The Perils of Poor Governance

falling dominoes May 2, 2017

Departing members. Dwindling budgets. Restless CEOs. The costs of poor governance are high. Do you know the signs?

Shared commitment by board and CEO to strategic vision, learning and self-assessment, and board recruitment and retention are hallmarks of good governance, but not all associations are there. Considering the consequences of what you don't want in your board can be as useful as knowing what you do want.

In phase one of ASAE Foundation governance research leading to What Makes High Performing Boards and Transformational Governance, researchers asked 1,585 association chief executives to rate their boards' performance. In comparing the governance practices of boards ranked in the top 25 percent in performance to those ranked in the bottom 25 percent, it's clear that the consequences of poor governance are as significant as the rewards of good governance.

Board Turnover

The research identified the sweet spot for board turnover as striking a balance between fresh ideas and continuity. CEOs of low-performing boards were three times as likely to report greater or lower turnover than optimal, compared to CEOs with higher-performing boards. Specifically:

  • Ten percent of the lowest-performing boards reported greater turnover than optimal, compared to 3 percent of high performers.
  • Thirty-one percent of the lowest-ranked quartile had lower turnover than optimal, compared to 10 percent in the top quartile.

Not surprisingly, difficulty recruiting new board members was a greater challenge for the low-performing boards, reported by 85 percent, compared to 49 percent of their higher-functioning counterparts.

Trust, mutual respect, and a strong working relationship between the CEO and board members are hallmarks of good governance, and if there's a revolving door, those important connections aren't getting made.

The combination of ineffective recruitment and uneven turnover can create inconsistency in a board, make relationship-building difficult, and hinder boards from reaching their full capacity. The highest performers make a conscious effort to maintain reasonable terms of service and to commit resources to finding and cultivating the best members for their board.

Staff Turnover

CEOs at organizations with the lowest-performing boards were 17 percent more likely to be planning to leave, at a rate of 54 percent, compared to the 37 percent at organizations with higher-performing boards. Trust, mutual respect, and a strong working relationship between the CEO and board members are hallmarks of good governance, and if there's a revolving door, those important connections aren't getting made.

High staff turnover in more than half of key positions was also twice as common in associations with low-performing boards than in those with high-performing ones (18 percent versus 8 percent). Effective staff support is another trait of the best boards, so losing key personnel is a barrier to better governance.

54% Percentage of CEOs at associations with the lowest-performing boards who were planning to leave

Poor Performance

Struggling boards were more likely to be facing declining membership and budget issues. Thirty-eight percent of the lower-performing boards had shrinking memberships, more than double the highest performers (16 percent). Thirty percent of the lowest-ranked quartile also had shrinking budgets, compared to 16 percent at the highest.

The study did not seek to establish a direct causation between CEO rankings of poor board performance with membership or revenue numbers, but the link is worth considering. When members are leaving, something is wrong. They may no longer see value in the benefits they're receiving, they may be leaving for a competitor, they may feel disconnected from the association, or they may be departing for some other reason. A strong, strategically oriented board is more able to address the issues that inevitably arise when it comes to these types of issues, while a weak board may lack the capacity to respond to the same challenges.

Keeping an eye out for the signs of poor governance can make it easier to identify where you might need to focus efforts—whether your organization needs to improve its recruitment and retention, look at its board culture, or find more effective methods of self-assessment. If you can see the signs, you can identify a focus for a change in direction and head toward a better board.