
Tools for the Effective Board
► Realistic mission, vision and values statement; a strategic plan
► The work plan in conjunction with management and the annual budget
► A workable Strategic Plan with goals identified for Management’s direction.
► A realistic budget that implements the strategic and operating plans
MissionWhy we exist
Core ValuesWhat we believe in
VisionWhat we want to be
StrategyOur game plan
Balanced ScorecardImplementation and focus
Strategic InitiativesWhat we need to do
Personal ObjectivesWhat I need to do
The Mission Driven ModelStrategic Planning Process
Coming to agreement on
Vision is critical for Board success
Agreement here is the norm for
most cooperative
s
RolesMission
Why we exist
Core ValuesWhat we believe in
VisionWhat we want to be
StrategyOur game plan
Balanced ScorecardImplementation and focus
Strategic InitiativesWhat we need to do
Personal ObjectivesWhat I need to do
Strategic Planning Process
BOARD
STAFF
Mission
What is your Mission?To provide our members safe,
reliable and affordable electric
service while improving the quality
of life of the communities we
serve.
1st steps Toward Achieving Your Vision
Must agree on Vision
Evaluate your current state
Defining Value Gaps
Value GapsDefine the value that can be created by executing strategy and achieving the Vision
Effective Boards Have agreement in
purpose, mission and vision.
Communicate through policy - expectations and delegations to the CEO
Measure and monitor success of the cooperative through sound data
Stay focused on policy and leave procedure to the staff
Spend time on the big decisions
Make data rich decisions
Don’t just drink the kool-aid
Never forget they work for the members.