Professor Yvonne Harrison here, welcoming you to the second week of the second course in the series of courses on, Developing Leadership and Improving Governance in Nonprofit Organizations. Last week, Professor Murray examined the board's role and responsibilities for strategic planning. This week, we will explore, the board's role and responsibilities for performance assessment. Here are the topics this short lecture will cover. What is the board's role in performance assessment? Why is performance assessment important? Why do boards have difficulty meeting performance assessment responsibilities? What frameworks exist to help boards measure and manage performance? How can the effectiveness of organizations, boards, and CEOs be improved through the performance assessment function? I'll end with questions to inform our peer-to-peer discussions this week. What is the board's role in performance assessment? Well, boards of non-profit organizations are required to exert due diligence in ensuring that the organizations they govern are achieving their missions effectively and efficiently. The areas in which due diligence assessments need to be carried out are, the performance of the organization as a whole and assessment of its effectiveness, the performance of the CEO and how effective they are meeting their performance expectations, and assessment of the board as a governing body in meeting its own accountability objectives. Let's start with performance of the organization. To fulfill performance assessment responsibilities requires that the board receive reliable and valid information on how the organization is performing. There are three areas in which due diligence assessments need to be carried out. The first area relates back to our lecture last week on the board's role in planning. It involves assessment of the strategic plans, goals, and objectives. Information here would be obtained to allow the board to ascertain whether goals have been achieved and to what extent they've been achieved. The second area, is financial performance, ensuring that the organization is financially sound. Does it have enough resources to advance the mission and work of the organization? Information obtained here would allow the board to assess that soundness. Information internally requested from the CEO about incoming resources and reserves, or information about past financial expenditures and the budget and any financial controls that are in place. External sources of information could come from auditors and consultants in the form of independently generated reports that would allow the board to assess financial performance. The final areas in assessment of risk and due diligence assessments, involved assessing the organization's risks and legal liabilities and becoming aware of actions that might threaten the reputation of the organization. Some of these include high risk investments or risk to client safety and health and conflicts of interests, among others. Performance of the CEO is another area in which the board carries out due diligence assessments. To perform performance assessment responsibilities in this area, requires that board members receive reliable and valid information on how the CEO is performing. If you think back to module 1 when we looked at the role and responsibilities of boards, one of the most important decisions that a board makes is on selection of a chief executive officer, a lead manager for the organization. The board invests much time in recruiting this individual. Orientating them to the specific job, developing goals and objectives for the performance of that job, and clear lines of authority vis-a-vis the board and measures of success. Performance assessment in this area would be to obtain information to evaluate that, to determine how well the CEOs performing, but also to provide feedback for the chief executive so that they could develop in the role. Due diligence assessments in this area, return value to the organization by developing human resources, reducing a turnover and the risk of major crises and lawsuits that can result from it. Performance of the board is another area in which due diligence assessments need to be carried out. To fulfill performance assessment responsibilities in this area requires that board members receive reliable and valid information on how the board is performing. One, to ensure that it's meeting its own accountability objectives, but also to provide feedback to the board so that it can further develop in the governance role. There is empirical evidence to suggest that there's value returned to the organization through the performance assessment function. A number of scholars have found that boards at assessed performance tend to be more effective than those that do not. Our own research into self assessment of board performance through the checkup tool supports this finding. We've also found that assessment of board performance leads to changes in governance practices and increases in board member role clarity. We find support for Kooiman's role theory that posits that governance ineffectiveness arises from tensions, from role confusion in and around the governance process. The question of why performance assessment is important has been unpacked in the previous question, and the value that's returned through performance assessment to the organization, the CEO, and the board. But this aspect of the question is looking at accountability. Boards are legally and morally accountable to those for whom they act as trustees, and performance assessment allows them to meet accountability requirements. So reporting required by law to regulators who allow the organization to exist, who provide tax exempt status, to funders who have contracted with the agency to allow it to provide public goods and services, to stakeholders, key stakeholders, there's a moral accountability to show how donations are used to the public, to show how the mission is advanced and how the organization is providing an important service and meeting a societal need. Boards that fail to carry out these accountability obligations either legally or morally increased the risk that the organization might fail. So performance assessment is a very important function in ensuring the success and sustainability of the organization. If performance assessment add so much value to the organization, the CEO and the board, why is it that boards have difficulty meeting responsibilities for performance assessment? In this question, we're really looking at some of the reasons boards have trouble carrying out their due diligence assessments in the areas that we discussed. One of them is a lack of clarity about the amount and kind of assessments that the board should undertake. Either the manager, management and board have different ideas about performance assessment, or the board is unsure what its role in performance assessment is. So this is one of the reasons why boards have difficulty, just as simply a lack of clarity. The second is that the board may wish to assess performance, but it really doesn't have enough information to carry those assessments out, and this could be because there are inadequate systems in the organization for gathering and reporting information, and that includes measures or metrics and frameworks to organize it, or because it is intentionally or unintentionally withheld from the board by management. Another reason is that the board doesn't create suitable structures and processes for carrying out its assessment duties. So it could be that there are no board officers or committees with responsibility for gathering performance assessment data, analyzing that data, and bringing results to the full board for consideration. Or that the board really lacks the knowledge on how to analyze and interpret performance data, and so there's just simply a lack of performance management capability on the board. But finally, it could also be that the board has evolved an informal culture, in which it really doesn't believe that it has to assess performance, that it already has enough information to assess its responsibilities in these areas and to take those seriously. It could also be that it's uncomfortable with the monitoring function and evaluating the performance of the CEO, or raising questions about the validity of the information provided to the board by the CEO in terms of finances or even the reputation in the community. There are a number of other reasons why boards have difficulty engaging in due diligence responsibilities in the area of performance assessment. Many of these reasons described on this slide or described in Chapter 8 in Cornforth and Brown's Nonprofit Governance, a chapter that written by Alan Hough, Myles McGregor-Lowndes, and Christine Ryan on board monitoring and judgment as processes of sense making. These authors suggest that performance assessment in non-profit organizations is complex. That oftentimes, measurement is difficult because the goals and objectives of the organization are broad and difficult to measure. Some goals are really not conducive to comprehensive evaluation. It is also true that it's difficult to carry out performance assessments objectively, and that people value criteria from their own perspective. There's a lack of agreement on what effective performance is. There's also a political element to performance assessment that requires evaluators to negotiate the process and how results will be used and interpreted. There's also this pressure to evaluate performance based on comparisons with other organizations or the organization's past performance leading to a single indicator of whether the organization is successful or not. That performance assessment become can become so routine that it's never really considered deeply for organizational learning and development. It's simply an act that happens, and is passed over without any real serious review of that information. As we've discussed, there are major challenges and limitations when it comes to assessment of performance. This question, what frameworks exist to help non-profit boards assess performance really tries to address some of those challenges? Looking at frameworks to help illuminate effectiveness criteria, but also to help organize criteria and choose the best methods of measurement and analysis so that the board can assess performance. The first conceptual framework I'd like to introduce you too, is the competing values framework. It's a conceptual framework for understanding organization effectiveness criteria. It emerged from the research of Robert Quinn and John Rohrbaugh in the early '80s, and it's very useful in depicting means and ends oriented criteria in different dimensions of an organization that represent four different schools of organizational thought. It's been an important tool to illuminate the values at surround effectiveness, either coming from people's personal values of what makes an organization effective or organizational values for effectiveness. Over the next 25 years, Quinn and his colleagues would adopt the competing values framework to different dimensions of organizational performance. In this figure, you can see the competing values framework depicting leadership competencies in the four schools of organizational thought and also culture, presented in four different ways that align with these different values. The competing values framework has been used by practitioners and researchers around the world, and it's considered one of the most important contributions to the organization theory and behavior literature. It's also been a useful diagnostic for boards in terms of decision-making and leadership in terms of evaluation and development of leaders. For more information about the competing values framework in this approach, see the Master Manager by Quinn, Faerman, Thompson, McGrath, and St. Clair. Another conceptual framework that many of you might be familiar with by now is the conceptual framework of the elements of board effectiveness. This conceptual framework emerged from Vic Murray's grounded theory, working with board members and consultants and other people interact with boards over a 30 year period about the issues that challenge boards in two-dimensions, in their governance role and responsibilities, so issues are in and around the governance process, but also issues around the factors that influence how effective boards are in meeting those roles and responsibilities, so this conceptual framework reveals criteria in the area of what boards do, but also how they do it. The other thing that this conceptual framework shows, and also our research and the research of others confirms, is that there is this relationship between board effectiveness and organizational effectiveness. Boards contribute some of the effectiveness to non-profit organizations, but they don't contribute all of it. So a board can only contribute some and other factors internal to the organization and external, as we just talked about in the previous slide, other effectiveness indicators will contribute to the organization's performance. For more information about our research and this conceptual framework, including these factors look onto the web-page for an article that is published in the Non-profit and Voluntary Sector Quarterly on the impact of online self-assessments of board performance. In this slide, we're introducing you to two frameworks that have been used by non-profit organizations and boards to conceptualize, organize, and measure performance. In the first framework, what you see is a logic model, and this is a measurement framework that tries to articulate the links between inputs, outputs, and outcomes. It tries to do this to answer some basic strategic questions, and you see those listed here. Are we getting value for our money invested? How many people have we served through our programs? What is the impact of our program? What activities account for our success or failure? Another framework, the framework listed on the bottom for helping non-profit organizations and boards conceptualize, organize, and measure performance is a balanced scorecard. The balanced scorecard is a system really for conceptualizing and measuring performance that was developed in the private sector for business organizations, and it was adapted by Robert Kaplan in 2001 for non-profit organizations. It essentially argues that performance will be achieved through a balanced scorecard of performance attributes grouped around four perspectives. In the case of non-profit organizations, the mission statement rather than profit becomes the endpoint to be reached through these perspectives. The process really starts with strategic goals and objectives that would result in fulfilling the mission. Then identifying outcome indicators to measure the extent to which that's been achieved in these different perspectives. There's been quite a bit of research around the use of balanced scorecard in non-profit organizations, but little in the way of systematically designed empirical research. But one study by Auger found that the use of the balanced scorecard did help boards become clear about their role, as well as help them overcome problems from social construction of organizational performance. Other studies have found that it doesn't work particularly well in some types of non-profit organizations, so should be used really like the competing values framework as a conceptual framework to think about performance in these different dimensions. How to organize that in relation to strategic objectives so that some measurement or assessment of the mission could be undertaken. Another scorecard to help boards assess performance that extends beyond strategy is a stakeholder scorecard. Burke defines it as balancing the needs, wants, and requirements of stakeholders. It includes a focus on members as clients or staff, suppliers or funders and donors, and management as stewards of the enterprise. It's based on the premise that members contribute for certain inducements. It's a transaction-based view of performance on reciprocity or the quid pro quo view of a relationship that you give something for what you get in return. But this scorecard might be useful in helping boards balance or asking questions about its relationships. Who its stake holders are and are they meeting needs? What is it that they need from the organization in return? How can non-profit effectiveness be improved through the performance assessment function? Well, in this lecture started out with the ideal in terms of board's responsibilities for performance assessment and then the reality in terms of the challenges and limitations that boards have in meeting this responsibility. We've discussed this performance and responsibility, but also some frameworks to help boards think about effectiveness criteria. Conceptualize effectiveness in different dimensions of organizational effectiveness, and then also frameworks to help boards assess and report out on effectiveness. But all of this really requires that there's a supportive culture in the organization for performance assessment. So an atmosphere of collaboration and trust and respect to know one, that performance assessment is used to meet accountability requirements, but also to help improve and develop the organization and its leaders in fulfilling their responsibilities. But apart from that, effectiveness really can be taken on at the level of the board and trying to create some structures within the board to carry out these responsibilities. Specifically looking at officer positions to recruit people with the kind of knowledge and experience too in this area and also committees that would have responsibility for performance assessment. The bulk of the work around gathering, analyzing, synthesizing, and making recommendations to the board. As we head into this week, here are three questions to consider in your peer-to-peer discussions. One, why do so many boards seem to have such difficulty carrying out their performance assessment responsibilities? We've described a number of challenges and limitations, but perhaps there are more and you could share those with us. Two, what can be done to ensure that finances and risks are managed soundly? Three, what other frameworks and methods have been used to assess and manage the effectiveness of non-profit organizations and their boards. We've suggested a few, but I know there are others. Please spend some time this week sharing that information with your peers and us in the forums. We hope to hear from you this week.
