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the EvoLuTion of strategic governance
We first proposed a strategic role for boards that is not rooted in Type I mode in The Effective Board of Trustees (Chait, Holland, and Taylor, 1993). In that empirical study of nonprofit governance, we concluded that one of six dimensions of board effectiveness was the strategic dimension: “a board’s ability to envision and shape institutional direction.”We learned that the most effective boards “cultivate and concentrate on processes
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exhibit 4.2 strategic thinking
big picture questions
• Is the “business model” of this and other research universities viable over the next 20 years? If not, what has to change? How well-positioned are we to change?
• Do we want to be a museum that pushes the limits of free expression and societal tastes? If so, how will that affect community and government support?
• What if our customers start to view boarding schools as outdated, isolated enclaves of the elite?
• What forms of health care should we emphasize at a hospital with multiple missions (that is, teaching, research, patient care) and huge financial losses? Should we discontinue traumatic care for indigent patients?
• Can we flourish in a neighborhood in decline? If not, do we relocate? Do we ally with a community development corporation? Do we underwrite “gentrification” and subsidize staff housing?
• What is the future of academic medicine? Does this university want to own or affiliate with hospitals? To what degree should we specialize? Where do we have competitive advantage?
• What will be the consequences to this university now that others have started to make knowledge free on the web?
• How far will we go, vis-?-vis the competition, in the amenities arms race to woo patients to the hospital? What might work instead?
• How far will we go, vis-?-vis the competition, in merit-based aid to woo the brightest students to the college? What might work instead?
• Will we have a brighter future as a service agency if we merge, remain independent, or spin off a for-profit subsidiary?
• How do we build a new science center that reflects the special commitment of this coeducational college to prepare women scientists, a market niche we want to cultivate further?
68 GOVERNANCE AS LEADERSHIP
that sharpen institutional priorities and ensure a strategic approach to the organization’s future.” In other words, effective boards both oversee strategic planning procedures (Type I) and work with management to determine what matters most to the long-term future of the organization (Type II).
The position we take here represents a shift in emphasis.We share the view expressed by Hamel and Prahalad (1997) that formal planning processes are too often “strategy as form filling. ... turning the crank on the planning process once a year... [going] through the motions of an annual planning cycle... [producing] weighty strategic plans that adorn executive book cases,” all without any “clue as to whether a company has a truly unique and stretching point of view about the future.” In short, process becomes ritual, with the board largely on the sidelines. Strategic planning exercises rarely drill to the core questions of institutional identity, outmoded assumptions, and breakthrough strategies. Unless and until ideas, rather than plans, are the drive motors of strategy, the full range of trustees’ talents will be vastly underutilized. As strategies are hatched and plans unfold, boards, along with CEOs, should be more akin to architects than general contractors or, worse, tradesmen. In order to fulfill this role boards must work in a strategic, not fiduciary, mode.
processes and structures for type ii governing
We previously termed the alignment of board activity with strategic priorities The New Work of the Nonprofit Board (Taylor, Chait, and Holland, 1996). The board was conceptualized as a strategic asset for the organization, not simply the overseer of
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the CEO’s work. Strategic governance “harness[es] the collective efforts of accomplished [trustees] to advance the institution’s mission and long-term welfare.” Unlike the fiduciary mode,Type II governance aims to construct, not merely certify, a consensus about what the organization’s strategy should be. To do this “new work,” trustees and management need to work differently; the processes and structures proper for fiduciary governance will not do.
As in architecture, form should follow function. The board’s committee structure, meetings, and channels of communication must be modified to foster strategic thinking and to cultivate a true strategic partnership with management. These are the essential purposes of Type II governance.
Partnerships are inevitably more complicated than crystal clear divisions of labor. Lines of authority, so important to Type I boards and CEOs, become blurred in Type II mode. Precisely due to the emphasis on strategic thinking, an activity not as easily compartmentalized as strategic planning, the realm and role of the board on one hand, and management on the other hand, cannot be entirely disentangled. Like partners in doubles tennis, neither party in Type II governance can afford to be particularly territorial or both will lose. This shift from board as monitor to board as partner spawns three major changes in practice.