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How to know if you have an effective board of directors and CEO

This is the time of year when many boards and associations will be holding elections for their boards of directors. Historically, participation by members in such elections has been low. There are many reasons for this, but one is undoubtedly that members do not believe their selection of directors makes a difference for their board or for their own business. Nor do they believe that the board itself is helping to shape the industry or, at the very least, helping its members to adapt and thrive in it. Unfortunately, in some cases, they are correct.

After 40 years as an elected or appointed director, member, trustee, president, treasurer and secretary on numerous boards (including real estate and school boards), associations, charities, community and non-profit organizations, I have come to believe that the fault lies in the manner in which such organizations are governed.

Good governance requires the ability for your board of directors to establish missions, strategies, targets and goals. The board then refers these components to management, who are expected to find the best way to implement/achieve these on behalf of the organization and its members. At a high level, this governance model and resulting structure makes sense and should be prescriptive in how a well-functioning board of directors governs the organization.

The board sets the objectives and then directs and empowers its sole employee, typically the director or CEO, to take the necessary steps to achieve such ends. The CEO is expected to harness the collective resources of the organization – staff, funds, knowledge, equipment – to work towards the desired outcomes.

There are ways of determining for yourself if your board (both the board of directors and your real estate board/association as a whole) are effective.

A core expectation of members is that the MLS functions properly and is always available. To this end, staff handle MLS services effectively and allow us to buy and sell property on behalf of clients.

However, effective management of the MLS is a core function and should not form the basis by which to evaluate your directors and CEO. This, and most essential and daily board functions, are handled effectively by the staff of the association and would continue effectively without any involvement of the board of directors or CEO.

The essential questions to ask are whether your board is adopting policies and formulating strategies that will prepare your association for the future and whether it is enhancing the overall services and support to its members.

Are you, as a member, better off as a result of the actions of your association now than you were one, two, three, 10 years ago? Do you feel confident that the association is leading the industry, thus ensuring our collective success? These indicators are the hallmark of effective boards and CEOs.

You should also obtain a copy of the association’s multi-year plan and examine it to ensure the goals are strategic and that the indicators or targets that are associated to the goals are measurable. If they are, inquire about the progress made against the set targets. Were they achieved? Why or why not, and what has been learned along the way?

Too often, we find ourselves immersed in our everyday business, without recognizing the value that a galvanized association can bring to our businesses and their profitability.

If you take the step of researching your board’s strategic plan, you will find one of three results. One is that your board does not have a strategic plan – this is a BIG problem and suggests that your board of directors and CEO are not effective in that they have left their members vulnerable to industry and external market forces.

If you find that your board has a strategic plan but the major items on the plan are irrelevant to you as a member or are inconsequential “motherhood” statements that sound lovely but have no actual meaning or planned outcomes, then you can be equally sure that your board of directors and CEO are not effective. Again, such an approach leaves their members vulnerable to external forces and disruptors.

If you find that your board has a plan that is meaningful to you as a member and has objectives that are stated in terms of real goals, the means of achieving these and a time frame for doing so, then you may have an effective board of directors and CEO. Further, you should have access to reports that will demonstrate if the targets have been met. Have a look at your board’s strategic plan for the past couple of years and ask if these objectives have been achieved or are well underway. If you are satisfied on these fronts, you are being well served by your association. If not, then you revert to your board and CEO not being effective.

Why are strategic plans often ineffective? Frequently it is because such plans do not have worthwhile goals or do not state these in meaningful terms that allow for measurement and analysis of progress towards the goal. There are experts in the market who can help associations formulate and achieve a powerful strategic plan whose value makes a difference to your bottom line.

Even a good strategic plan cannot stand on its own. It is supported by a work plan, CEO performance system and dashboard. These components are typically outlined in the association’s governance plan.

If the board of directors is using its governance model correctly, it will set a meaningful strategic plan, establish performance objectives for the CEO based on the objectives outlined in the strategic plan and then evaluate such performance in light of the goals achieved (stated in time frame of outcomes). In turn, the CEO’s performance plan will cascade down to the staff level, so that the entire association is aligned and driving toward the same desired outcomes. Members are entitled to expect this level of performance from its association. Anything less ensures that the association will not be effective.

How does a governance model fail to lead to meaningful outcomes for its members? There may be one of more reasons for this:

1. There is no meaningful strategic plan

It does not have objectives that matter to members or if it does, these are not stated in terms of what is to be achieved and by what date.

2. The board allows the CEO to co-opt the system by not having meaningful goals that can be measured and evaluated to achieve the desired outcomes

Another symptom of this is having objectives such as, “Prepare a report about XYZ,” rather than recognizing if this is a step towards achieving the actual goal.

3. Objectives are so vague as to defy measurement

Common examples are, “Serve the ongoing needs of members” or “Establish relationships to enhance access to data.” While these statements are lovely and fill the colourful boxes and diagrams of many so-called strategic plans, they do nothing to move the organization forward in actually achieving anything. Even worse, they do not allow for effective evaluation of the CEO in that there is no way of actually determining if these objectives are met.

Thus, they are the favourite type of statement for those CEOs who we consider as “survivors” – those who simply exist from year to year without actually doing much beyond managing the ongoing day-to-day functions of the organizations. By avoiding meaningful goals, the CEO has ensured his or her “success” because there are no targets to miss.

4. Boards are more concerned about “ticking the boxes” in their governance plan than ensuring the various and necessary steps are being articulated and performed in a meaningful way

For example, even if the goals set are irrelevant or otherwise hollow, the directors can still check off the box that states, “establish goals.” All steps beyond this – set targets, measure CEO performance – automatically become useless. The CEO however continues to “prosper” and receive bonuses because no goals remain “unmet.” If this is what is occurring at your board, are the members really being served or does the system continue primarily for the benefit of the board and CEO?

5. Boards are unwilling to hold the CEO to account, often because they have worked closely and have come to like or empathize with the individual CEO and will address concerns “next year”

Even CEO evaluation systems rarely allow for anything less than “acceptable” performance but are typically geared to obtain higher goals that result in bonuses, even if nothing of substance has been achieved in terms of strategic objectives.

If your board continues to hire a series of consultants to attend board meetings and revise governance plans, you can be assured that your board is not effective. Bringing in a new consultant typically allows a non-performing CEO to hang in for at least two or three more years as the system is revised, normally with outcomes no better than before.

What then is the solution? It comes down to one key element – accountability.

Accountability of the directors to establish and set meaningful strategic plans. Accountability of the board to constantly evaluate whether these goals are being met and accountability in terms of being both able and willing to hold the CEO accountable for achieving the objectives.

As dues-paying members, you are entitled to a high-performing board and you are entitled to the fruits that come from having a high-functioning board and CEO at your service. In fact, the very future of organized real estate may depend on it. Our role now is to elect an effective board of directors willing and able to do the work that is necessary to achieve this.