Good Governance and Crisis: The Timex Test 

Limits of strength, endurance and durability of lots of consumer products are determined through all kinds of tests. These tests make the most amazing commercials! We have seen diapers experience extreme tests of use and not have one leak. We have seen clear food wrap hold the most intensely coloured food upside down over a white carpet and never rip or drip at all.  We have seen watches that have spent hours strapped to the legs of deep sea divers survive to ‘keep on ticking’. Indeed this last trial is so well known through television commercials that it has come to be called the Timex Test.

What about in organizations? Are there crisis? Is there a Timex Text to tell how strong our governance really is?  How can we be sure in our organizations that our governance will pass the tests?

If you believe that change is inevitable then you will believe that that both good and bad change will hit your organization at some time. When the change is more negative than positive then it often turns into a crisis. Having policies in place, job descriptions, excellent underlying values and a vibrant vision statement are all great to have when everything is going well. It’s when things do not go well that the real test of strength, endurance and durability of good governance happens.

The fact is that research can’t be done on organizations like they can be on a consumer product. It’s much the same as not doing some types of consumer tests on people. No one would want to have a deliberate crisis happen to their organization so they could test how well the governance works. So when the crisis hits, the crisis is the test.  How an organization responds to crisis is the test of good governance.

Three of the most common tests that organizations will face have to do with crises of cash, conscience and choice. Here are three extreme examples that have tested good governance in three organizations.

Crisis of Cash

Serious cash problems such as having too little money; having too much money and how the money flows are some of the financial crises for organizations. Even if there are policies in place to guide the decision-making by the Board and staff, these can go out the window with crisis. For most organizations, the elected Board are volunteers who think that the word ‘fiduciary’ is a synonym for ‘financial’ and yet can’t read a balance sheet. There is nothing like a financial crunch to bring the ‘diligence’ part of a Board’s legal responsibility to the fore. Now, this is not a bad thing unless the Board feels like there is some reason to have more information and involvement than the policies define. Policies are meant to stand the deep sea dive of cash flow crisis.  What happens though is that the Board and staff are unclear about their limits and responsibilities; don’t really understand the policies and end up acting irresponsibly through the crisis.

I’m reminded of a national organization that had a cash flow crisis brought about by years of bad planning and non-existent financial policies. Good governance was implemented, but was new when a cash flow crisis finally reached the boiling point. In a knee-jerk reaction, the Board flew off its collective handle, fired the executive director and tried to deal with the crisis on its own. “ We’re all on the same team and we want to help” was the battle cry. The policies were forgotten, the responsibilities of Board and staff as defined by policy were ignored.  As the Board tried to make the day-to-day financial decisions, it was a recipe for disaster. It was not until another executive director was hired and some of the directors were replaced that the crisis calmed down. Interestingly enough, this organization is still struggling with ongoing cash flow problems. Its members are so tired of this crisis, that it goes largely unnoticed. The policies are still not followed, and the roles and responsibilities are muddled. This organization did not follow its own rules in the crisis. But it will likely be OK until the next serious crisis hits.

Good governance needs to have, to understand, and to use complete and appropriate organizational policies to pass the test of a crisis of cash.

The Crisis of Conscience

‘Doing the right things for the right reasons’ is a catch phrase we all use and some of us even try to live by.  Organizations who do not have strong values will find that crisis can happen to test them with quite simple situations. One of the most common indications that an organization is not ‘doing right’ is that of conflict of interest. An organization that does not have conflict of interest guidelines, including the means to both prevent and handle this conflict, will be in serious trouble. 

I think of a national organization that had a certification component. Some of the members were teachers of certification and some of these teachers ended up as Directors. The governance model that was used was one that allowed all decisions about the certification program to be made at the Board table. A new senior staff added policies including guidelines for conflict of interest. All efforts by senior staff to help the Board to recognize and implement the conflict of interest guidelines was refused.

The crisis of continuing to work under these illegalities happened when the Director and Officer insurance was to be renewed.  As the senior staff considered the renewal of the insurance with the Board’s blatant disregard for good governance, the senior staff had an attack of conscience. When the Board was approached with the information that buying an insurance policy required a cover up of how the Board operated.  The Board chose to continue with the conflict of interest in its decision-making and the senior staff chose not to stay.

New senior staff and the Board of this organization continue to make decisions without considering the conflict of interest they work under. If this organization was a public one, it would be at risk for some smart reporter to figure out that there were conflicts of interest at work in this Board.  A media finger would be pointed at this organization with great show. Since this organization is a non-profit and works by the inefficiency of democracy, it will take a smart member or another senior staff with a crisis of conscience to bring about a change.

Good governance needs to have, to understand, and to use solid organizational values to pass the test of a crisis of conscience.

The Crisis of Choice

In the everyday life of an organization change happens regularly. Factors from within and from outside the organization cause all kinds of change and every  organization naturally makes choices all the time. A crisis insists on organizations making the right choice. These right choices will be made successfully if they are within a framework of complete policies, solid values and a well-defined purpose. Organizations which do not have a set vision of the future along with a purposeful way to go about getting there will have difficulty making the right choice about a change.

One common crisis of choice happens for local, regional, provincial and national organizations that are all related to each other in some way. When there is a significant change at any level, the impact can have a considerable affect on any of the other organizations.  If the change is large enough, it might cause a crisis of change for the other organization.

National organizations which have branches, chapters or offices around the country have to be aware of the crisis of change that they can cause for these sub groups.  If the purpose of the national organization does not change, then the sub groups will be OK. If the purpose does change, then the sub groups may have to make appreciable changes to keep up or to even stay alive. Some sub groups may decide that the right choice for them is to not have a connection to the national organization and to have their purpose reflected in their independence.

When an organization has a crisis of change that it must react to, it must first consider its own purpose, which if well defined, will lead the organization to making the right choices.

Good governance needs to have, to understand, and to use a well-defined purpose to pass the test of a crisis of choice. 

Sometimes it seems like it would be easier to have emus attack an organization so that we could test if it was as strong as a garbage bag. What a great commercial that would be!  Unfortunately, this is not possible and the Timex test is in how the organization meets and lives through a crisis. An organization that has solid values, comprehensive policies and a well-defined purpose has good governance. An organization in which all the people understand and use good governance will pass the Timex Test in time of crisis.

Carol Humphries is a passionate advocate of policy-based governance having used a policy-based approach to governance as a director and staff person at many different levels and types of organizations. As a consultant, Carol has helped international, national, provincial and local organizations to embrace a policy-based approach to governance.