“Let us pray for Bob and his family.” Everyone in the room of over a hundred people bowed their heads and prayed for the executive director of a religious organization who had made “irregular” purchases with church money. Bob (not his real name) is now awaiting trial, his misdeeds brought to light by an independent audit.

I admire the this religious organization who could still be concerned about Bob and his family while caring first about the organization from which he stole. While there are many morals to this story, one remains primary for boards. It was an independent audit that uncovered the transgression. It is highly unlikely that Bob would have turned himself in or returned his ill-gotten gains on his own. It is may be a sad commentary on human nature, but it is a reality that left unchecked, people will often act in their own best interests to the detriment of others.

This is why organizations have independent boards to watch over the management. But the real question is, of whom are these boards independent? The answer is that boards must remain independent of the management so that the board can hold the management accountable.

Here is where boards often falter.

When boards make management decisions, they become part of the management. When a board passes a budget, it is a management decision. When a board chooses to use one contractor over another, they are managing their organization. If the board chooses to add a staff member or reduce a staff member, the board throws off the cloak of governance and dons the mantle of management.

And when a board makes management decisions, it reduces its ability to hold itself accountable. This is no small dereliction of duty. When boards function as a fiduciary, its highest duty to ensure that the management is performing its work appropriately.

Thank goodness that the board of Bob’s organization understood their responsibility to remain independent from management and in so doing, prevented even greater loss.

Barry

Barry@TheSandbarGroup.com