A fundamental presumption: entrusting responsibility to a group of people, rather than to an individual, enhances the accountability and the wisdom of the group.

A word on the role of the board

Why do boards of directors exist? We take a lot for granted when we think about serving on the board of an organization. If asked, we might describe the role as being one of a fiduciary, entrusted with its care, and we might be aware that being a member of a board confers responsibilities for the success of the organization in some fashion or another.

Before launching into a discussion of ways to be a better board or board member, we might do well to reflect on the reason that boards exist. At a comprehensive level, we might say that boards exist because of a presumption that entrusting responsibility to a group of people, rather than to an individual, enhances the accountability and the wisdom of the group. This presumption is the foundation of state laws that authorize the creation of corporations and require that a corporation have a board of directors.

You may recall that the corporate business form became widely used in the mid-1800s,when the industrial revolution made it possible to manufacture on a scale that required significant capital inputs. As an incentive to investors of capital, shareholders and members of corporations, including nonprofits and cooperative corporations, enjoy certain privileges under the law. One of these is that their directors and members are generally shielded from personal responsibility for any losses and nearly all liabilities that may arise from the actions of the corporation—provided, in essence, that corporate decisions are reasonable under the circumstances. This immunity, the so-called “corporate shield,” is a measure of how valuable we believe the service of these directors to be. Immunity is granted in order to free directors to participate fully and freely in the governance of their organizations, without fear of being taken to task should their best good-faith efforts lead to unexpected or unfortunate outcomes.

The combined insights gained by looking through each lens, of agency and of stewardship, tend to lead to more nuanced and effective governance and leadership.

The most important decisions

The most important decision that a board of directors makes is to whom they will delegate the organizational responsibilities that need the care and attention of a professional executive, manager, or coordinator. The second most important decision is determining what if any limitations to place on that grant of power.

Decisions are a tricky thing when individuals are making them. We know that conscious and unconscious factors all go into the decisions we make. The human brain is so sophisticated and complex that much of what we know (as Malcolm Gladwell explains in his amazing book Blink) never makes it into words. Instead, we see it in our actions. When we make decisions as a group, that’s true to the nth degree: an amazing myriad of surfaced and subsurface information and assumptions influence organizational decisions. I believe that two common assumptions about those decisions are worth looking at more closely.

Agency and stewardship

There are two different governance theories that operate in tandem in most organizational settings: agency and stewardship. In both models, a principal entrusts another with responsibility.

For example, a board of directors is entrusted with the responsibility of governing the organization to ensure it meets the needs and aspirations of its members and/or shareholders.

The difference between the two governance theories is in the assumptions that are made about the interests of the parties:

• In an agency relationship, it’s assumed that the agent has a self-interest that is different from the principal.

• In contrast, stewardship assumes alignment of interests: it is presumed that if the steward serves their own interests, they will simultaneously serve the needs of the organization.

Both approaches are useful to a governing board, and yet either, alone, may fall short of the need. Agency is perhaps more familiar to most of us in the dominant culture, and it serves a purpose.  The agency lens is at play when the board is seeking to demonstrate its responsible oversight, in monitoring its executive manager.  However, some of the strongest organizational relationships exist where the stewardship model has been brought to the forefront in an intentional fashion. Leaders of mission-driven organizations typically seek out positions that align with their own interests and goals.  As a result, it’s my observation that the combined insights gained by looking through each lens, of agency and of stewardship, tend to lead to more nuanced and effective governance and leadership.

Checks and balances

In the “business-oriented” culture that many organizations adopt, board members are often accustomed to looking at things through an agency lens, which assumes that there is value in checking up on those who have been entrusted with responsibility.

For those boards that use John Carver’s Policy Governance™ model, the agency theory is brought front and center by the executive limitation policies, which the board uses to set expectations that limit the use of “unacceptable means.”

For other boards, reviewing budgets, programs, and staffing models allows them to surface and discuss expectations while they are also checking up on their professional manager or executive.

These processes are particularly valuable where the board needs to demonstrate accountability to the members of the organization or to a lender or other outside stakeholder. However, if the agency theory is the sole and exclusive lens through which the relationship between the board and its professional is defined, the relationship (and the organization) may not reach its full potential.

The steward serves the need

A stewardship mindset is often present yet unacknowledged in mission-focused, community-minded organizations. Organizations which are managed by their founders or by long-serving professionals often instinctively know that their executive’s self-interest is in alignment with the organization’s interest. These organizations can benefit by taking the time to carefully document these shared interests, so that decisions about future leadership can ensure continuity of purpose and values.

Stewards are caretakers. They accomplish and advance the goals of their principal, who has entrusted and empowered them, and in doing so they further their own mission and goals. The wise principal understands this and respects and recognizes the alignment of interests. An excellent steward adds value to an organization by anticipating and applying those interests in novel and innovative ways. And an excellent principal remains attentive to the world around the organization and ensures that its purpose stays relevant and timely.

Choosing a lens

A board may be tempted to double down on its “agency” lens when organizational leadership changes, when an organization is experiencing financial stress, or when stakeholders or members are raising concerns. When leadership changes, agency theory tells us that the new executive or manager may have self-interest that is out of alignment with the organization. When there is financial stress, we want to know that our executive is doing everything they can to correct the situation. And when stakeholders or members are asking an organization to pay attention to a particular issue or situation, it’s natural for the board to seek reassurance that the organization is able to listen and, if appropriate, correct its actions.

However, if a board uses exclusively an “agency” lens for these and other stressful situations, it may unwittingly set up an us-versus-them dynamic with their executive, where shame and blame are flying back and forth. In its zeal to provide answers and accountability, the board risks its most important relationship if it leans too hard on this perspective.

The stewardship lens offers a path to balance and shared problem solving. Your new executive was likely drawn to this organization because of shared values or common purpose. The financial stress has a discernible cause which needs to be understood in order to be solved. The concerned stakeholders or members are communicating with the organization in hopes of being heard. The strongest boards will use the best of both agency and stewardship perspectives to bring out the best in their executive or general manager.

Cherish results

Boards and the executives and general managers who work for them are almost always seeking the same ends with different tools and for different reasons. The board that takes the time to communicate the way it views its own role and responsibilities to its executive is inviting collaboration at the highest level. The executive or general manager who shares their challenges and dilemmas helps their board to understand the full and nuanced nature of the responsibility they have entrusted to their steward/agent.

Human enterprises are messy. Our best intentions go sideways, and things happen, good and bad, that we do not expect. People have feelings, and sometimes their feelings lead them to make decisions that are less than wise. Sometimes people do bad things, and when that happens they must be held to account. But that is, in my limited experience, thankfully relatively rare. More often people muddle through, doing their best in good faith.

Using the dual lenses of board agency and stewardship, we can muddle through with a better feeling. And in my experience, better feeling leads to better results. I invite you to consider what balancing these two perspectives can do for your organization. You may gain insights that will help you create greater results.