Case Studies

Public Utility Strengthens Its Governance

Board Development Case Study
We work with many publicly elected boards, helping them gain clarity about their governance role so that they can manage decisions well. A good board development case study is the Sacramento Municipal Utility District. A focal point of our work is defining in writing the SMUD Board’s role. How much responsibility does the elected board have for the strategic direction of the organization? What is the role of the staff? When do board members get involved in operational decisions? How do conflicts between board and staff get resolved? Who’s really in charge?
Elected bodies clearly have ultimate decision making authority for everything under their guidance. But in actual practice, staff often drafts a recommendation and brings it to the board to ratify. This may be efficient, but it casts the board in the role of merely “rubber-stamping” staff decisions. Over time, this erodes trust between board and staff. It also causes the public to wonder what their elected officials are doing – and why they’re not really addressing the serious issues of the day. Part of the answer is defining exactly what the board is responsible for deciding. LRI governance consultants worked with the SMUD Board to develop three sets of governance policies that define in writing exactly who’s responsible for what:

Governance process policies:

How does the Board govern? What rules does it follow? What results does the Board deliver? Typically, the Board’s job is to define the organization’s goals and outcomes, not the means for achieving those goals. The SMUD board defined its job as establishing the long-term goals of the utility, plus the measures of performance in achieving those goals. That was captured in the form of a written policy adopted by the Board.

Board-staff linkage policies:

How does the Board link its activities to the staff? What is delegated to the chief executive? What is the general manager’s authority to enter into contracts to enforce regulations? The board-staff linkage policies spell it out. At SMUD, for example, the policies state that the general manager has the authority to enter into contracts up to $5 million.

Strategic direction policies:

What are the results the Board expects the organization to achieve? How is the Board going to measure performance? The strategic directives define the specific measures and targets that SMUD is supposed to achieve for each goal, such as customer satisfaction or reliability or environmental protection. The policies also spell out exactly how often the Board wants to measure each result. SMUD’s board, for example, set a goal in its customer relations policy of achieving an overall customer satisfaction target of 95 percent. SMUD has consistently achieved that target since the policy was enacted in 2003. And it was great news to the Board when SMUD was named the number one public utility in the United States for customer service in 2006 and 2007.

Effective governance policies answer the question “Who’s really in charge?” The answer is: the Board has responsibility for defining the goals for the organization. The staff has responsibility for implementing and achieving goals. As the SMUD example illustrates, effective governance policies can instill a strong focus on results and performance. By coordinating the activities of the Board and staff, strong levels of trust can grow as well.
Thanks for reading our board development case study. LRI Board governance consulting helps Boards and other governing bodies develop best practices and clarity about their role and that of management – and achieve higher levels of performance.
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