1. John M. Nielsen, ARM CEO, Ohio Transit Risk Pool & President, Transit Reinsurance, Ltd. AGRIP Board Orientation January 29, 2007 AGRIP Board Orientation January 29, 2007 Success Starts At The Top Policy Governance:

2. Today’s Agenda: t History of Carver Governance Model t Overview of “Policy Governance” t Ends Policies t Executive Limitations Policies t Governance Process Policies t Board-Staff Relations Policies t Group discussion and Q&A t History of Carver Governance Model t Overview of “Policy Governance” t Ends Policies t Executive Limitations Policies t Governance Process Policies t Board-Staff Relations Policies t Group discussion and Q&A

3. History of Policy Governance:  Based on the work of John Carver  Model used by hundreds of public entities across the United States  AGRIP adopted model beginning in June,1999 - Aspen Group facilitated early efforts  Based on the work of John Carver  Model used by hundreds of public entities across the United States  AGRIP adopted model beginning in June,1999 - Aspen Group facilitated early efforts

4. The Challenge of Board Service:  Critical but often difficult role  Role is poorly defined—if at all  Little or no training or preparation  CEO-types often lack “Board Discipline”  Critical but often difficult role  Role is poorly defined—if at all  Little or no training or preparation  CEO-types often lack “Board Discipline” “Very competent individuals… can come together to form a very incompetent Board.” - John Carver

5. Typical “Governance” Problems: t Lack of proper focus and forward (future) direction t Lack of role clarity leads to “border incursions” t Board loses control of its agenda t CEO loses control of management responsibilities t Reactive, backwards looking, “Fix-It” orientation t Result: Organization neither well led nor managed t Lack of proper focus and forward (future) direction t Lack of role clarity leads to “border incursions” t Board loses control of its agenda t CEO loses control of management responsibilities t Reactive, backwards looking, “Fix-It” orientation t Result: Organization neither well led nor managed

6. Ten Principles of Policy Governance: The Board is Trustee for the Owners 1 1 2 2 The Board Speaks with One Voice - or Not at All

7. All Board Decisions Should be Embedded in Formal Policy 3 3 4 4 Policy Should be Formulated by Determining the Broadest Values Before Progressing Ten Principles of Policy Governance:

8. The Board Should Define and Delegate, Not React and Ratify 5 5 6 6 The Central Duties of the Board: - Determine Desired Ends - ”Link” with Owners The Central Duties of the Board: - Determine Desired Ends - ”Link” with Owners Ten Principles of Policy Governance

9. The Board’s Role in Means: - Limit Executive Discretion by Policy -Otherwise Avoid Prescribing Means 7 7 8 8 The Board Establishes its Own Rules & Culture – by Policy Ten Principles of Policy Governance

10. The Board Seeks to Create a Relationship with Management That is Empowering and Safe 9 9 10 CEO Performance Must be Monitored Rigorously, but ONLY Against Policy Criteria Ten Principles of Policy Governance

11. Traditional Board Policy: Policy Governance: A Comparison Between... t Based on particular circumstance t Based globally, on values t Focused on operations t Focused on end results t Directs all employees t Directs CEO t Prescribes means t Establishes limits on means t Confuses roles t Clarifies roles t Policy, then decisions t Decisions ARE policy t Few broad policies t Many narrow policies

12. Board-Staff Relations (BSR’s) Board-Staff Relations (BSR’s) Policies Fall into 4 Quadrants: Executive Limitations (EL’s) Governance Process (GP’s) Ends

13. Board Activities Ends EL’s GP’s BSR’s CEO Activities Policies Fall into 2 Work Hemispheres:

14. What Good? For Whom? At What Cost? What Good? For Whom? At What Cost? Ends:  The end results desired for the organization’s clients  Provide criteria to measure performance

15.  Explicit policy statements of what the CEO is NOT permitted to do  Anything not identified in Executive Limitations may be done by CEO in pursuit of Board Ends  Explicit policy statements of what the CEO is NOT permitted to do  Anything not identified in Executive Limitations may be done by CEO in pursuit of Board Ends Executive Limitations:

16.  Delegation of Authority to CEO  Defines how Board and CEO, its only employee, will operate with each other  CEO reports ONLY to full Board  Board directs CEO ONLY  CEO evaluated on ONLY two criteria:  Achievement of (Board prescribed) Ends  Avoidance of Violations of Executive Limitations  Delegation of Authority to CEO  Defines how Board and CEO, its only employee, will operate with each other  CEO reports ONLY to full Board  Board directs CEO ONLY  CEO evaluated on ONLY two criteria:  Achievement of (Board prescribed) Ends  Avoidance of Violations of Executive Limitations Board-Staff Relations:

17. Governance Process: The Board of Directors is one entity. It is NOT a collection of individuals Establishes how the Board will operate:  Defines Board’s job description and ground rules  Establishes standards of behavior, roles, commitments and code of ethical behaviors  Defines Board’s job description and ground rules  Establishes standards of behavior, roles, commitments and code of ethical behaviors

18. Board Role:  Linkage to the ownership  Defines explicit values about:  Ends  Executive Limitations  Board-Staff (i.e., CEO) Relationships  Governance  Assures executive performance  Evaluates resources consumed vs. benefits gained  Linkage to the ownership  Defines explicit values about:  Ends  Executive Limitations  Board-Staff (i.e., CEO) Relationships  Governance  Assures executive performance  Evaluates resources consumed vs. benefits gained

19. Monitoring Process:  Every policy monitored by pre-determined process on pre-determined schedule  Internal or external reports  Direct inspections  Board self-assessment  Ends Measurement  Measure what you hope to accomplish  A crude measure of the right thing is better than a reliable measure of the wrong thing.  Linkages with Clients/Owners  Every policy monitored by pre-determined process on pre-determined schedule  Internal or external reports  Direct inspections  Board self-assessment  Ends Measurement  Measure what you hope to accomplish  A crude measure of the right thing is better than a reliable measure of the wrong thing.  Linkages with Clients/Owners

20. Benefits of Policy Governance:  Allows Board to add value and focus on the future  Focuses Board’s attention on End Results  Frees CEO to do job and avoid Board micromanagement  Provides clarity of roles reducing Board/CEO conflict  Makes policy the single driver for organization  Increases accountability for results  Aligns total resources of organization  Improves relationship with owners  Allows Board to add value and focus on the future  Focuses Board’s attention on End Results  Frees CEO to do job and avoid Board micromanagement  Provides clarity of roles reducing Board/CEO conflict  Makes policy the single driver for organization  Increases accountability for results  Aligns total resources of organization  Improves relationship with owners

21. AGRIP’s Experience with Policy Governance:  Has taken time to make the transition  A struggle at times—particularly for new BM’s  Discovered need for orientation/training  Identified Need for New Linkage Opportunities  We are finding what is valuable to us – what works, what doesn’t  Addressing challenges  Has taken time to make the transition  A struggle at times—particularly for new BM’s  Discovered need for orientation/training  Identified Need for New Linkage Opportunities  We are finding what is valuable to us – what works, what doesn’t  Addressing challenges

22. Challenge #1 Clarifying Roles:  The meeting agenda, the types of information shared, and the issues have changed  What issues are in the Board’s arena?  Do we create new policy or amend old policies?  We’ve often had to stop ourselves to ask:  The meeting agenda, the types of information shared, and the issues have changed  What issues are in the Board’s arena?  Do we create new policy or amend old policies?  We’ve often had to stop ourselves to ask: Policy Governance changed the role of the Board Policy Governance changed the role of the Board “Is this the Board’s work or the CEO’s? “Is this a policy level issue and what is policy?” “Is this the Board’s work or the CEO’s? “Is this a policy level issue and what is policy?”

23. Challenge #2 Determining our Owners: Challenge #2 Determining our Owners:  Why does this organization exist? For the benefit of whom?  We believe the member pools are the ultimate owners  Had to distinguish between our owners and other stakeholders/clients  Why does this organization exist? For the benefit of whom?  We believe the member pools are the ultimate owners  Had to distinguish between our owners and other stakeholders/clients

24. Challenge #2 Determining our Owners: Challenge #2 Determining our Owners:  Other stakeholders:  Partner Members  Pool Boards, CEO’s & Staff  Governmental Agencies  Other professional organizations  Other stakeholders:  Partner Members  Pool Boards, CEO’s & Staff  Governmental Agencies  Other professional organizations

25.  1st Step: Who should we be hearing from? What groups have interests that bear engagement?  We decided all the stakeholders have important perspectives that should be tapped periodically  2nd Step: How can we best create linkages with our various groups?  We decided to meet on a rotating basis with the various constituent groups—using a focus group approach.  Some AGRIP sessions set aside.  1st Step: Who should we be hearing from? What groups have interests that bear engagement?  We decided all the stakeholders have important perspectives that should be tapped periodically  2nd Step: How can we best create linkages with our various groups?  We decided to meet on a rotating basis with the various constituent groups—using a focus group approach.  Some AGRIP sessions set aside. Challenge #3: Linkage Activities:

26. Challenge #4: Setting Ends:  Often tedious and time-consuming process  Critically important  Ends determine what benefits? for whom? at what cost?  Often tedious and time-consuming process  Critically important  Ends determine what benefits? for whom? at what cost?  Start with the broadest ends and drill down to more and more specific “sub-ends”

27. AGRIP’s Ends Statements: As a result of our efforts, the pooling community is united to achieve excellence in pool governance, management and services. 1. Vision Statement & Org. Mission As the recognized authority on and resource for information on inter- Governmental pooling, AGRIP is the leading national association for pool management. As the recognized authority on and resource for information on inter- Governmental pooling, AGRIP is the leading national association for pool management.

28. AGRIP’s Ends Statements: As a result of our efforts, members shall have information, knowledge, and skills necessary to effectively govern and manage their pools. Sub-Ends 2.1:(a) Increasing pressure on price (b) Impending transition of pool leadership from the first generation to the next (c) Competition from brokerage/insurance firms (d) Aging population (e) Reduced government resources As a result of our efforts, members shall have information, knowledge, and skills necessary to effectively govern and manage their pools. Sub-Ends 2.1:(a) Increasing pressure on price (b) Impending transition of pool leadership from the first generation to the next (c) Competition from brokerage/insurance firms (d) Aging population (e) Reduced government resources 2. Effective Governance & Mgmt.

29. AGRIP’s Ends Statements: As a result of our efforts, members shall have confidence that their common needs are addressed and represented with dependability, reliability, and professionalism and to the highest standards of excellence. 3. Member Satisfaction

30. AGRIP’s Ends Statements: As a result of our efforts, members shall have an effective advocate for the advancement and promotion of pooling. Sub-Ends 4.1: These efforts shall address the issue of producer com- pensation, both internally and externally. As a result of our efforts, members shall have an effective advocate for the advancement and promotion of pooling. Sub-Ends 4.1: These efforts shall address the issue of producer com- pensation, both internally and externally. 4. Advocacy

31. Challenge #5: Measuring the Ends:  Unless specified by the Board in the Ends Policies, it is the CEO’s role to decide how to best measure the accomplishment of the Ends  Board monitors/determines whether the CEO reasonably interpreted the Ends and whether or not there was progress towards the Ends  Board always has ability to set new Ends  Unless specified by the Board in the Ends Policies, it is the CEO’s role to decide how to best measure the accomplishment of the Ends  Board monitors/determines whether the CEO reasonably interpreted the Ends and whether or not there was progress towards the Ends  Board always has ability to set new Ends

32. Your Turn:  Q&A  Share your experiences with Policy Governance  Q&A  Share your experiences with Policy Governance

33. John M. Nielsen, ARM CEO, Ohio Transit Risk Pool & President, Transit Reinsurance, Ltd. AGRIP Board Orientation January 29, 2007 AGRIP Board Orientation January 29, 2007 Success Starts At The Top Policy Governance: