The Optimum Size for Governance

When I was recruited to Durham, North Carolina twenty-three years ago to jumpstart the community’s first official marketing organization, I was impressed that the governing board numbered only seven directors, a best practice at the time.

Until recently, two other economic development-related non-profit organizations in Durham had boards of directors that numbered more than thirty and forty respectively, which was common in the 1960s.

In their book Race for Relevance, Harrison Coerver and Mary Byers peg the optimum number of members now for non-profit boards of directors at five.  A corollary among profit and non-profit organizations has always been, “the larger the board, the poorer the governance.”

Large boards are typically less effective at governing because they are inefficient, divert a lot of organizational resources and don’t optimize the potential of individual directors, in part because the larger the board, the more many members are simply disengaged.

One of many other gems in this 152-page book is that in addition to limiting the size of governing boards to five members, organizations are well-advised to hire a search consultant to identify and qualify potential board members based on competency.

Just a few of the criteria the authors suggest are:

• Do candidates have basic leadership skills? (not to manage but to lead)
• Do they have at least a three-to-five-year horizon in their thinking? (strategic and visionary vs. tactical)
• Do they know what it means to govern? (which is different and much more difficult than managing or executing)
• Do they grasp the concepts of conflict of interest and resisting special interests?

In other words, a good board of directors is comprised of members with specific board-level competencies.

The larger the board, the more likely members will show up late or leave early, get up to take calls, spend time texting or emailing and fail to read preparation materials or hold information and context approved in policies and plans.

In my experience and as noted in the book, there are several reasons beyond inertia or out-dated thinking that many organizations still retain huge boards of directors:

• Large boards are often used to create an audience for management to pontificate or as a means to preach to potential converts.
• Some organizations are adverse to debate or candor or conflict resolution.  The larger the board, the more issues go unquestioned.
• Some organizations eschew data-based decision-making and attempt instead to insinuate credibility or support for actions by parlaying the reputations of those on the board.
• Large boards are often used to mask a superiority complex on the part of some individuals or even organization-wide which is manifest in a type of attention-deficit or mission-creep.

Al Parrish, a friend and retired hospitality and healthcare executive in Anchorage, Alaska smilingly advised me once after an individual had carbon copied forty people on a memo meant to corner me, that “the merit of an idea is always inversely related to the number of people one feels compelled to carbon copy.”

His advice became even more cogent when business communication moved to external email in the early 1990s, shortly after I arrived in Durham.  People who “cc” scores of people are often adept at lobbying, and they utilize their large boards and public officials as a form of coercion.

In a somewhat related topic, the book The (Honest) Truth About Dishonesty uses humor and plain language to overview a number of experiments and studies that reveal why and how people rationalize crossing the line when it comes to ethics.  Written by Dr. Dan Ariely, a behavioral economics researcher at Duke University and a Durham resident, the book was released in mid-2012.

In this book, Airely discusses how people use the human propensity for reciprocity “trying to engender a feeling of obligation in others.”  An executive from another organization with whom I worked during my career was a master at this both with his board and with elected officials.

He often chided me when frequently reminded that use of funds in my organization was restricted both by state legislation and governance policy, noting once that “no one will check.”  He viewed himself as very honorable but I guess to him violations of code were based only whether or not you were caught.

Large boards make malpractice such as this much easier.  They are also susceptible to the pressure of reciprocity.

Both of these books are well worth a read for anyone who is an executive or serving on a board of directors.

A Perspective on Dual Distribution

On a road trip last month, a friend and I decided to turn due west outside of Jacksonville, Florida and take a quicker and much more scenic route to our ultimate destination bypassing Orlando and Tampa.

The route carves through cattle and horse ranches past Gainesville to our ultimate destination on a 40-mile-long peninsula that spans the 4 to 10 miles between the Gulf of Mexico and Old Tampa Bay.

The last leg of the trip dissected several huge wellfields this peninsula began to lease and develop in other counties just prior to the outbreak of World War II.  This occurred after it had first been noticed in the late 1920s that the water quality in St. Petersburg on the very southern tip of this Pinellas County peninsula was in decline.

This tiny strip of land had a permanent population of less than 60,000 people when it turned to wellfields in other counties for water.  Today, the population is nearing 1 million and everywhere you go, there are glimpses of a dual water system, one for drinking water and the other filled with treated wastewater used for irrigation.

However, this dual system with color-coded hydrants -- the first ever in a metropolitan city -- wasn’t innovated by St. Petersburg and then adopted throughout the peninsula as a means of reducing water consumption, although that certainly has been one of the benefits.

It was spurred by stiffer state regulations in 1971 pursuant to the Clean Water Act. The cities and towns and villages surrounding 2,201-square-mile Tampa Bay including the port of Tampa to the east were told they must significantly improve treatment of wastewater before discharging it into what is actually a series of four distinct and connected bays.

St. Petersburg officials weighed the costs of upgrading its treatment facilities but elected not to discharge into the bay at all.  After determining that nutrients were the most stubborn and difficult ingredients to remove, the community elected to team with the federal government through grants to develop a dual system that would utilize reclaimed water.

In this system, wastewater is treated to a point where it is all but drinkable and then redistributed through the dual system of pipes back out to golf courses, businesses, schools and homes for landscape irrigation, where it turns out the nutrients in the water create a savings and added benefit

Today, in Florida alone, more than 650 million gallons of reclaimed water is redistributed each day and used by 525 golf courses, 875 parks, 320 schools and more than a quarter of a million residential irrigation customers.

In the United States, urban reuse of water began more than 100 years ago when it was first used to irrigate the 1,017- acre Golden Gate Park in San Francisco.  Broad utilization of reclaimed water for irrigation has been around since the 1960s.  It is now as clean or cleaner than drinking water in many places and was proven safe to use on crops a quarter of a century ago.

As James Salzman points out in his new book Drinking Water – A History, some communities are now getting around the “yuck factor” by reinjecting reclaimed water back into aquifers and then pumping it back up as drinking water, although it is safe and tasty enough for direct distribution.

Salzman, who teaches at Duke University in Durham, North Carolina where I live, is not the only water-related contribution to Durham’s reputation as a place “where great things happen.”  Another example is taking place over a hundred miles to the west of Durham.

For a little more than a year, Duke University has teamed with Duke Energy to develop and operate a pilot project as part of the Durham-based school’s commitment to become carbon neutral by 2024.

Aided by federal and state grants, the project teams up with a 9,000-head hog finishing operation near Boonville, NC to capture hog waste in a huge bladder and process it into energy used at the farm and using natural processes to cleanse wastewater so that it can be used to clean out the barns and when ready to water feed crops.  The award-winning project has drawn investment from Google which will share in the offsets.

In addition to showing the way to reducing air and water pollution including odors, the pilot project shows the way for other agricultural operations to adopt full-cost accounting, also known as the triple bottom line, as a means to improve the efficiency of free-market capitalism.

While it is ironic that some lawmakers seem bent on exempting the free market from full-cost accounting, also known as the triple bottom line, it is heartening nonetheless to see communities, corporations and institutions that are continuing to pursue a more sustainable capitalism.

Assurance That Those Who Benefit Are Those Who Pay

I wasn’t just being snarky in a post on this blog, two and a half years ago, that called for Raleigh, North Carolina and a dozen other cities and towns in Wake County to pay the estimated $1.5 billion needed to clean up their drinking water source, located upstream in Durham, North Carolina, where I live.

Durham already made sacrifices to accommodate the creation of Falls Lake here in the late 1970s and to forgo or restrict development around the lake, making Durham County, the 17th smallest land area in the state, even smaller.

In 1905, six months after Republican President Theodore Roosevelt laid out, in his State of the Union speech, the regulatory role of government to ensure the common good, the New York State legislature passed a measure granting New York City the power to condemn land, build dams and reservoirs and regulate land use 120 miles north and west of the city in the seven counties and 70 towns and villages of the Catskill and Delaware watersheds.

Long before the release of his just published book entitled, Drinking Water – A History, I had heard Jim Salzman, a Boston area native who also lives in Durham, tell the story of how NYC came to pay for these privileges and the negative externalities created rather than just demand them through favored treatment from the state.

Jim teaches at Duke Law School, where my friend Ryke Longest runs the popular Environmental Law and Policy Clinic, but Salzman also teaches at the Nicholas School of the Environment.  In his book, he uses his background in history, engineering, law and policy to weave an excellent, fact-filled narrative in the tradition of such authors as John McPhee and Malcolm Gladwell.

In 1986, Congress passed an amendment to the Safe Drinking Water Act that meant that New York City would need to pre-treat the surface water it was accumulating and drawing from the Catskill and Delaware watersheds.  The EPA estimated the plant would cost $3 billion but NYC estimated it would cost $6 billion.

Instead, in the early 1990s, NYC tried to further tighten restrictions on development and farming in the seven counties including 70 or so towns and villages more than 100 miles upstream.

As you can imagine, “all hell broke loose.”  It might have been legal but it definitely wasn’t fair.  Like Raleigh and the dozen other cities and towns in Wake County, NYC was reaping all of the benefits but insisting that upstream cities and counties, such as Durham, shoulder the costs.

A Republican governor, George Pataki, stepped in and negotiated a memorandum of agreement between all of the parties.  NYC uses water bill assessments and bonds to pay for such things as conservation easements and to partner with improved sewage and storm water infrastructure in the upstream counties and communities.

NYC also uses the funds to incentivize ecosystem services at a cost much lower than a pre-treatment facility would have cost.

Unfortunately the free-market, unless prodded to do so, fails to incorporate the value of what are known as ecosystem services.  I first learned about the New York City watershed example in 2002, two years before Salzman moved to Durham to teach at Duke University, when I read a book called The New Economy of Nature co-written by Dr. Gretchen Daily at Stanford University.

Daily defines ecosystem services, which she had first coined as nature’s services in the late 1990s, as the natural systems that sustain human life.  Until recently, the free-market took for granted critical services such as pollination, water filtration, climate regulation, flood control, soil renewal etc.

Environmental economists have now computed the value of ecosystem services generated by trees and other natural elements.  However, many entities such as outdoor billboard companies seek instead to avoid incorporating these costs into the free market by manipulating government decisions, a tactic often identified as “legalized corruption.”

Another example of the failure to understand the free-market value of ecosystem services can be viewed by turning from the roadside desecration by outdoor billboards to the sandy mounds sprouting up every few feet along the medians dividing roadways such as the Durham Freeway.

The mounds are created by colonies of fire ants.  They could have been easily quarantined years ago and prevented from infesting the United States but companies hauling soil to construction sites lobbied to be exempt from rules about using only soil free of these costly invasive insects.

These companies didn’t want to shoulder the costs of using uninfested soil, persuading lawmakers to instead pass on the $5 billion in annual costs for medical treatment, damage and control as well as another billion dollars in annual crop and livestock loses to millions of unsuspecting property owners and businesses while cutting back on roadside maintenance along corridors the ants use to move. 

All of this is to say that the free-market is a miracle but only when it attributes full cost accounting and assurance that those who benefit are those who pay.

Infographic - Traffic Fatalities by Day, Week, Type

For the original source at Fast Company, click here.

A Fond Farewell and a Short Break to Recharge

Closing in on my average of 287 posts a year since retiring three years ago, I’m going to take a break to recharge.  I’ll begin posting again each day on December 31st.

But first I’d like to thank Gretchen Cooley who has volunteered to collaborate with me by editing and making suggestions to improve the last 700 posts or so.  As anyone who reads regularly knows, my posts are more like essays and always involve links to studies and research.

All tolled, she has edited the equivalent of about 14 average-size books in the little more than two years since she volunteered to help me.  I will miss teaming with her.

In the late 1980s, Gretchen was selected to represent neighborhoods on the newly-created Durham Convention & Visitors Bureau (DCVB) Board where she was charged with recruiting the organization’s first chief executive.

Through that process she was the first person from Durham, North Carolina, to reach out to me for a telephone interview nearly 25 years ago.

After she and another board member, Anne Gregory, talked to me they convinced their fellow board members to fly me in from the west coast for a face to face interview.  The rest is history as I became the start up exec for Durham’s first official community marketing agency, the position I retired from after 21 years.

It was her down-to-earth passion for Durham and her dry wit that first gave me an intriguing sense of what has become my adopted home.

During those turbulent start-up years, Gretchen served as chair of the authority that governed the Durham Convention & Visitors Bureau, the body to which I was accountable for more than three terms.

On more than one occasion she gave me the benefit of the doubt during a difficult patch when contributed to my longevity.  Her activism in the community also gave me credibility in circles where it may have taken years to establish.

She lives a very full life and it has been an extraordinary gesture for her to edit an average of 1,000 words each day while coming and going from her many other commitments and time with family. She epitomizes why Durham is where great things happen!

I wish her well with her next pursuit.

This is probably also a good time to give an update on the wrist I shattered a year ago November 3rd.  Thanks to fourteen titanium screws and a great surgeon and loving friends and my own determination, I rapidly regained full mobility and the nerves in three of my fingers have fully reignited.

It was my first broken bone that I know of and hopefully my last.

I appreciate that so many people from around the world follow this blog even though it is a bit eclectic.

I hope we all see a prosperous and peaceful 2013.