This is the first in a series of articles that examine some of the analysis and solutions provided by the work of John Carver and his Policy Governance® model for the governance a board of directors (www.policygovernance.org), applicable to business, government and non-profit organizations.
Time changes things.
So, to understand a thing, it is often helpful to go back to see what the thing was originally supposed to be. Understanding economics is no exception.
The word economy can be traced back to the Greek word oikonomos, which means one who manages a household. From oikonomos was derived oikonomia, which had not only the sense of management of a household or family, but also senses such as thrift, direction, administration, arrangement, and public revenue.
The first recorded sense of our word economy, found in a work composed about 1440, is “the management of economic affairs,” in this case, of a monastery. Economy is later recorded in other senses shared by oikonomia in Greek, including thrift and administration. What is probably our most frequently used current sense, “the economic system of a country or an area,” seems not to have developed until the 19th Century and has played a much larger role in the 20th Century. The root word relates to household management, which of course includes money, but encompasses much more than simply money management.
While economic concerns tend to cluster around money, there is more to economics than accounting. In the same way that money has a way of touching every aspect of life, the roots of economy also reach into every aspect of life, as well. Consequently, an economy is about culture and morality as much as it is about money and business. In fact, it could be argued that the monetary aspects of economy are the outward manifestation of the more subtle and intricate aspects of culture and morality.
John Carver made a similar observation in the 1980s as he began to think about why business and non-profit organizations worked so hard, but tended to gain so little ground. Following many advances in modern management techniques, he began thinking about why it was so hard to put them into practice. His thinking centered on boards — the many non-profit and corporate board of directors whose job it is to guide their various organizations. He observed poor performance of board work everywhere he looked.
He began in his ground breaking book, Boards That Make A Difference (Jossey-Bass Publishers, San Francisco, 1990), by pointing out the problem that exists in a typical board of directors. A correct prescription requires a correct diagnosis. Carver built on an insight from Peter Drucker in 1974, who said, “there is one thing all boards have in common, regardless of their legal position. They do not function. The decline of the board is a universal phenomenon of this century.” Agreeing, Sumek found in 1983 that board of directors’ “governance process is not working well… New approaches need to be developed.” Geneen of ITT complained in 1984, “Among the boards of directors of Fortune 500 companies, I estimate that 95 percent are not fully doing what they are legally, morally, and ethically supposed to do. And they couldn’t, even if they wanted to.”
What is the problem in the board room? What is so wrong that leading business experts have issued such broad condemnations of the way that boards function over several decades?
Carver says, “The problem is not that a group or an individual occasionally slips into poor practice, but that intelligent, caring individuals regularly exhibit procedures of governance that are so deeply flawed. On a regular basis, major program issues go unresolved while boards spend enormous amounts of time and energy on details that do not impact the central issues.”
For instance, a national survey a decade or so ago found that almost half of America’s school boards made the purchasing decisions for tape recorders, cameras, and television sets. Nothing against school boards in particular, but the point is that those who are charged with responsibility for the strategic position of an organization are ordinarily mired in administrative details, with no time or vision for strategic concerns. The strategic position and the decisions necessary to advance that position cannot even be seen from the field of such administrative minutia.
This series of articles will point to ordinary situations that suggest board or directors ineptitude, and the need to discuss Carver’s insights and proposed solutions to many of the common problems that negatively impact the economic development of businesses, institutions and governments. Could it be that businesses, institutions and governments are crippled by their organizational structures? Carver believes that they are, and proposes a practical solution.