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Exhibit 4.5 summarizes the key differences between the structures and processes of Type I and Type II governance.
Faithful to the precept that trustees set policies that management administers,Type I boards eschew almost any role in executing strategy—with the notable exceptions of fund-raising and external advocacy, which are implementation. In these cases, even the most ardent advocates among CEOs for separation of power readily waive the rules. In all other situations, however, Type I boards live by the old adage “Noses in, fingers out.”
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In Type II mode, boards play a more active role, particularly as technical assistants. For instance, board members may be integrally involved in efforts to execute a contract with a new strategic partner, to upgrade technology, or to acquire property or facilities necessary to expand consistent with the organization’s strategic plan.We previously proposed three circumstances when board engagement in strategy implementation might be warranted: (1) the chair and CEO believe that one or more trustees could best handle a task; (2) participation in implementation would be instructive for trustees; and (3) involvement would inform trustees about whether the organization was on course and on mission (Chait and Taylor, 1989).
In retrospect, these guidelines for boards now seem more appropriate for organizations engaged in formal planning cycles. The criteria, while still useful under those circumstances, position the board as fiduciary monitors and technical experts. Trustees are otherwise off the hook (and out of the loop).There is no recognition that the board could, for example, be a fruitful source of tactics, trade-offs, performance metrics, midcourse corrections, and organizational discipline, all valuable contributions to strategy execution. These omissions severely constrict the board’s role and value in strategy implementation. Exhibit 4.6 describes an exercise to pinpoint the crucial contributions the board must make (or has made) in order to translate plans and ideas into actions and achievements without undue concern for the canonical strictures of governance.
WHY NOT JUST TYPES I AND II?
We have made the case for the centrality of both fiduciary and strategic governance. Both are vital. Nearly every board today
TYPE II GOVERNING: STRATEGIC 7 7
EXHIBIT 4.6 THE BOARD’S PART IN ACHIEVING STRATEGIC GOALS
This exercise directs attention to the board’s indispensable contributions to the realization of strategic priorities. For each priority, the board, along with the CEO, should define success—what constitutes a successful outcome. Then, individually or in small work groups, trustees should “fast forward” to a future time when the intended results have presumably been achieved. With that picture in mind, board members should complete the following sentence:
“This priority would not have been achieved if the board had not
• The quality and quantity of applicants to the college would not have increased had the board not__________________________________.
• The orchestra’s financial condition would not have stabilized if the board had not_______________________________.
• The museum would not have become a “destination” for a crosssection of the community had the board not__________________________.
• The hospital would not have survived the challenges of managed care unless the board__________________.
• The treatment center would not have become a career placement center as well if the board had not_______________________.
• Revenues from earned income at the association would not have nearly doubled unless the board__________________________.
The responses to these questions should be shared anonymously with the entire board and senior management as a way to pinpoint the trustees’ essential roles in execution of the strategic plan. The same process can be used retrospectively. The questions can be altered to ask what the board did (or did not) do that best explains the attainment (or failure) of previous strategic priorities.
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practices some form of fiduciary governance; most participate (to varying degrees) in the development, approval, and oversight of strategic plans. Many even provide technical assistance to enact the plan. In the terminology of technology, formal planning is like an older version of software. Call it TII.1. It still works, but newer versions do more and perform better. Strategic governance, or TII.2, encourages trustees to think about issues that really matter and strategies that might really work. Professional staff and technicians then convert these ideas into a plan, nested in a competitive context and intended to enhance the organization’s value to its constituents.
This may sound like quite enough to many trustees and exec-utives.The best of Types I and II governance, taken together, do indeed comprise the current state of the art in trusteeship. But there is a missing piece that becomes evident when we view nonprofit organizations in a different light that reveals a world less orderly and more complex than most board members and nonprofit executives acknowledge. In this environment: