Food for Thought

• Published date: 01 September 2016
• Date: 01 September 2016
• DOI: http://doi.org/10.1002/bl.30056

4 BOARD LEADERSHIP

“True freedom is not the

absence of structure …

but rather a clear structure

that enables people to

work within established

boundaries in an

autonomous and creative

way.”

Erich Fromm (1900–1980), German-

born American psychoanalyst and

social philosopher in Escape from

Freedom (New York: Farrar &

Rinehart, 1941).

What’s It Worth?

by Ted Hull and Caroline Oliver

You’ve recently purchased a new

car that your colleague eyes with

obvious appreciation and scarcely

disguised envy. “So what’s something

like that worth?” he asks. Depend-

ing on the degree of modesty you

want to express, you either mumble

or gloatingly say how much you paid

for your car. Both of you implicitly

assume that what the car cost is

the same as what it’s worth. What

you have really told your friend is

that what you paid for the car is an

amount equal to or less than what

it is worth to you. Otherwise, you

wouldn’t have bought the car.

What something costs and what

it’s worth are two different questions.

Your three-year-old daughter has

been diagnosed with a degenerative

heart condition. There’s a surgical

procedure that has a high likelihood

of being successful, but without

the operation both the quality and

quantity of your daughter’s life are

doubtful.

Your first question isn’t going to

be, “So what’s the surgery going to

cost.” And even if it is, it won’t be

a consideration as you address the

worth question. You won’t posit that

your kid might be worth $175,000,

but there’s no way you’re going to

pay $250,000 to keep her alive. You

will spend, mortgage, beg, borrow,

and plead for whatever funds are nec-

essary to ensure her return to health.

When picking up the coin that repre-

sents the value of your daughter, you

will look first at the worth side.

However, cost is a consideration.

The anticipated cost for the surgery

is significant, and as such you aren’t

going to shell out $250,000 without

investigating the options. Suppose,

for example, $250,000 was the cost

for having the treatment done in your

home state, but it could be done in

another state for $175,000. You will

likely decide that the surgery isn’t

worth $250,000 because materially

the same result can be produced for

$175,000.

The Ends component of the Policy

Governance® system for board work is

composed of identifying the intended

results (using our analogy, that would

be a healthy heart) for the intended

recipients (your daughter) and the

worth to the owners (you as parents)

of producing those results.

The idea of results and recipients

is relatively easy for many boards to

address. However, when it comes to

the value piece, they are often stalled.

And it does take some careful con-

sideration. A for-profit company may

state that it is concerned only about

shareholder return. And while there

may be a good return to those share-

holders on the sale of widgets, would

there be a better return if the com-

pany sold doodads? In any case, the

bottom line is determining the worth

of the return as it relates to the cost

of the investment, the risk, and what-

ever other investment opportunities

are being passed up as this venture is

pursued.

Not-for-profit organizations face

an additionally complex challenge.

The matter of value can’t be easily

reduced to a dividend, and there is no

monetary return to the investor. The

return is the more nebulous and sub-

jective satisfaction that certain other

people are better off.

An example is those who have a

passion to see that people in need of

a healthy meal receive it. The people

with this philanthropic ambition will

not be directly rewarded (fed or

paid) for their investment. So how

are they able to determine if the cost

of providing the meals for people

who would otherwise be hungry is

worth it?

Let’s suppose that we sit on the

board of such an organization. How

do we ensure that the work of our

organization is worth what it should

be? We know we will not be able to

ensure that every hungry person in the

world is well fed. Thus, we may limit

the recipients of our program to a cer-

tain city or even a certain part of that

city, and we may also limit how often

or how well the recipients are fed.

So in deciding specifically who will

receive these benefits and how much

or how frequently they will be fed, we

have ipso facto determined who will

not receive those benefits and what

benefits will not be realized. In other

words, we, as owner-representatives,

have decided that some benefits for

some people are worth more to us

than other benefits to other people.

FOOD FOR THOUGHT

As long as the funds

come in to feed the

dinosaur, the board has

met its goal.