Are Board’s Really Prepared to Lead?

Policy Governance recognizes that the Board should be leading their organization.  Boards are the link between the wishes and desired outcomes of those they represent – the owners – and the operational organization that will accomplish the desired outcomes. The Board has a responsibility to both direct the organization to achieve the desired outcomes and to ensure the organization avoids imprudent or unethical behaviours or actions that would put the organization at undue risk or that would offend the values and trust of those the Board represents – the owners.

So the big question then is “how does the Board lead?” Some Boards allow their CEO to proceed with plans and actions and then if the Board is unhappy with the process or the outcome, these Boards attempt to correct the CEO or redirect him/her after the fact… this is not leading.  Other Boards choose to require the CEO to bring all major decisions to the Board so that the Board can make these decisions resulting in the Board’s loss of ability to hold the CEO accountable for any major decisions. This also is not leadership, rather it is the opposite – a lack of leadership, clarity, and delegation which is very inefficient and also demoralizing for CEOs.

So the question is “how can Boards lead when they do not have the time or access to be present for every decision nor do they necessarily carry the specific expertise of the organization?” How can Boards lead to achieve the desired results without actually being there to make all the significant day-to-day decisions?

Board Policy, Board Policy!

The approach, through which a Board can lead an organization to achieve the desired outcomes for specific people at a specific worth, is to collectively make values decisions as a Board and to record these as Board policy direction, i.e. Board Policy. Such Board policies can then direct all the subsequent decisions within the organization.

So What is a Board Policy?

First, what is policy?  A policy is a ‘value or perspective’ that once articulated causes or underlies action.

A Board Policy… is a value or perspective developed and agreed upon by the Board that articulates the Board’s values (on behalf of the owners) on a topic or issue.  Board policies provide written direction.  Certain Board policies provide direction to the CEO who can then interpret the Board policy in order to “operationalize” it and make all the needed decisions under the Board policy direction.  Other Board policies direct the Board’s actions.

Generally people’s decisions are based on or highly influenced by their values or beliefs.  Likewise, Board policies can provide a framework of values and perspectives for further organizational decision making and action. Policies should be the embodiment of the values and perspectives of the greater authority, in this case the Board. Given that the Board policies should then direct all other organizational decisions – the Board’s best tool for leadership lies in the development of effective policy.

The significance then of the Board creating Board policy is that the Board can lead and direct achievement of the desired organizational outcomes and the avoidance of undue risk without having to make each individual decision or even specific big decisions along the day-to-day journey of the Organization.

Board Policies

Policies are statements of values and perspectives.  Board policies are those policy decisions made by the Board – they should encompass those decisions that may need to be made by everyone else in the organization.

• Everyone makes policies.
• Policies may be more or less encompassing.
• Policies may be written or unwritten.
  • If you expect people to implement policies, they need to be written down.

Policy Types

The Policy Governance system uses four categories of Board policies called “policy quadrants”. These categories of Board policy were designed to encompass all the types of or topics for which any Board may need to give direction. By setting polices in each quadrant, the Board creates a complete framework of values and perspectives to guide all areas of further organizational decision making.

The four policy quadrants are briefly described.

The policy quadrants include:

1. Ends Policies

[Governing outcomes/directions]

These policies deal with the issue of defining the reasons for the organization’s existence. Specifically they define what benefit or outcome/result is to be created, for what group of people and at what value or return on investment. Ends policies are always stated in terms of the customer or beneficiary who receives the benefit.

2. Executive Limitations Policies

[Governing prudential and ethical risk]

These policies allow the Board to direct the choice of operational methods and organizational conditions. Rather than telling the CEO what to do, these policies tell the CEO what methods cannot be chosen in pursuit of the Ends and what organizational conditions or states would be unacceptable to the Board, even if the Ends could be achieved using that method. The Executive Limitations should reflect the owners’ values concerning prudent and ethical organizational behaviour or conditions, Executive Limitations do not list preferred methods of ‘how to’ do the job or provide management with consulting advice about “how to”.

3. Board-CEO Linkage Policies
   [Governing Board conduct]

These policies describe and define how the Board’s authority is passed to the CEO, how the board will check up on the organization, and how the board will exercise direction to and authority over the CEO. Linkage policies spell out the roles of the two and the relationship that they will have.

4. Governance Process Policies
   [Board/CEO relationship]

These policies are the explanation of, and agreement to, the methods that the Board will use to accomplish its own work. They define the board’s value-added job, its style of interacting, and its process for making decisions. 

Board’s Role in Policy Direction – Types of Board Policy

Board policy decisions fall into four major areas:

• Ends
• Subordinate or Organizational Means
• Board Means
  • Governance Process
  • Board/CEO Relationship

POLICY GOVERNACE BOARD POLICY TYPES

ENDS

[Governing outcomes/directions]

• The purpose, priorities, and products of the organization.

 EXECUTIVE LIMITATIONS

[Governing prudential and ethical risk]

• The boundaries for prudence and ethics for all organizational behaviour.

GOVERNANCE (BOARD) PROCESS

[Governing Board conduct]

• How the Board carries out its responsibilities.

BOARD/CEO LINKAGE

[Board/CEO relationship]

• Delegation of responsibility to the CEO and monitoring of policy compliance.

These policy types including:

• The nature of each type or category of Board policy
• The rationale for these types of policies
• The essential ingredients or premises of each policy type/categories
• When a Board should use each of the categories of Board policy.

One other concept that will be helpful to review while you are thinking about “what a Board policy is” … the concept of “policy sizes”.

Board Policy Sizes

Policies, including Board Policies can be developed in different “sizes”. Just as a foot is smaller than a yard and bigger than an inch, specific policies each fit on a spectrum of biggest policy issues to smallest. Broader policy principles or values need to be determined first and then the Board can work to decide their smaller policy issues underneath the direction of their broader policy decisions.

An example is outlined below.

Example of Board Policy Sizes