Reinventing Your Board (J-B Carver Board Governance Series)

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Reinventing Your Board A Step-by-Step Guide to Implementing Policy Governance

Revised Edition

John Carver Miriam Carver

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Reinventing Your Board

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Other Carver Resources: Boards That Make a Difference: A New Design for Leadership in Nonprofit and Public Organizations, Third Edition, by John Carver John Carver on Board Leadership: Selected Writings from the Creator of the World’s Most Provocative and Systematic Governance Model, by John Carver Board Leadership: Policy Governance in Action, co-executive editors John Carver and Miriam Carver The Board Member’s Playbook: Using Policy Governance to Solve Problems, Make Decisions, and Build a Stronger Board, by Miriam Carver and Bill Charney Corporate Boards That Create Value: Governing Company Performance from the Boardroom, by John Carver and Caroline Oliver The CarverGuide Series on Effective Board Governance (12 guides) John Carver on Board Governance (video) Empowering Boards for Leadership: Redefining Excellence in Governance (audio) The Policy Governance Fieldbook: Practical Lessons, Tips, and Tools from the Experiences of Real-World Boards, editor Caroline Oliver

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Reinventing Your Board A Step-by-Step Guide to Implementing Policy Governance

Revised Edition


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Copyright © 2006 by John Wiley & Sons, Inc. All rights reserved. Published by Jossey-Bass A Wiley Imprint 989 Market Street, San Francisco, CA 94103-1741

www.josseybass.com

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax 978-646-8600, or on the Web at www.copyright.com. Requests to the publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, 201-748-6011, fax 201-748-6008, or online at http://www.wiley.com/go/permissions. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. Readers should be aware that Internet Web sites offered as citations and/or sources for further information may have changed or disappeared between the time this was written and when it is read. Jossey-Bass books and products are available through most bookstores. To contact Jossey-Bass directly call our Customer Care Department within the U.S. at 800-956-7739, outside the U.S. at 317-572-3986, or fax 317-572-4002. Jossey-Bass also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. All policy samples © John and Miriam Carver. All drawings © John Carver. Policy Governance is a service mark of John Carver.

Library of Congress Cataloging-in-Publication Data Carver, John. Reinventing your board: a step-by-step guide to implementing policy governance / John Carver, Miriam Carver.—Rev. ed. p. cm. Includes bibliographical references and index. ISBN-13: 978-0-7879-8181-5 (cloth) ISBN-10: 0-7879-8181-8 (cloth) 1. Directors of corporations. 2. Corporate governance. I. Carver, Miriam Mayhew. II. Title. HD2745.C3727 2006 658.4’22—dc22 2005033969 Printed in the United States of America SECOND EDITION

HB Printing 10 9 8 7 6 5 4 3 2 1

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Contents

Policies Figures and Exhibits Preface to the Revised Edition Preface Acknowledgments The Authors

vii xi xiii xvii xxi xxiii

Part One: Preparing for Change 1. Setting the Stage: Are You Sure You’re Ready for This? 2. The Theoretical Foundation: The Practicality of Sound Theory 3. Deciding to Implement Policy Governance: Looking Before You Leap

3 17 37

Part Two: Crafting Policies 4. Executive Limitations Policies: Optimizing Empowerment by Setting Limits 5. Governance Process Policies: Defining the Board’s Job

65 103 v

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Contents

6. Board-Management Delegation Policies: Linking Governance to the CEO 7. Ends Policies: The Real Bottom Line

133 151

Part Three: Ready, Steady, Go 8. Monitoring Organizational Performance: Getting the Right Information About the Right Things 9. The Board’s Documents: Preserving the Board’s Decisions 10. Implementation and Beyond: Concrete Steps Mirror Conceptual Integrity

179 199 219

Resources A. B. C. D.

A Sample Board Policy Manual Sample Ends Policies Sample Monitoring Reports Selected Readings

Index

233 257 269 295 297

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Policies

Chapter Four EL #1 EL #2a EL #2b EL #2c EL #2d EL #2e EL #2f EL #2g EL #2h EL #2i

Global Executive Limitations Policy Treatment of Consumers Treatment of Staff Financial Planning/Budgeting Financial Condition and Activities Emergency CEO Succession Asset Protection Compensation and Benefits Communication and Support to the Board Ends Focus of Grants or Contracts

68 74 75 76 77 79 80 81 81 82

Chapter Five GP #1 GP #2a GP #2b GP #2c GP #2d GP #2e GP #2f

Global Governance Process Policy Governing Style Board Job Description Chief Governance Officer’s Role Board Secretary’s Role Board Member’s Code of Conduct Board Committee Principles

105 109 109 110 111 111 112 vii

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Policies

GP #2g GP #3a GP #3b GP #4b GP #5b GP #3c

Cost of Governance Governing Style: Level Three Board Job Description: Level Three Board Job Description: Level Four Board Job Description: Level Five Chief Governance Officer’s Role: Levels Three and Four GP #3d Board Secretary’s Role: Levels Three and Four GP #3e Board Member’s Code of Conduct: Levels Three and Four GP #3f Board Committee Principles: Level Three GP #3g Cost of Governance: Levels Three and Four GP #2–4h Charge to the Medical Staff: Levels Two, Three, and Four

112 115 117 118 119 120 122 123 126 128 130

Chapter Six BMD #1 BMD #2a BMD #2b BMD #2c BMD #2d BMD #3a BMD #3b BMD #3c BMD #3d

Global Board-Management Delegation Policy Unity of Control Accountability of the CEO Delegation to the CEO Monitoring CEO Performance Unity of Control: Level Three Accountability of the CEO: Level Three Delegation to the CEO: Levels Three and Four Monitoring CEO Performance: Levels Three and Four

134 137 137 138 139 142 143 144 146

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Policies

Chapter Seven E #1 E #2a E #2b E #2c E #2d E #3a

Global Ends Policy Independent Living Public Policy Work and Family School Readiness Independent Living: Level Three

166 171 171 171 171 173

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Figures and Exhibits

Figures 2.1. 2.2. 2.3. 2.4. 4.1. 4.2. 4.3. 4.4. 5.1. 5.2. 5.3. 5.4. 6.1. 6.2. 6.3. 6.4.

A Nested Set Hands-On and Hands-Off Control The Policy Circle Board Policymaking The Staff Means Quadrant Executive Limitations, Level One Executive Limitations, Levels One and Two Executive Limitations Policies Completed The Governance Process Quadrant Governance Process, Level One Governance Process, Levels One and Two Governance Process Policies Completed The Board-Management Delegation Quadrant Board-Management Delegation, Level One Board-Management Delegation, Levels One and Two Board-Management Delegation Policies Completed

24 25 27 28 66 70 84 101 104 107 114 132 134 135 141 149 xi

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Figures and Exhibits

7.1. 7.2. 7.3. 8.1 9.1. 9.2.

The Ends Quadrant Ends, Level One Ends Policies Completed The Cycle from Policy to Monitoring Board Policies Completed in All Four Categories Header Section of a Board Policy Form

153 167 174 188 215 216

Exhibits 3.1. 8.1.

Sample Board Meeting Agenda Monitoring Report Format

52 183

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Preface to the Revised Edition

We are happy to present this revised edition of our 1997 text, which has been released at about the same time as the third edition of John Carver’s Boards That Make a Difference. In the interim since our first edition, we have authored or coauthored three other books. An anthology of 112 of John Carver’s published articles was published as John Carver on Board Leadership in 2002, assembling under one cover articles published in several countries over twenty-two years. Also in 2002, John Carver and coauthor Caroline Oliver brought book-length Policy Governance to the equity corporate world in Corporate Boards That Create Value. With coauthor Bill Charney in 2004, Miriam Carver wrote The Board Member’s Playbook, a workbook for boards to enhance their Policy Governance skills by structured and regular practice. As in the first edition, we assume the reader of this text is thoroughly familiar with the Policy Governance model, possibly through reading Boards That Make a Difference or attending seminars by qualified Policy Governance consultants. (We recognize as “qualified” only persons who have graduated from the intensive, limited-entry Policy Governance Academy.) However, as before we do provide a brief model overview in Chapter Two, “The Theoretical Foundation.” Theory is extremely important in Policy Governance, though it is a largely overlooked idea in governance as generally practiced.

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We are aware some readers may be a bit suspicious of so rarifiedsounding a word, but the need for a conceptually coherent foundation is as important for governance as it is for aviation, medicine, and physics. The task that confronts implementation, of course, is accurately translating theory into practice, turning carefully crafted ideas into carefully crafted actions. Policy Governance as a theory of governance has evolved over the years since its inception in the mid-1970s. Although the model itself has not changed a great deal—probably not at all in its most important features—its practice has progressed substantially. We have found better ways to phrase the policies. We have developed far more rigorous ways to monitor performance. We have, in short, continued over the years to advance in terms of best practices within the model. We need to point out that traditional boards cannot achieve the rigor of Policy Governance by following the best practices route. Best practices, as the popular term is currently used, merely improve action within the extant paradigm. That is undoubtedly a good idea, but is forever trapped in the old concepts. The vaunted changes in the past few years in corporate governance are good examples of such incremental change. The change promised by Policy Governance is not incremental but transformational. It is more like the change from football to tennis, one that cannot be made by any degree of improvement in one’s football. Yet once the change is made, then the search for best practices begins all over again, just as it would after a change to tennis. Reinventing Your Board is one of our contributions to best practices in the implementation of the Policy Governance model. Clearly, the practices in these pages will not be helpful—and may even be nonsensical—for a board committed to the old ways. This book is meant for boards that have boldly decided for governing excellence but have no access to qualified consulting assistance in moving forward. To help them, in this edition we have added new

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policy samples and a new chapter on monitoring performance. Although the basic organization of the book is unchanged, we have edited the text in response to the many helpful comments we have received from our clients, our Policy Governance Academy trainees, our editors at Jossey-Bass, and the reviewers Jossey-Bass helpfully supplied. Atlanta, Georgia December 2005


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Since you have picked up this book, chances are that you and your board want to use Policy Governance to bring your organization to new levels of achievement. Perhaps you were initially frustrated because the very concerns that led you to be on the board in the first place were the ones seldom discussed. (We have met countless school board members who were confused because they rarely talked about children, and members of hospital boards who rarely discussed the health of the community.) Perhaps you have already made gestures toward implementing Policy Governance but have simply needed more guidance on how and where to begin. Congratulations! Contemplating a radical change in the way your board works is a brave step. This book is your guide to the application of a robust new governance model to your board. We will assume you realize that Policy Governance offers a powerful approach to governance, one that is conceptually whole and oriented toward obtaining results for people rather than promoting organizational busy-ness. But because Policy Governance flies in the face of so much received wisdom and tradition, old habits may be hard to overcome. Wouldn’t it be nice to start at the beginning with a brand new board, doing it all right from the start? But yours is an ongoing organization, perhaps with a rich tradition; your organization is also weighed down with structures already in place, ways of xvii

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doing business that are hard to change, and personalities wed to old ways. You want to be a board that makes a difference, but you fear that implementing Policy Governance in a going business may be as complex as changing an airplane from propeller-driven to jet in mid-air. We believe that board members don’t have time to waste. We believe that they want to make a difference. We believe that the board has a real, not a ceremonial, job to do. And we are sure that the system of governance used traditionally in our nonprofit and public organizations is inadequate to provide boards with the skills and mechanisms they require to be effective leaders. In 1990, the senior author, John Carver, wrote Boards That Make a Difference (Carver, 1990), a book that exposes the shortcomings of traditional governance and that substantially redefines the job of the board. The Policy Governance model, as he called his new design, has become widely known, and many boards have begun to implement its principles. Since implementing Policy Governance involves developing newly defined types of policies, getting board commitment to act according to those policies, and delegating to a CEO in a new and exciting way, the boardroom and our concept of the board’s job are extensively altered. With a change this big, it is no wonder that most boards need to secure help in moving forward. Here it is! This book gives practical advice and assistance to your board in the process of making the change. It provides concrete policy examples for consideration and debate, and it offers practical counsel for the maintenance of the new system. While this book does contain a brief description of the theoretical principles of Policy Governance, you will find that you can get more use out of it if you have already read Boards That Make a Difference. Since we are undertaking to assist in the implementation of a theoretical framework, knowledge of that framework is important. The most difficult part of implementing John Carver’s Policy Governance model is reaching a board resolve to follow any model. Boards have long been used to discussing anything that anyone

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wants to discuss, delegating the same job to more than one person, monitoring with no criteria to judge against, and failing to clarify the most important organizational value of all—the purpose of the organization. If you want your board to achieve meaningful accountability for its organization, these habits and more must change. Your inquiry into Policy Governance is the first step to achieving these changes. If you are interested in rhetoric—new jargon but nothing new in action—put the book down. If you and your board are ready for an adventure in governance revitalization, read on. Here goes!

How to Use This Book We have divided this book into three parts, each addressing a different phase of making Policy Governance work. To a great extent, you can jump about in the book, not following the sequence in which we present it. But regardless of the sequence you follow, understanding the way we have elected to put the material together will help you. Part One Part One gets you ready to begin. In Chapter One, we deal with some of the common queries boards raise prior to starting their Policy Governance implementation. In Chapter Two, we review the key theoretical principles of the Policy Governance model. This will assist you in your policy development work but will not replace the thorough understanding that results from reading Boards That Make a Difference. Chapter Three explores some of the implications of implementing Policy Governance for your board and staff. Part Two Part Two deals with the core of Policy Governance: the creation of a set of policies so conceived and so crafted that they can bear the full weight of board leadership of your organization. These are unlike

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policies as traditionally conceived, so they must be developed from scratch. You cannot simply adapt previous board policies for this purpose. In Chapters Four, Five, and Six, respectively, we take your board in step-by-step detail through the development of your Executive Limitations, Governance Process, and Board-Management Delegation categories of policies. Throughout these chapters, we use sample policies in order to make the process go more quickly for you. Chapter Seven tackles the more difficult creation of Ends policies. Because organizations differ so greatly in their Ends, we use a series of exercises rather than samples for this final chapter of Part Two. Part Three Part Three completes the book by addressing what comes after the initial policy development. Chapter Eight, added in the revised edition, deals with the board’s obligation to be continually informed about organizational performance through a rigorous, yet fair monitoring system. In Chapter Nine we discuss board documents as used by a Policy Governance board. The documents most familiar to boards today are certain to change, for they are based on old ideas of governance. Chapter Ten answers the frequently asked question, What do we do now? by suggesting issues you should consider in moving from your present governance style to Policy Governance, including relationships with stakeholders and methods of keeping your board on track. We are pleased to be able to work with you in the following chapters in preparing for change, in careful crafting of board policies in the new form, and in bringing a powerful coherence to the practices and documents of board leadership. As your board follows the steps we outline, it will be engaged in transforming its capability to govern, in nothing less than reinventing your board. Atlanta, Georgia June 1997


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Acknowledgments

This book had its birth in our dealings with our many clients over the years—boards and CEOs leading organizations of many types in nonprofit, governmental, and business sectors, with many cultural backgrounds, and on five continents. It is to these leaders bold enough to pioneer a new vision of governance that we owe our most hearty acknowledgments. Over the past ten years, we have enrolled more than 250 people from eight countries in our one-week intensive training in Policy Governance theory and practice—called the Policy Governance Academy. We limit enrollment each time to a small number of applicants, who must demonstrate a high level of proficiency in Policy Governance theory to be admitted to the training. A number of Academy graduates have developed improvements in Policy Governance practices from which we have learned. To cite one example relevant to this book, Jannice Moore made a significant contribution to our thinking about monitoring performance “from the bottom up.” We must thank Jossey-Bass. Our editor, Alan Shrader, gave us wise advice, occasional prodding, and good humor during preparation of the first edition. Dorothy Hearst was encouraging and gave us a great deal of latitude as we prepared this revised edition. Because our writing is forced to coexist with our two very busy consulting

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schedules, we appreciate our executive assistant, Ivan Benson, who has managed our consulting practices for over ten years. We could not ask for a more faithful, helpful, and trustworthy person at our sides. —J. C. and M. C.

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The Authors

John Carver, creator of the Policy Governance principles for board leadership, is widely regarded not only as the most published but also the world’s most provocative authority on governing boards. He has served as CEO and as board member for various health organizations. He received his B.S. degree (1964) in business and economics and his M.Ed. degree (1965) in educational psychology from the University of Tennessee at Chattanooga. He received his Ph.D. degree (1968) in clinical psychology from Emory University, Atlanta. In 1968 he was inducted into the honorary scientific research society, Sigma Xi. He has consulted with nonprofit, profit, and governmental clients on six continents. He has served as adjunct faculty at several universities and is currently adjunct professor in the University of Georgia Institute for Nonprofit Organizations and York University’s Schulich School of Business. He is author or coauthor of five books, over 150 published articles and monographs, and several electronic learning tools. He was founder of the bimonthly Board Leadership in 1992 and continues as its co-executive editor with Miriam Carver. He has published in eight countries. Miriam Carver received most of her formal education in England, where she grew up. She received her B.A. degree (1973) from the xxiii

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University of East Anglia, Norwich. After moving to Canada in 1975, she completed her master’s degree at Wilfrid Laurier University in Waterloo, Ontario. She has held a number of management positions in health and social service organizations. Her CEO experience was gained first as executive director of Canada’s first AIDS hospice and then as executive director of a provincial association of counseling agencies. She has consulted in North America, Southeast Asia, the Netherlands, and England with the boards of numerous organizations including health, education, social service, charity, association, mental health, and library organizations, as well as city councils. She has coauthored three books, four monographs, and more than a score of articles on various aspects of governance. Since 2004 she has been co-executive editor of Board Leadership, a bimonthly organ dealing with the theory and practice of Policy Governance. John Carver and Miriam Carver live in and operate consulting practices from Atlanta, Georgia. Together they conduct the Policy Governance Academy™, a specialized advanced training for consultants in theory and practice of the Policy Governance model. Their joint Web site is www.carvergovernance.com and fax 404-728-0060. John Carver can be reached at 404-728-9444 or [email protected]. Miriam Carver can be reached at 404-728-0091 or [email protected].

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Part I Preparing for Change

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art One deals with the various factors a board must consider in setting out on its change process. We discuss the preparations that will help a board to implement Policy Governance successfully, and we answer some commonly asked questions. A brief theoretical overview of Policy Governance is presented along with our hints about the ways in which conceptual errors may hinder your board’s implementation.

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1 Setting the Stage Are You Sure You’re Ready for This?

I

n teaching the principles of the Policy Governance model to boards all over North America and, to a lesser degree, in Europe, Asia, and Australia, we have become accustomed to hearing some typical questions. This one is among the most common: This is great in theory, but how do you actually do it? People are generally drawn to the simple logic of Policy Governance, but they recognize that it differs radically from their experience of boards and the board-staff relationship. Indeed, how do you actually do it? It’s a good question. Policy Governance, like any important job, is a process that has to be done right. The board is at the top of any organization, with authority over and accountability for that organization. With that kind of leverage, getting governance wrong is costly. Implementing the Policy Governance model means developing your governing policies according to the principles of the model, then consistently using these unique documents according to those same principles. The largest part of this book (Part Two) will guide you through a process of developing those policies. But first, how can your board get ready to embark on the process of creating policies? In order to implement Policy Governance, your board members must understand its theoretical principles. We hope that all board 3

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members are already familiar with the model. Still, it will be helpful to refer frequently to Boards That Make a Difference or to our theoretical review in Chapter Two of this book. This chapter helps you set the stage for a successful change process. What follows are some more of the frequently asked questions about the process of developing policies. They give us the opportunity to suggest methods and procedures that you may find useful in planning your work. What if we want to use another Policy Governance model? There are no other Policy Governance models. Of course, there is nothing new about the belief that boards should govern with policies. But Policy Governance is a service mark that can be used only in description of the complete, integrated conceptual paradigm created by John Carver. For reasons both ethical and legal, the term must be capitalized as done in this text. Thus there is no such thing as a board’s choosing “among policy governance models.” Informally, some use the term “Carver model” as a synonym for Policy Governance. Are there situations or organizations in which Policy Governance is not appropriate? Policy Governance was designed to be generic, so it should be applicable whenever a board faces the task of governing. The fundamental model does not require that an organization have a CEO, or even a staff, though these extensions of board authority make Policy Governance work better. The model does not depend on the organization’s being a start-up operation or a mature one. And it is not related to whether an organization is for-profit, nonprofit, or governmental. We have certainly found situations in which Policy Governance is more difficult to implement. We have found that some types of organizations and circumstances impose idiosyncrasies on the way the model is applied. But our interactions with board

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members and executives in widely different cultures from several continents support our confident assertion that the model works well in any situation. Since Policy Governance creates a powerful board, why would it be attractive to CEOs? Policy Governance does, indeed, strengthen the governing role, but it does not undercut legitimate CEO prerogatives. For most CEOs in public and nonprofit organizations, executive authority will be greater under Policy Governance than under traditional governance. To be more accurate, however, whether the CEO is more powerful or not is a function of how the board has been operating prior to Policy Governance. If the board has been rubber-stamping everything the CEO wants done, then perhaps the CEO loses some power. If the board has been intruding into management, then the CEO gains some power. But Policy Governance is not about the board controlling more or less. It is about the board controlling the right things appropriately. So what can always be counted on under Policy Governance is that board and CEO prerogatives are far clearer and more rationally derived. Since the greatest source of stress for most CEOs is board behavior (as distinct from the straightforward pressure to perform), Policy Governance offers a more sane, even if more demanding, work environment. How do we run two concurrent governance systems while moving toward Policy Governance? You don’t. You continue to govern as you always did until you are ready to use Policy Governance. Your board will be aware as it develops its policies that its new governance will result in the abandonment of much of the old system, and the sense of living in two worlds may well be bewildering. So rapid development of the new governance will minimize the confusion of having two approaches side by side. We caution you, however, not to change what you are doing until you are ready to change it all. Incremental governance

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change does not require this all-or-nothing care, but paradigm shifts—like the move to Policy Governance—are best made in this way. So once you have started the process of policy development, try to complete it as soon as you can. Where do we begin, with policies about where we want to go (ends) or with policies about everything else (means)? We strongly recommend that your board develop all its policies restricting the means choices of the CEO (Executive Limitations) and those describing its own means (Governance Process and Board-Management Delegation) before proceeding to Ends policies. You may find it odd to develop policies about means before determining Ends. We recommend this sequence because it enables the board to be clear about its own job and the jobs of its officers and committees, as well as to clarify the authority of the CEO early in the process. We have observed that boards traditionally fail to attend to Ends issues largely because they are so distracted by immediate means concerns. Further, completing means policies first allows the model to be adopted and put into use even before the board gives its full (and invariably more time-consuming) attention to Ends issues. When the board gets to Ends, it begins a job that remains its focus in perpetuity. If it still seems illogical to make policy about staff means before having made policy about Ends, remember that in Policy Governance the board does not enact staff means policies that instruct the CEO how to accomplish the Ends. Instead, it enacts policies that prohibit some board-determined unacceptable means. In other words, it makes policy describing what not to do! Just so we don’t confuse you, we occasionally refer to Governance Process and Board-Management Delegation categories, taken together, as board means—as distinguished from staff means. Staff means, of course, are board-controlled by the use of Executive Limitations policies. We employ another convention as well: we use lowercase when we speak of “ends” as a concept or idea, but we capitalize the word when referring to the policy category, Ends.

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Setting the Stage

Which means policies should be developed first? Part Two of this book includes a chapter for each of the policy categories used in Policy Governance. As to policies that deal with staff means and board means (omitting Ends for a moment), we have arranged them with the chapter on Executive Limitations policies first, then the chapter on Governance Process policies, followed by Board-Management Delegation policies. There would be no problem with following exactly this order as your board proceeds through its policy development work. On the other hand, your board may wish to use a different sequence. Since none of the policies will come into effect until all three categories are completed, it really does not matter which of them is completed first. Your board may have its own preference. Many boards prefer to start with Executive Limitations, since these cover the issues that boards are ordinarily most worried about. There is some logic to this. When things go embarrassingly wrong in organizations, staff means issues are usually involved. Your board may wish to establish these controls on the CEO early. But some boards elect not to work first on Executive Limitations—the only negatively worded policies—because they prefer to start on a more positive note. A number of boards we’ve worked with prefer to deal with Governance Process policies first, since they clarify the job of the board. Like them, your board may wish to start by establishing the expectations that it will have of itself before moving on to instructions to the CEO. Still other boards begin with a careful examination of the concept of CEO as it is used in Policy Governance. These boards start their policy development in the Board-Management Delegation section. If this is your board’s choice, remember that it will have to leave one of the Board-Management Delegation policies incomplete (the Monitoring Policy) until Executive Limitations policies have been completed. That is because the Monitoring Policy sets forth the frequency and method of monitoring Executive Limitations and Ends policies, neither of which would have been created at this time.

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Should we start from a blank sheet of paper? Except for your work with Ends (which must begin from scratch), we wouldn’t recommend it. You will find yourselves engaged in the deadly art of group writing before you know it! In fact, a major use of this book is to provide model policies that can be points of departure in developing your own policies. The policies that you will find in this book may not say what you need to say. They may exclude values that you strongly hold and need to include in your policies. But they are a model-consistent starting point. We suggest that when your board works on the policies that make the Policy Governance model a reality for your board, you work systematically through the examples we have offered, changing them to reflect the values that your board wants to express. You must follow the principles about policy format, which we discuss in the next chapter, but the content of the policies is for you to make value judgments about. Is it true that ends are decided by the board and means by staff? No. The board does make the largest ends decisions, but smaller ones (those of less breadth) are made by staff. Staff makes means decisions, to be sure, but those decisions are constrained by the board’s broadly stated limits about those means. Further, the board— along with its officers and committees—decides the board’s means entirely. So, you see, both board and staff make both ends and means decisions. Our CEO says that because certain issues are “means,” the board has nothing to do with them. Is this argument correct? No. The board does not lose control of staff’s means just because it stops prescribing and approving them. The board establishes policies that put certain staff means off limits and, therefore, outside the CEO’s prerogatives. The CEO must be faithful to the limits on staff means the board has imposed—and prove it in regular reports. And, of course, the board’s own means are entirely under its control. After all, governance itself is a means.

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Should we hire a consultant to help? Arguments can be made in support of either using or not using such help. First, you would need a consultant who really knows the Policy Governance model thoroughly—you’ll get no help from one who doesn’t. Since Policy Governance has achieved a measure of popularity, many consultants have begun professing expertise that they do not have. We recommend that you inquire carefully into where they received their training in the model’s theory and implementation. The only fully qualified Policy Governance consultants are those who have completed the Policy Governance Academy, an intensive five-day training that requires considerable Policy Governance knowledge even for admission. Having attended a few seminars or taken a college course on Policy Governance will not suffice. Second, you need to be able to cover the expense— hiring a trained consultant is going to add to the up-front cost of the change process your board will go through. If the consultant is fully qualified, this help will almost certainly be worth the cost. However, a board that can take itself quickly through policy development may not need additional help. If there is a risk that your board will take months to develop its policies, it will be worth the cost to hire a consultant, for a properly trained person can guide most boards through most policies in two or three days of hard work. The larger the organization, the more the cost of consulting help is cheap insurance against faltering in the process of implementation. In any event, this book is designed for use with or without consulting help. If we don’t use a consultant, should the chair lead the process? Anyone on the board who knows the model well can lead the process. Sometimes the chair is the person most familiar and comfortable with the model, but if this is not true for your board, don’t use the chair as the leader of the process. It is useful to have a designated leader in the work of developing governing policies, but who that person is may not be important. Choose someone who knows the model well, who can help the board stay on track, and

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who can include everyone in value discussions. Then, having chosen your workshop leader, let that person lead. Can the CEO be the leader? Great care should be taken to keep the CEO’s role separate from the role of the board. The board can delegate a great deal to the CEO, but to avoid role confusion, it should not give the CEO responsibility for any part of the board’s governance. Still, if the person with the best knowledge of the Policy Governance model is the CEO, it may seem wasteful not to use the CEO’s expertise. If you decide to use the CEO as your leader, begin by reaching an understanding that the role to be performed is one of facilitation only. The CEO should not influence governance decisions beyond making relevant information available. One option is for two or more boards to use each other’s CEOs—providing, of course, that each of the CEOs is qualified. Just being a CEO, even a fine one, is not sufficient. Should the CEO be present during the board’s policy development work? Yes. The CEO is a valuable resource, with a great deal of information that the board may need in developing its policies. Not to use one of the board’s most valuable resources would be a shame. The CEO, however, should not be making, but simply informing, board decisions. Should other staff be present during the board’s policy development work? The other staff work for the CEO. Let the CEO decide. The CEO will probably need the voices of other staff from time to time to contribute information that is relevant to the board’s discussion. As you will see shortly, you will also need someone to take careful notes. Shouldn’t a staff member keep a record of the board’s policy development? As your board makes its decisions about policy content, make sure someone writes them down. After the work, a copy of the

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board’s own version of policies can be prepared from the discussion. The person who writes down the board’s decisions can be anyone on the board, the CEO, or—if the board chooses the CEO—the CEO can bring in a staff member to carry out this responsibility. What happens to our current distinction between policy and procedure? You no longer need it. It is a distinction left over from having no technology of governance and, in light of that, doing whatever you could to find some way to differentiate board work and staff work. A framework designed specifically for the board’s job changes all that. With Policy Governance, only two distinctions remain: type of decision or policy—the four categories we discuss in detail in Chapter Three—and size of decision or policy. These are the only distinctions, and they make unnecessary any further worry about policy versus procedure, strategy versus tactics, policy versus administration, or goals versus objectives. To drag these old distinctions over into your Policy Governance practice will reduce your effectiveness. We already have a number of policies. Will that give us a head start? Unfortunately, in all likelihood it will not, except perhaps in a minor way. Develop your new Policy Governance policies as if you have never had policies or made decisions at all. We know that advice will sound wasteful of your time, but we can assure you that it will in fact save a great deal of time. Previous decision making by the board, in policy form or not, will have been undertaken in traditional ways. That means Policy Governance policy categories would not have been used, staff means would have been prescribed, the integrity of policy levels would not have been observed, and the CEO role may not have been construed appropriately. So by starting the policy development process from scratch, you can avoid having to untangle all those complications. Only after you have completed your Policy Governance policy development should you refer to previous policies or decisions. At this point your new work provides you a model-consistent framework

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to which you can make additions or alterations. A previous investment policy, for example, may have resulted from careful and intelligent thinking about the safety of monetary instruments. Although the old policy may not have been worded in a way consistent with Policy Governance principles, the core intelligence in the previous work can be abstracted and applied to a new asset protection policy. Should we do a little work at each board meeting, or should we hold a retreat? We know boards that have decided to develop their policies during regular board meetings, putting aside perhaps an hour from the regular agenda to work on a few policies at a time. This may work for your board, but the approach has a number of drawbacks. First, its use means that implementing the Policy Governance model must take at least several months, during which time the board and the CEO must deal with the confusion of having two very different governance systems in their consciousness. Second, a traditional agenda that tends to focus on the emergent rather than the important can overwhelm a more conceptual approach, and it is not uncommon to see that the items put off until next time are the policy items. Consequently, we always recommend that the board set aside time for an intensive policy development retreat. How long should the retreat be? We have found that organizations not subject to great external regulation can complete their board and staff means policies in two or three days if they use a competent consultant. City councils, school boards, credit union boards, and boards of other organizations operating in highly regulated circumstances take longer to do their work, and we expect three days to be a minimum for board and staff means policy development to be accomplished. Without using a consultant, it is likely that all board and staff means policies will not be completed in the time even a long retreat can provide. Therefore, more than one retreat will be needed.

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As important as the length of time is the presence of all board members during deliberations. The change being wrought in governance is so massive that board members not involved will face culture shock upon returning. We normally ask boards to secure a prior agreement from nonattending members to accept the policies developed by those who attend (unless they have ethical reservations about them). Otherwise, nonattenders exercise disproportionate control over whether the board moves ahead. We have not made a final decision to use Policy Governance. How does this affect policy development? We commonly work with boards in your position. The board is not yet ready to commit to using the model, but it goes through policy development as a way of finding out, What would it look like for us? For many boards, this is a strategy that makes sense, because drafting the policies provides a more concrete understanding of the model. We would recommend that even if the board has not made a final decision, it should develop its policies as if it were definitely going to rely on them. Policies in Policy Governance, unlike in traditional governance, constitute all the board has to say. It is important to develop policies from the perspective that there is no second backup document somewhere. This thorough reliance on policies demands a more complete and more rigorously prepared policy product. Boards that develop policies as a mere exercise rather than for actual use will not enhance their ability to make an informed choice between Policy Governance and what they are already doing. If they were to subsequently decide for Policy Governance, the tentatively drafted policies would have to be deliberated all over again. What an unnecessary duplication of effort! We have made a decision to use Policy Governance, but a few of our members voted against this decision and are unhappy with it. What should we do? Deciding to radically alter a board’s governance system is a big step. It is not surprising that some people do not agree that it is a

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necessary or desirable step. Assuming that all the board members present at the meeting when the decision was made to use Policy Governance had an opportunity to voice their points of view, then the decision is the board’s decision. Good governance makes a distinction between the position of the board and the minority position of a dissenter or dissenters. It calls upon boards to expect their members to adhere to board decisions until they are changed by the board. It explicitly vetoes the use or attempted use of personal power over the organization by individual members of the board. In other words, in any matter, not just that of the governance system to be used, the board members who voted against the board’s final position are duty bound to respect that position, that is, not to undermine or sabotage it. If they cannot do this, they should consider resigning from the board. The worst outcome is that a nonunanimous vote leads to a half-hearted pursuit of the decision. You may have voted 6-3 to use Policy Governance, but if it is to be successful, you must pursue it with the resolve of 9-0. Wouldn’t using one model alone be like putting all our eggs in one basket? No. These are not analogous situations. Consistently using one model is like having all the little wheels and other components in your wristwatch make sense as a total system. There would be no value in your purchasing a few extra wheels not designed for that specific watch just to be on the safe side. It is the system-specific, uncluttered integration of parts that makes the watch work. Admittedly, the parts must actually work as a system, but even if they do not, the solution is not to throw more parts at the watch but to redesign the system. Isn’t this a one-size-fits-all model? Yes, it is. The aim of generic theory is to be applicable across situations that are distinguished by individual differences. Disciplines such as medicine, engineering, and even management each depend on a foundation of universal principles. Family doctors understand

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Setting the Stage

the general functioning of kidneys and kidney medicines. This is fortunate if you go to your doctor with a kidney problem. It would be worrying if there were no foundational theory upon which the physician’s judgment could be based. No one worries that this means we are not all unique people. Critics who complain that Policy Governance is a one-size-fits-all model will argue that all organizations are unique. We do not disagree. However, the indisputable uniqueness of all organizations does not imply that their accounting, human resource practices, and—yes, their governance, too—cannot be based on generic principles. The Policy Governance model does not describe all organizations; it describes an integrated set of principles guiding the most accountable governance of all organizations. We could save so much time by just borrowing a similar organization’s policies! You could save time just as you could save a trip to the doctor by borrowing a friend’s diagnosis! Board policies in Policy Governance are the board’s soul. They do not contain all the values board members hold, but they do contain all the values that the board as a whole can agree it holds, along with all those necessary for proper governance of the organization. Not only does the policy product represent a compendium very personal to a specific board, the process by which the policies are developed is itself at the heart of board leadership. If you install some other board’s policies, or if you have your staff write the policies so you can adopt them, expect Policy Governance not to work for you. Let us give you a small proviso. If the other organization’s policies are well constructed, you may be able to use them as we use policy samples in Part Two of this book. But to make this work, you have to go through all the steps of inquiry and soul-searching that your friendly benefactor board went through. To get Policy Governance off the ground, there is no free launch. Policy Governance relies a lot on the CEO or board chair making “reasonable interpretations.” Isn’t this a lax and perhaps even risky leap of faith?

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Actually, all persons giving instructions, including boards, have no choice but to allow delegatees to interpret their words. In any organization, thousands of decisions go on daily, all of which trace their origin back to more global board decisions. Policy Governance simply recognizes this unavoidable phenomenon and formulates a system in which the risk in interpretations is reduced. A board must be careful about the words it uses, just as all experts must be careful with their tools. Given that the board assumes responsibility for its words, the board chair and CEO in their respective domains can now move on as decision makers with confidence, knowing the board only expects reasonableness. Naturally, if the board professes to give its delegatees the right of reasonable interpretation, it must actually do so or risk the loss of trust by delegatees. For example, if the board holds the CEO accountable for what the board wishes it had said or what it had in mind instead of what it actually said, then the board will have reneged on its agreement to accept any interpretation that is reasonable. Or if the board allows one board member’s opinion (such as that of a treasurer or other expert) to be the only “reasonable interpretation” allowed, then it has similarly broken its agreement. We have seen many instances of boards failing to implement Policy Governance well due to one hurdle or another. We have never yet found the rule about any reasonable interpretation to be a significant stumbling block. The rule contributes the same utility that the “reasonable person test” has made possible in law for generations.

Next Chapter In Chapter Two, we review Policy Governance as a theory of board leadership. As we have pointed out, this book is not intended to be a theoretical text but rather a guide to practice. Consequently, our treatment of the fundamental principles of Policy Governance in the next chapter is brief.

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2 The Theoretical Foundation The Practicality of Sound Theory

P

olicy Governance offers not a mere improvement in board leadership but a revolution in boardroom behavior and in the governance-management relationship. It cannot be implemented by changing language (for example, by mistakenly calling goals Ends) or by making a few adjustments. If your board wishes to use this more sophisticated model of governance, you must not only understand the theory but be prepared for major changes in actual behavior and appearances. This book is not intended to convey the theory in detail. If it were, it would be a rewrite of Boards That Make a Difference. Rather, this book is meant to assist those already acquainted with the concepts as they deal with the specifics of implementation, and in doing so acquire a deeper understanding of the theory. In this chapter, however, we briefly review the theory. Subsequent chapters are devoted to the practical aspects of implementation, though we occasionally return to theory throughout the book when doing so will aid understanding. Perhaps this reflects our agreement with Kurt Lewin and John Milton, who assert respectively that, “There is nothing so practical as a good theory” and “A good principle, not rightly understood, may prove as harmful as a bad principle.” The Policy Governance model takes as its starting point the principle that a governing board is accountable for the organization it governs and that it exists on behalf of a larger group of persons 17

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who, either legally or morally, own the organization. Since nonprofit and public organizations do not have stockholders, for them the concept of moral ownership may be the most valuable. This principle in itself separates Policy Governance boards from those that see themselves, often by default, as existing in order to represent staff, consumers, or other stakeholder groups of less broad legitimacy than shareholders—or shareholder equivalents. The principle forces the board to consider and answer the questions, From whom do we obtain our authority? and, To whom are we accountable? This is no easy task but is a necessary one, and it demands that the board distinguish theoretically between owners and other stakeholders, particularly customers. For most community organizations, the community as a whole owns the organization; for membership associations, the members are owners. Owners may be customers as well, of course, but these are separate roles that governing boards must learn to distinguish. When the board has decided to whom it is accountable, it must then settle the question of what it is accountable for. While statutes can sometimes help to answer this question, Policy Governance suggests that a generic statement of any governing board’s accountability is that it must, acting on behalf of an identifiable ownership, ensure that the organization achieves what it should while avoiding what is unacceptable. This formulation sets the stage for the type of policy development necessary to implement the Policy Governance model. It also strongly implies some characteristics of the board’s job. First, in order to ensure that expectations are met, they must initially be stated, then delegated, and then checked for compliance. Hence a board defines, delegates, and monitors—but probably does not carry out—organizational work. Second, the board must act as a body, or it will risk giving contradictory definitions of its expectations. Hence the corporate nature of the board—its “groupness”—is an essential element of its modus operandi. The board of directors, then, answerable to its ownership, must as a body define its expectations, assign these expectations to some-

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The Theoretical Foundation

one, and check that they were met. It will normally have expectations of a number of parties: • Itself. The board must enunciate the expectations it has of its own operation, its use of officers and committees, its knowledge base, its connectedness to the ownership, its manner of delegating to others, and its method of monitoring its delegatees. • Its CEO. The CEO reports to the board and is the recipient of all executive authority passed on to the operating organization. This officer is held accountable by the board for organizational performance. The board must provide direction to its CEO in such a way as to preserve board accountability while maximizing CEO flexibility, creativity, and freedom. Boards use various titles for this role, though president, executive director, general manager, superintendent, and secretary-general are most familiar. We will use the more generic term CEO because the function referred to is critical while the title is cosmetic. • Its chair. The board must demand certain performance from its chair, as it will authorize its chair to make decisions on its behalf. The chair’s authority to make decisions will be in an area separate from that given to the CEO. Boards use various titles for this role, though president, chair, chairman, chairwoman, and chairperson are the most familiar. We will use the term chief governance officer (abbreviated as CGO) because it more accurately describes the role regardless of title. • Its committees. From time to time a board may find it helpful to have certain governance tasks carried out by smaller groups, particularly the tasks of gathering information and seeking options. It is important that such

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committees or task forces work in the service of the board and spend only those resources that the board thinks the committees’ products are worth.

A Policy Framework That Works The policy framework in Policy Governance can be seen as a comprehensive, carefully crafted way for a board to clarify all its expectations and values. To do so requires the board to conceive of organizational issues as either ends or means and address both types of issues differentially. We are not concerned, by the way, that these clarifications be called policies, but we are concerned that they follow a certain highly effective discipline in their concept and format. You could define these policies simply as the values or perspectives that underlie action. Organizational Issues: Ends There are many definitions of ends, but only one captures the concept meant by Policy Governance. Ends policies describe the board’s expectations about (1) the benefit, difference, or outcome in recipients’ lives that the organization is to produce, (2) the persons for whom the difference is to be made, that is, the designation of the consumers, beneficiaries, or whatever group the organization intends to reach, and (3) the cost or relative worth of the benefit. Note that the term ends is not synonymous with results but is a complex of three components, one of which is results—and results that must be recipient benefit results rather than a result of some other type (such as excellent staff morale). Ends are therefore not defined as simply anything that seems important to someone, or anything someone on the board is interested in, or what someone thinks should be exclusively board work, or the end point in a process, although we have seen all of these mistaken definitions used. Ends simply answer the questions, What good? For which people? With what worth? Ends issues—particularly the

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components that describe results and the cost of results—are largely ignored by traditional boards, since the focus of typical boards is on staff methods and practices. Thus Policy Governance boards, by distinguishing ends from means, can give discrete, highly focused attention to the ends toward which all activities should be directed. Ends policies, because they describe and compel organizational achievement, are instructive to the CEO. Organizational Issues: Means The Policy Governance model defines means as any organizational issues that are not ends—an exclusion definition. The term is not simply synonymous with methods, though it includes methods along with practices, situations, circumstances, activities, and any organizational aspect that is not a direct definition of results, recipients of results, or the cost or relative worth of those results. For most people, an automatic, perhaps unspoken phrase “means to an end” leaps to mind and is difficult to suppress. But it can cause a misunderstanding of the Policy Governance means concept. We will risk belaboring that point in order to reiterate that means in Policy Governance refers only to any issue or decision that does not pass the ends test. For example, whether to reroof this year or whether to invest idle funds in high-return but high-risk securities are both means issues inasmuch as they do not pass the ends test, though neither is a means to the organizational ends. Thus the board’s own job of governing, along with its procedures and practices, are board means issues. The board’s policies about its own means are instructive not to the CEO but to the board itself, its CGO, and, if applicable, its committees. On the other hand, operational methods such as services, programs, finances, and personnel are staff means issues. Board policies about staff means are instructive to the CEO. Boards traditionally involve themselves deeply in staff means issues. Policy Governance boards, on the other hand, involve themselves in staff means only as far as needed to safely let go of them.

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Since boards are ultimately accountable for both ends and means, they must be in control of both categories of issues. That is, they have not only the right but the obligation to govern both. Policy Governance allows boards to make policy controlling both types of issues, though preserving a dominant focus on ends. The ends focus is warranted, since it is ends that justify having an organization in the first place; explicit definition of ends defines organizational success. As to staff means, the model allows boards to control them responsibly, while minimizing board interference in the acceptable variation among approaches to staff work. How does the model enable both control and flexibility? It tells the board to control ends and means through policy (rather than through review of or participation in distinct decisions) but to express policies that control ends and means in different ways. Ends policies should be prescriptive and expressed positively, as in the example, “The XYZ agency exists so that homeless teenagers will secure safe housing and job skills.” Staff means policies, on the other hand, should be proscriptive, as in the example, “The CEO may use any available means except for this programmatic practice or that fiscal ratio.” This approach demands that the board compile a “don’t-do-it” list, a counterintuitive but effective technique that frees boards from the need to redo, review, rehash, or second-guess staff work. The don’t-do-it policies are called Executive Limitations policies. These policies prohibit means the board would find unacceptable even if they were to be effective. Boards as a result have time to attend to their own jobs and stay largely engaged in the study, consultation, and value-laden decision making required for Ends determination. Delegation to the CEO is very powerful using such a system, for the CEO no longer has to guess about what ends are expected and which means are prohibited. The Policy Governance board tells its CEO to achieve the ends required by the board within the constraints on means imposed by the board. Such a method of delegation does not depend on the CEO seeking board approvals, since anything true to the policies is, as it were, preapproved.

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It is obvious that if a board is to control and direct the organization through the establishment and monitoring of ends and means policies, then the policies it creates must be inclusive, complete, and comprehensive. It no longer suffices to have a policy about this and a policy about that as the thises and thats happen to occur to board members and staff. You cannot govern by policy as long as policies are merely a patchwork of pronouncements. How does the board ensure that its policies have no significant gaps? Regarding staff practices and situations, if the CEO can use any means that the board has not prohibited, how can the board be sure it has not forgotten something quite critical that should have been put off-limits? These issues are answered in Policy Governance by conceiving of policies as occurring in cascading levels. Policies do, after all, come in sizes. Policies reflect statements of value, and values can be seen to vary in size or breadth. Some values can be stated broadly, leaving a wide range of interpretation. Others can be stated more narrowly, leaving less to interpretation. Policy Governance asks boards to view values as a nested set, with larger values cradling smaller ones. To control such a set, the board must first control the largest member of the set. This is obvious with a physical nested set, such as a set of mixing bowls, as shown in Figure 2.1. Tighter control, or control of smaller values, is established by expanding the direct (hands-on) control into the nested set, one layer at a time. Control over the smaller values is indirect (hands-off), but no less real, as shown in Figure 2.2. This method allows the board to establish overall or broadlevel control, which is obligatory, and to establish further, more detailed control, which is optional. By taking control over successively smaller values, the board can proceed to increase its control in increments. The increments are added until the board has established a level of control that will enable it to allow a delegatee to use any reasonable interpretation within the decision range that remains. This is the point at which the board delegates. A board may express an ends value very broadly. An example is, “Homeless teenagers will secure safe housing and job skills.” This

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Figure 2.1. A Nested Set.

Note: Smaller bowls fit within larger bowls as smaller issues fit within larger ones. The entire set of bowls can be controlled by handling only the outermost bowl.

statement may be seen as the value represented by the largest mixing bowl. The board could choose to conclude its direct control at this point—but must be willing for the CEO to use any reasonable interpretation of this broad prescription in the course of managing the enterprise. It is more likely that the board will want to define these words further before turning the matter over to the CEO. If so, it may add, “Among homeless teenagers, minority or handicapped persons will be given priority.” This last statement constitutes the second-largest-mixing-bowl value. Other clarifications would be considered at this second level. For example, the board may add that the job skills it intends homeless teenagers to receive are those that enable speedy, minimal selfsufficiency, and that by “safe housing,” it means that which provides freedom from harm or harassment. Again the board might stop here or, if it is unwilling to let the CEO choose any reasonable interpretation of its words in this second level, it may go further to define the words used in the second level of policy by creating a third level. And it can further define these words, too. The rule is simply that

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Figure 2.2. Hands-On and Hands-Off Control.

Note: Direct control of the outer bowls in a nested set allows indirect control of the smaller bowls. A board will have hands-on control over the very largest issues (depicted here by bowls drawn with a solid line) but indirect or hands-off control of smaller issues (depicted by bowls drawn with a broken line).

the board defines its words in increasing detail until it is able to allow the delegatee to use any reasonable interpretation. The same procedure is followed when the board makes policy about means. Policy about staff means is created in the admittedly counterintuitive negative language explained earlier. Such policies are called Executive Limitations policies, in that they place limits on executive authority. The Level One, or largest and most inclusive proscriptive policy, is commonly worded something like this: “The CEO shall not cause or allow any organizational decision, action, condition, or circumstance that is illegal, imprudent, or contrary to commonly accepted business and professional ethics.” Further definition of these words follows as the board, by adding further policy levels, progressively restricts the options of the CEO until it can accept any reasonable interpretation of the remaining range. When creating policy about the board’s own means, the board can speak positively or negatively as it wishes, depending on the topic. However, the board first speaks in the broadest language that

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accurately expresses its intent; if necessary, it can then systematically narrow its words by adding lower levels of policy until the “any reasonable interpretation” point is reached. This is the point that is safe for delegation. When the board has spelled out its policies about Ends and Executive Limitations, its delegation is then made to the CEO only. Thus the CEO interprets and implements board policy in both areas. When the board has spelled out its policies about the board’s own means, its delegation is to the CGO, unless a specific alternate delegation is made (for example, to a committee). Board means fall into two categories. First, Governance Process policies describe the board’s definition of its job, as well as that of the CGO and any committees it forms. Second, Board-Management Delegation policies describe the manner of connecting governance and management, that is, how authority will be delegated and how the board will monitor performance.

Finding Your Way on the Policy Circle We will use a circle diagram (Figure 2.3) to present the emerging policy material as we trace policy development in Part Two. We introduce it here because we have found the diagram useful in helping boards to stay clear about where they are in the process. Assume that the four categories of policies can be represented by four sets of mixing bowls like those previously described. Using two-dimensional bowls, of course, we can display these four sets so that like-sized bowls in the different sets meet. Remember, all organizational decisions, situations, activities, and production fit somewhere in these exhaustive categories. That is, the circle as drawn encloses all possible organizational issues—none are left out. View the resulting set of concentric circles in this way: note that there are four quadrants, each including every possible decision within the topic of its category. The various levels correspond to the larger and smaller issues, decisions, or values within that category. The lines further inside the circle, away from the circumfer-

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Figure 2.3. The Policy Circle. Governance Process Issues

BoardManagement Delegation Issues

Ends Issues

Staff Means Issues

Note: The four categories of organizational issues are shown as four sets of bowls, brought together to form four quadrants of a circle. Larger and smaller issues within those categories are shown as larger and smaller bowls. For easier reference throughout this book, differing categories and sizes of issues are brought together as series of concentric circles across four quadrants.

ence, are smaller decisions, ones contained inside the larger decisions represented by those nearer to and on the circumference. Figure 2.4 shows the same circle. In Figure 2.4, however, board decision making has reached different depths within each of the four quadrants. This diagram demonstrates what board policymaking is really like under Policy Governance. There is always policy at the outside edge of the circle (largest-mixing-bowl level of policy), while inside each quadrant, policies will have been developed to various

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Figure 2.4. Board Policymaking.

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Note: Completed board policies will occupy the outer part of each quadrant but will come into more detail (smaller-bowl levels), the amount depending on the board’s values: The board will go into more detail about some policy topics than others, even within a given quadrant. Notice that the quadrant containing all staff means issues will be addressed by the board in a constraining or negative fashion, hence the policy category titled Executive Limitations. Empty space in the middle represents smaller decisions the board is content to leave to delegatees. The chair (chief governance officer—CGO) will be given authority to make decisions in spaces marked X. The CEO will be given authority to make decisions in spaces marked Y.

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depths depending on board values. The deeper the area of board policy, the more detailed it is and the fewer the decisions left to the one authority delegated to make the remaining lesser decisions. Notice that the CGO and the CEO are both empowered to interpret and implement board policy but that this power applies in different domains. The CGO has no authority over staff functions (does not show up on the right side of the circle), and the CEO has no authority over the board’s governance (does not show up on the left side of the circle). This arrangement corrects a traditional governance flaw wherein the chair is compelled to usurp board authority in dealing with the CEO (supervising, directing, making demands the board never made) while at the same time becoming the de facto CEO (making decisions about organizational matters). Similarly, the opposite flaw is corrected: the CEO, while held fully accountable for operational matters, is not held accountable for the board’s governance, agendas, orientation, attendance, or any of the myriad other aspects of board functioning with which CEOs have been inappropriately burdened. In this latter role, CEOs have typically assumed more responsibility for the board’s acting responsibly than their boards have. This role separation does not preclude the CEO and the CGO from interacting with or even helping each other, but does clarify their distinctly different authorities. Notice also that in the areas of Ends and Executive Limitations, the board decides policies at a level appropriate to its concern but not further: thus it would never decide or approve an entire document such as a budget, a program plan, or a personnel manual. Such an act would place the board in direct control of smaller issues as well as larger ones and would needlessly remove flexibility from the CEO. Indeed, it would make definition of the CEO role all but meaningless. Instead, the board would contemplate just what aspects or characteristics about budgeting, programming, or personnel management it would consider unacceptable. Reaching agreement on these matters, if the agreement is committed to paper, yields written guidelines to be given to the CEO. Thus, instead of approving a staff document,

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a process that invites board members into unending details, the board will have produced its own far briefer document disclosing what would lead to its disapproving staff documents or actions. Hence, anything not in violation of those board requirements is automatically preapproved. This board task is both easy and hard. The easy part is that it is far briefer—the resulting board documents are quite short and simple— and it does not require board members to become expert in the topics being controlled. Accountants, for example, are no better at governing fiscal management than nonaccountants, even though they might be immeasurably better at fiscal management. The hard part is that this process takes more discipline. Self-restraint is called for if a board is to do the higher-level thinking required rather than jumping headlong into the more concrete, more familiar details of a topic—in spite of having a staff hired to deal with such matters. The message for the CEO is an empowering one. “As long as our intended Ends are achieved and our Executive Limitations are not violated (and we’ll be checking!), any plan you create or course you pursue is acceptable.” The most vital test of means, of course, is not in the means themselves but in whether they produce the Ends. The board finds out if its Ends demands have been met not by inspecting staff means but by monitoring the Ends policies. Traditional boards fool themselves into thinking they’ve monitored results by monitoring program activity.

Monitoring Compliance with Policies The Policy Governance model holds that there can be no legitimate monitoring without preestablished criteria. Attempting to evaluate in the absence of criteria, while common, is both unfair and futile. Approval or acceptance of financial statements, budgets, or other plans are examples of actions that pass for monitoring but that, upon inspection, prove to be only ad hoc opinions expressed apropos of no criteria. These familiar practices are not monitoring at all—they are merely wandering around in the presence of data.

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A Policy Governance board establishes its expectations about organizational performance by formulating Ends and Executive Limitations policies. Since these are the only board expectations of the organization, the provisions of these policies are the criteria it will then use to measure whether a reasonable interpretation of its expectations has been met. Next, the board assigns a method and frequency of monitoring to each of the policies in order to receive performance assurance as often as it desires. The method of monitoring establishes how the data will find their way to the board (they can come from the CEO, but that is not the only route). Thus conceived, ongoing monitoring of board expectations is exactly the same as CEO performance evaluation, except in a more realistic and continual form than what traditional boards have known. In Chapter Six, which deals with Board-Management Delegation policies, we deal with how a board decides what, when, and how to monitor. Then, in Chapter Eight, we explore in more depth the important implementation issues of monitoring. Further, Resource C provides examples of monitoring reports.

Designing Governance Structure Throughout this overview of the Policy Governance model, we have emphasized that the board (not its subparts such as committees or individual members) should make its requirements clear and then monitor to see that they are met. For the board to carry out these responsibilities as a body requires it to avoid some traditional structural traps or circumstances that will militate against its ability to speak as a body. Board members are likely to disagree over important issues, so speaking with one voice will not be achieved by unanimity. It is, however, a requirement that all board members support the legitimacy of a board decision, even if they voted against it. Traditional governance provides a number of ways for a board to become ineffective at voicing its corporate will. Permitting or inviting board officers or committees to be responsible as individuals for aspects of organizational performance destroys the board’s

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ability to demand accountability from the CEO. Officers, particularly treasurers and chairs, are commonly put in such a position. Bylaws often charge the chair with “responsibility for the general supervision of the organization.” Or the ostensible CEO is said to report to the board through the chair or be supervised by the chair. Any of these arrangements makes the chair the de facto CEO in authority, although rarely is the chair then held accountable in a way that corresponds to this power. Consequently, chairs often dip in and out of the CEO role, a most disconcerting behavior to the intended CEO and a sure sign of undisciplined governance. The treasurer is frequently described as being “responsible for the books of accounts, deposits, and receipts” or other words that assign responsibility for fiscal propriety. Yet the board must surely hold its CEO accountable for these matters. So just who is accountable? To hold the CEO accountable for conditions that the treasurer has the authority to direct is both unfair and organizationally irresponsible. Again, this unclear delegation is a sure sign of undisciplined governance. Often other board members, as individuals, attempt to exert authority in the organization. Boards rarely know the extent of such individual renegadism, since unless they witness it, they can only become aware of it through staff tattling. Board members who act in such a manner may be doing so out of a genuine desire to help or advise. Notwithstanding noble intentions, the result of interference by individual board members is that the staff use organizational resources to carry out individual demands. Board member interference is nothing less than an abuse of position. Boards must protect their organizations from such waste and misdirection by assuring the CEO that, while written board policies must be fulfilled, board members as individuals need not be pleased or catered to outside those policies. Thus a responsible board as a body protects its staff from itself as individuals. Board committees are any groups set up by the board, instructed by the board, or reporting to the board, no matter what they are

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called (for example, task forces are included), whom they include (board members, staff members, or others), or for how long they are to exist (that is, whether they are ad hoc or not). A board that, having first defined its job, decides to use a committee to help in the accomplishment of its job is using the committee mechanism legitimately. But committees can damage the board’s ability to hold its CEO accountable, just as can CGOs and treasurers. A board that puts together a group in order to instruct about, advise about, help in, or share in any part of the responsibility delegated to the CEO is not using the committee mechanism legitimately. It has set up a circumstance that renders the board unable to instruct as a body, delegate to a single point in the system, or hold that point accountable for performance according to board-stated expectations. Who is to be held accountable if a course of action advised by a committee doesn’t work? It is a rule of Policy Governance that board committees may exist only to assist in the board’s own job and never to involve themselves in the jobs of staff. It is worth noting that advice is indistinguishable from instruction when it comes from a higher authority. Staff who want advice can ask for it from anyone, including from board members (as individuals) if the staff decide that such individuals are good sources of advice. The CEO can then be held accountable for staff decisions, since whether or not staff members ask for or follow advice is up to them. Advice, in other words, is always invited and never imposed. The Policy Governance rule about committees usually results in boards’ disbanding personnel, program, facility, finance, property, publications, public relations, and many other committees.

Defining the Board’s Job Any job can be conceived as a package of values-added; the governing board’s job is not an exception. Summarizing those valuesadded yields a global purpose for governance. The board’s job is to

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see to it, on behalf of the owners, that the organization produces what it should (described in Ends policies) while avoiding situations and conduct that should not occur (described in Executive Limitations policies). This seems a simple statement until we examine what is necessary to assure its fulfillment. To fulfill its job, the board must • Clearly articulate who the owners are and then consult with them with a view to the board’s crafting relevant Ends policies for the organization; otherwise it will not truly be able to act “on behalf of the owners.” • Craft Executive Limitations policies that constrain the CEO from choosing unacceptable organizational means. • Make its rules for itself clear, or sufficient group discipline will never be maintained. • Unambiguously assign the right to interpret and implement board policies to those who will be held accountable for policy compliance, else the board will be so overcome with details of subordinate jobs that its own will be undoable. • Insist upon systematic, believable monitoring data that address the expectations it has established, or it can never be assured that its careful words have led to an acceptable reality. Policy Governance provides tools for fulfilling this role, which include separating ends from means and then separating staff means from board means. Also included are arranging issues by size and dealing with the large ones first, leaving the smaller ones to delegatees when the board can accept any reasonable interpretation. Monitoring only against policy criteria is another tool. Using these tools to accomplish the leadership with which boards are charged, any governing board should set out to produce

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the following values-added, as distinguished from the products of its staff: • A high-integrity linkage with the owners, that is, one that is unbiased and complete • Written governing policies (Ends, Executive Limitations, Governance Process, and Board-Management Delegation) in a constantly updated, succinct form • Assurance of organizational performance, which is treated as CEO performance when such an officer exists These crucial job products are the nondelegatable minimum for the governing board of any organization. They cannot be handed over to the staff as can all other outputs. Each, of course, can be further defined, but these three are the basic points of departure in describing what every governing board must produce. In practice, a given board may choose to add other job outputs, but beyond these, any additional contributions the board selects to put on its own plate are optional. Remember the following key points of theory before you go further. If you are unable to explain these points to someone else, you may need to review Policy Governance theory more thoroughly: 1. The board stands in for those who morally own the organization. By virtue of its crucial owner-representative role, the board must accept the responsibility of being a link in the chain of moral authority (or chain of command) rather than an adviser to or equal of staff. 2. The board speaks with one voice or not at all. The board will allow no officer, committee, or individual on the board to come between the board and its CEO. 3. The board directs the organization by addressing Ends and Executive Limitations policies to the CEO.

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4. The board instructs no staff but the CEO. 5. Ends and means are distinguished from each other only according to whether an issue describes three key elements: what outcome or difference is to be produced, for whom it is to be produced, and the worth or cost of the outcome. An issue that describes one or more of these attributes is an ends issue. An issue that does not describe one or more of these attributes is a means issue. That a matter is important does not make it an ends issue. That the board wishes to control an issue does not make it an ends issue. That a matter is controlled by law or custom does not make it an ends issue. 6. The board controls ends issues positively—by prescribing certain ones. 7. The board controls staff means issues negatively—by prohibiting certain ones. 8. The board defines issues from the most general level of specificity to that more detailed level where it can delegate any reasonable interpretation of its words. 9. The board may change the level of its policy making at any time. 10. The board monitors performance against its policy words.

Next Chapter Chapter Three deals with the implications your board should be ready to face if you choose to use the Policy Governance model. You must be ready to look at your job in a radically new way and to use the new principles consistently. While the implementation will give new clarity to the board’s job and will empower both board and staff, it will not be without its difficulties. Being prepared for the implications of this new approach will help your hard work produce results.

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3 Deciding to Implement Policy Governance Looking Before You Leap

I

f your board has taken the time required to become acquainted with Policy Governance, it then is confronted with a decision. Will you elect to use the model to conduct future board business? Many implications are to be considered in making this decision. Should the model be adopted in its entirety? How much trouble is the transition going to be? Is it worth the trouble? What will change about the meetings themselves? How will the staff react? How will the board’s publics react? A Policy Governance board must be ready to question all its assumptions and practices. Using a model means that decisions and activities inconsistent with the model are no longer practiced, no matter how comfortably familiar they might be. You cannot play both football and baseball at the same time. In this chapter, we explore the implications of deciding to implement Policy Governance. We also examine some of the anxieties created by such a decision, as well as their resolution. Boards of directors have traditionally operated in a manner based on habit, attention to the present rather than to the future, and the process referred to in Boards That Make a Difference as the “approval syndrome.” All these approaches have a face validity accorded by tradition. But if your board wishes to govern by focusing primarily on ends—results, recipients, and costs of results—and by controlling unacceptable means, you must realize that your methods 37

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and meetings will change beyond recognition. You must realize that the matters you will deliberate will change substantially. You must realize that ritual actions and time-honored traditions will no longer substitute for real leadership. The process you are undertaking calls upon you to be disciplined as a group. Group discipline renders unacceptable many of the structures and activities that are well established as indispensable parts of governance. Consequently, the decision to use this powerful and radically different approach to the board’s job is a major decision, one not to be taken lightly. Half-using a powerful tool can be dangerous. Compromising between A and B can result in a product that is worse than either A or B, and may be a mess. We offer here, therefore, a series of issues to be considered by a board in its all-important deliberation on whether to revamp its governance style.

Partial or Total Implementation We are often asked if it is necessary to accept the whole model, or if partial implementation is possible. Certainly, some principles of Policy Governance are useful in or out of the model. As an example, consider the principle that there can be no real monitoring of performance in the absence of preset criteria. This principle is one of basic fairness and has its place in any human endeavor when one party holds authority over another. The concept of ownership is another part of Policy Governance that can be safely imported into another approach. Other parts of Policy Governance, however, cannot be used safely outside of the model. As an example, imagine the havoc that could result from a board’s resolution to stop dictating staff practices (by approving staff recommendations or by even more meddlesome intrusions) when it has not first set up adequate controls to prevent unacceptable practices from occurring. A model is by its very nature general. Any board seeking to use a model must tailor it to its particular circumstances. Tailoring, however, is not the same as disassembling the model. Conceptual

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Deciding to Implement Policy Governance

sloppiness easily sails under the otherwise respectable flag of tailoring. A model, in order to be useful and flexible among a variety of different organizations, must be built upon principles that fit together to form an internally consistent unit that makes sense as a whole. We understand that boards are reluctant to accept wholesale a model that so tests their ability to act consistently in their governing role. But we are unapologetic about our position that a board should first learn the model, then decide if it may be useful, and then, if a decision to implement is made, should implement it rigorously in order to benefit from its powerful potential. So your board should take the following steps: 1. Learn the principles of the model and decide if they make sense. 2. Decide whether or not to use them. 3. Try to find any reason that could justify not using principles that make sense. 4. Use the principles to design the board’s job in a way that fits the organization, yet still maintains conceptual integrity.

The Policy Categories Common wisdom has long advocated that governing boards do their work through policy. Until Policy Governance, however, the subject of board policy has had little substance. Policy was whatever a board wanted to say it was, or policy was managerial matters raised to the board table. Policy Governance makes much of policy, but policy as a carefully crafted instrument for leaders leading leaders. Policy Governance cannot be operationalized without three categories of organizational decisions for which the board is accountable and must address. The categories are ends, the means of the staff, and the means of the board. Because staff means are controlled by limiting rather than prescribing, we use Executive Limitations

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as the category title of board policies that address that area. In practice the category of board means is subdivided into two—Governance Process and Board-Management Delegation. Therefore, despite there being three basic conceptual divisions, throughout the text we refer to four categories of board policies: Ends, Executive Limitations, Governance Process, and Board-Management Delegation. Failing to observe the strict definitions of these categories depowers the model. Our observation is that if a board fails to observe the different categories, the failure most often lies in obscuring the fundamental ends-means distinction. Ends statements are simply and only those statements describing the good (or change or difference or benefit or result) to be achieved by the organization, the recipients of that good, and the cost or worth of the good. Any statement that describes one or all of the three components is an ends statement. Any statement that does not describe at least one of these is not, no matter how important what is described is perceived to be. Hence, a reading program is not an ends issue, though literacy is. No services or programs are ends issues. Budgets are not ends issues, as they do not address the cost of the benefit but rather the component means costs of staff activity. Even fiscal soundness is not an ends issue. In fact, no statement that describes the activities or beliefs of the organization can be an ends statement; they are always means. Board members must remember that their opportunity to control staff means lies not in erroneously labeling them ends but in proscribing them in Executive Limitations policies. If your board has decided to use Policy Governance, it should • Use the policy categories of Policy Governance, not those of management. • Be rigorous about determining the policy category in which an issue belongs. • Determine whether an issue is an ends, staff means, or board means issue before attempting to deal with it.

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Not Everything Is a Board Issue In one sense everything is a board issue, since the board is accountable for everything that goes on in the organization. But a system that responsibly distinguishes between the job of the board and that of the staff must delineate some issues that the board should not directly address even though it is accountable for them. Thus, when confronted with any issue from any source, boards must first decide which kind of issue it is. Boards must also decide what size issue it is, since boards will address the largest issue in any category, further defining it until any reasonable interpretation by a delegatee would be acceptable. Even if an issue is found to be an ends issue, the board should not assume it is a board issue before examining its size. A board using Policy Governance may have delegated issues of this size to the CEO, having already prescribed larger ends issues in the Ends policies. The board may always change its policies or take up issues of smaller magnitude, but in the absence of a decision to do so, any ends issue already delegated to the CEO would not even be discussed by the board. If an issue is found to be a staff means issue, the board can only address it negatively and even then must first examine its size. Starting at the broadest level, the board will already have proscribed certain staff means in Executive Limitations policies and delegated the right to reasonably interpret these policies to the CEO. In the absence of a decision to change these policies, a matter in the delegated area, no matter how important or interesting, would not be decided or discussed by the board. If an issue is found to be a board means issue, the board must first examine its size before admitting it to discussion. The board will have established policies that govern its own process starting at a broad, inclusive level and proceeding to further definition until delegation is made to the CGO. The board should resist dealing with matters it has already delegated to the CGO.

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This discipline requires that the board, instead of discussing and deciding any issue that is raised, involve itself only in those issues that rightly belong to the board. We have found that this requirement sorely tests the resolve of boards that have previously acted as if any issue a board member wants to bring up is thereby a board issue, previously delegated or not. Implementing Policy Governance requires that this discipline be strictly observed. If your board has decided to use Policy Governance, it should • Recognize that not all issues are board issues. • Be rigorous about determining the size of issue being considered for discussion. • Decide if an issue belongs to the board before debating it.

Those Negative Policies Even when board members understand the theoretical reasons, it is common in implementation for boards to question the principle that staff means be controlled by the board through the use of negatively worded or proscriptive policies. A frequently voiced concern is that the language (“The CEO shall not cause or allow . . . ”) is awkward and is unacceptably negative in tone. While we are sympathetic to the complaint of awkwardness, we urge boards to notice that while proscriptive policies are verbally negative, they are psychologically very positive to the recipient. The message received is, “So long as you do not do these few proscribed things, anything else will have our support.” This is the same as the board’s preapproving any action of the CEO that is not in violation of the board’s stated criteria about unacceptable means. It is important that boards use Executive Limitations policy to put off-limits only those actions, circumstances, and other non-ends decisions that are unacceptable even if they work. In other words, using Executive Limitations as a backdoor way to tell management how to manage is not consistent with the model. For example, say-

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ing it is unacceptable to operate without adequate skilled staff would be such a circumvention of the rule. These policies are not intended to give the board a way to be the staff’s management consultant. There is always some awkwardness when the board goes out of its way to keep from becoming involved in staff means. The difficulty is worth the trouble, because it makes possible a succinct way for the board to deal with its accountability for staff means. More time is therefore made available for the board’s attention to Ends. If your board has decided to use Policy Governance, it should • Understand that telling the CEO how to manage would be a never-ending process. • Understand that if the board tells the CEO how to operate, it can no longer hold the CEO accountable for the results. • Understand that constraining language allows greater empowerment. • Get used to the awkwardness; it’s worth it.

Board Control and Accountability Without a doubt, the board is accountable for everything that goes on in the organization. But the board cannot do, or even supervise, everything that goes on. Being accountable for something does not, therefore, answer the question of who is to do it. Accountability can be discharged by simply seeing to it that something is accomplished. “Seeing to it” is achieved through (1) describing the “it” that is to be accomplished, that is, describing success, (2) unambiguously assigning the “it” to someone, and (3) checking to be sure the “it” was accomplished. In Policy Governance, the describing phase is expressed through the careful crafting of policies about what is to be achieved (Ends policies) and what is to be avoided (Executive Limitations policies). The assigning phase is accomplished by carefully defining a CEO

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role whenever the circumstances of the organization will allow it (Board-Management Delegation policies). The checking phase consists of systematic monitoring (established in the Board-Management Delegation policies) of organizational performance against the provisions of the Ends and Executive Limitations policies. We are occasionally asked how we manage to talk boards into giving up control. We don’t. On the contrary, we present a governance system that allows boards to be more in control of the right things. We point out that a board attending to whatever comes up cannot be sure that all the right things come up. Such a board is always behind the eight ball. Policy Governance puts the board in the front position and has it state from the broadest level to more defined levels what it expects from the organization and the CEO. In a similar vein, we have heard Policy Governance referred to as a “hands-off” model. This is not strictly true. In any organization, too much is going on for the board to have its hands on everything. Its challenge is to know what to have its hands on and what it can leave to its delegatee. Thus we would describe Policy Governance as a “hands off some things and hands on some things” model. If your board has decided to use Policy Governance, it should • Realize that traditional governance provides the illusion that the board is in control. • Understand that real control is its legal and moral obligation. • Differentiate between the accountability for something happening and the job of doing it. • Control the organization by broad, carefully categorized policies.

The Issue of Trust Boards of directors often struggle with the issue of trust. They want to trust their staff, but they know that they are accountable for what

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the staff does. Policy Governance tells boards that trust is of less importance than clarifying expectations and then monitoring them. Indeed, when boards complain that they do not trust their CEO, it is almost never clear what they do not trust the CEO to do or achieve. Trust problems virtually always stem from a board’s not being clear about what it wants and doesn’t want. If a board establishes Ends and Executive Limitations policies, it can gather monitoring data that disclose whether the CEO fulfilled a reasonable interpretation of their provisions. Following these steps renders trust of far less importance. The board’s assurance that the organization is performing is now based on data, not trust. Ironically, under these conditions, confidence and faith flourish! Frankly, the biggest trust issue between a board and its CEO is the CEO’s ability to trust the board. Governing bodies that do not make their requirements known or that act without regard for how they said they would act are unpredictable and untrustworthy employers. CEOs and staffs find ways to protect themselves against board caprice, but such protection is rarely in the interest of organizational effectiveness. It is in the board’s interest to arrange its governance so that the CEO can trust that treatment by the board will be fair and predictable. If your board has decided to use Policy Governance, it should • Clearly state what its requirements of the CEO are. • Be clear about what the CEO can expect from the board. • Keep its word.

The Board’s Use of the CEO The term CEO—as we use it here—is not a title but a function. By whatever title used in a particular organization, the person granted the CEO role reports directly to the board and is held accountable for all organizational performance. The incumbent of this position must have the authority that allows this accountability to be realistic.

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Nonprofit and public organizations rarely have senior staff positions whose authority and accountability actually match this description. Often the most senior staff person (called, among other titles, executive director, president, general manager, superintendent, city manager) is held accountable for areas for which no corresponding authority has been delegated. Sometimes the authority has been delegated by the board in an overlapping way, for example to the ostensible CEO and to one or more board committees. While boards rarely disagree that the single link between them and the operating organization should be the CEO, it is common to find that they have some tendency to instruct persons who report to the CEO. Boards using Policy Governance treat all staff accomplishments and failings, as measured against policies, as the accomplishments and failings of the CEO. This does not mean, of course, that boards should never talk to staff, but it does mean that they should neither instruct nor monitor the performance of persons in sub-CEO positions. Boards can usefully interact with subCEO staff about board decisions, particularly about Ends. They should not interact with staff about issues that have already been delegated to the CEO. In other words, it is permissible for a board to invite staff into its business but not permissible to invite itself into staff business. If your board has decided to use Policy Governance, it should • Instruct only the CEO. • View all organizational performance as that of the CEO. • View any organizational failure to comply with board policy as the failure of the CEO. • Require that the CEO keep organizational performance within policy criteria and restore it to this state should there be policy violations. • Never, in its official capacity, help the CEO manage.

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Organizations with No CEO or Staff The CEO in Policy Governance is a person held accountable by the board for achieving the Ends of the organization while avoiding the unacceptable means. Even very small organizations can use such a position. Boards that do not have a CEO have to deal with internal divisions of labor and the managing of the various parts of the organization themselves. This makes the board job harder than it would be with a CEO at the helm. Nonetheless, without a CEO, the principles of Policy Governance can still be helpful. When there is no staff, the board is the workforce as well as the governor. It should conceive of its job as having these two distinct parts. As governor, the board should decide as a group upon the Ends that are desired and the means that are not. As workforce, individual members or work committees become board-assigned workers who clearly know the parameters of their particular jobs. Operating this way keeps the various parts (on-site work by committees or individuals) pulling toward the same aims (as decided by the board acting as a whole). If your board has decided to use Policy Governance, and it does not have a CEO, it should • Notice that even though board members do much of the staff-like work, deciding what the organization is for and making it happen are two separate roles. • Never allow the immediacy of what is to be done to distract them from their ongoing duty to decide why things should be done. • Hold its members accountable for the jobs they were assigned.

Organizations with Small Staffs When we work with the boards of small organizations, board members are often concerned that their staff is too small for the job. This

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is often an economic reality. Accordingly, they fear that being “a policy board” will result in the staff having inadequate human resources to do the job. We tell them that while staff likely do need help or advice, if staff are held accountable for achieving the Ends prescribed by the board within the latitude granted by the Executive Limitations policies, they will figure out for themselves what sort of help or advice they need. They can also decide where to get the help; in fact, because they may freely choose their help, they can still be held accountable for the decisions they make. Nothing in the Policy Governance model prevents a staff member from asking an individual board member to serve as a staff helper or adviser. The model does, however, prevent a board and board members from foisting help or advice on a largely defenseless staff. Board members who are asked by staff to provide a helpful or advisory service should remember that they are doing so not as board members but as individuals holding no power in the organization. If your board has decided to use Policy Governance, it should • Make Ends ambitious, but be realistic about resources available to the organization. • Understand that the board as a body exists not to help staff but to govern. • Leave staff the prerogative of choosing to use board members as volunteer helpers, if board members wish to help. • Remember that if staff members require help, they can ask for it.

Externally Required Approvals State or provincial governments, funders, regulators, and accreditors often require that boards approve various pieces of staff work. This requirement regularly applies to budgets, program plans, and

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in the case of school boards, hirings. Of course, budgets, plans, and hirings are staff means issues. Such requirements stem from antiquated notions of proper board behavior that, unfortunately, are still the norm among funders, regulators, and accrediting bodies. It is altogether fitting, of course, for a funder, regulator, or accreditor to demand evidence that the board is actually in charge, that it is, in fact, governing. But as persons familiar with Policy Governance understand, traditional approvals signify just the opposite; they are a trivialized form of leadership without its substance, usually more akin to institutionalized tinkering than governing. So what should the board do when an outside authority requires what is, in fact, poorer governance than the board would otherwise conduct? The answer is simple. Comply. Not to do so may endanger a grant or break the law. We are not advising, however, that the board revert to a process of painstakingly examining documents with no criteria to compare them to. The following sequence should occur: Ahead of time, the board will have required the CEO to inform it that an approval is required by an outside authority on a matter that is within the CEO’s domain, that is, a decision not denied to the CEO by Executive Limitations policies. The CEO demonstrates to the board (in a monitoring report attached to the item to be approved) that the CEO’s decision on the matter is in compliance with board policy. (See sample monitoring report in Resource C.) If the board is assured that the item does not violate its policy, it then approves the item as a consent agenda action. The only legitimate board discussion to take place at this point would be, if any is needed at all, to question the monitoring assurance if applicable or to call the applicable board policy into question. Individual members of the board are not allowed to pull the item off the consent agenda simply because they want to engage in helping make or change the decision. If your board has decided to use Policy Governance, it should • Expect greater accountability of itself than is possible by ritual approvals.

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• Be explicit about the values it would have used in deciding approval or disapproval. • Refuse to allow outside authorities to deter it from responsible governance. • Comply with outside authorities, but by using meaningful methods.

Board Meetings Board meetings conducted by Policy Governance boards differ from the board meetings many of us are used to. Traditionally, board meetings have been used to hear staff reports, approve committee recommendations and staff documents, or discuss issues that one or more board members have found important or interesting. It is usually difficult to find examples of boards discussing and deciding issues of Ends, or to see clarification of the values that lead to approvals of anything. Moreover, the agenda of a traditional board is usually put together largely by the CEO. That is, management is deciding the matters to be discussed by the board. Is it any wonder that the board discusses issues of management rather than governance? We are not blaming CEOs for this, since they are doing what the board expects. We would point out, however, that this may be the only example in enterprise wherein the job of the superior is defined and stagemanaged by the subordinate. Policy Governance boards understand that they have a job to do that is different from the CEO’s job. Indeed, the board job precedes that of the CEO, since the board defines the CEO’s accountabilities. (In the beginning, there was the board—not the CEO.) The job outputs of a governing board are (1) linkage with the owners, (2) written governing policies, and (3) assurance of CEO-organizational performance. These products form the basis of the board’s ongoing agenda. This may seem unusual, for we are accustomed to see-

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ing board agendas crowded with other people’s jobs. Policy Governance boards spend their meetings doing their own jobs, and use their job description as the basis for annually or biannually planning board meetings. The Policy Governance board meeting is planned as a single but integrated part of an ongoing job. We advise boards to plan their jobs for the next one to two years by deciding what they want to have accomplished at the end of that period. If a board decides that it wishes to have made policy decisions about Ends by the end of the period, it may also decide that achieving this goal will require it to hold discussions about Ends with various pressure groups, community groups, governments, community boards, futurists, or demographers. Such consultations must be planned. The board must decide the items it most needs input about from these groups, and make sure that the groups know the questions they are being called upon to answer. A one- or twoyear work plan emerges from such an approach, and while the CGO will likely prepare the meeting-by-meeting agendas, they will be based on (any reasonable interpretation of) the work plan produced by the board. Accordingly, a given board meeting may contain few or no decisions, with the preponderance of meeting time being spent on education and preparation for major Ends decision making at a future time. Board meetings have only minimal concern with immediate activities of the organization. These activities are monitored against policy criteria, but the monitoring data are usually discussed in the meeting only in the event that the data show policy nonachievement or violation. The agenda of a typical board meeting in Policy Governance can vary quite as much as an agenda of any other board. The principles of governance are the same from one Policy Governance board to another, but the meeting content and format can vary widely. Let us offer a sample agenda (Exhibit 3.1) for illustration only; our comments are in brackets.

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Exhibit 3.1. Sample Board Meeting Agenda. Youth, Inc. Board Meeting Agenda January 15, 2020 CALL TO ORDER: Board CGO Janet Murphy. ATTENDANCE: Assurance of quorum and recognition of attendance deficiencies. [Attendance should be a serious matter, so in addition to having a strict attendance requirement in the bylaws, the board routinely takes note of multiple absences and seats in jeopardy due to nonattendance.] MINUTES: Board confirmation that minutes of the previous meeting are a true record. [It is important for the board to declare its official record. The board secretary then signs the minutes form as having been so certified by board vote on this date. With modern word processing, the board might choose to approve minutes of this meeting as a last item on the agenda rather than, as traditional, minutes of the last meeting as the first item. The strength of such a departure is that the board members actually present in a meeting are the ones affirming what was decided (at the next meeting members who were not even present would be making a rather hollow approval).] MONITORING AFFIRMATION: Board members individually affirm whether monitoring reports distributed since the last meeting demonstrate that a reasonable interpretation of policies being monitored has been fulfilled. [If a criterion number of board members have found all the CEO’s interpretations and supporting data to demonstrate that a reasonable interpretation of the applicable Ends and Executive Limitations policies has been fulfilled, a vote then confirms that finding. If a board-determined criterion number of board members do not accept either an interpretation as reasonable or data offered in proof of performance to be convincing, board discussion of its proper response ensues. Monitoring normally need not consume much time, but it is important that the board have a record of the due care taken regarding organizational performance against criteria established in Ends and Executive Limitations policies. Because board judgment must be exercised in this process, it is not a consent agenda item.] ENDS: Meeting with Association of Concerned Parents to discuss the needs of parents of imprisoned youth. [The board would spend a lot of its time being educated about issues relevant to its ongoing cycle of reviewing and

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Exhibit 3.1. Sample Board Meeting Agenda, Cont’d. revising Ends policies. It is quite possible that such fact and opinion gathering would take place at venues other than the regular board meeting site.] GOVERNANCE PROCESS: Decision on the questions to be submitted to the Probation and Parole Department in advance of our January meeting. [Asking for “input” in a general way can be useless. Here the board is honing just what it needs to learn from this source. It needs to know information that relates to the board’s continuing Ends concerns rather than, for example, information that would assist staff methods and practices.] CONSENT AGENDA: Approval of the budget for submission to the Department of Youth Services for next year’s funding. Monitoring report attached. [The board has entrusted budgeting to the CEO, bounded only by a reasonable interpretation of the board’s Executive Limitations policy on budgeting. There is no reason for the budget to be on the agenda except that the funder requires board approval. The monitoring report attached assures the board that the CEO’s work is consistent with applicable board policy, enabling the board to fulfill an authority’s requirement without damaging the quality of its governance.] NEXT MEETING: Clarification of board member preparation for the discussion with futurist Frans Maas. [Here the board reviews where it is in the annual cycle of board work, with special emphasis on what preparation is necessary for the next meeting.] REHEARSAL: The scenario for discussion and policy-based resolution this meeting will be presented by Consuella Mendez. Discussion will be led by George Martin. [Each meeting the board selects one what-if scenario in order to maintain its competence in working as a disciplined team to use existing policies in the resolution of whatever might someday arise in reality.] SELF-EVALUATION: Sam Jones will compare this meeting with Governance Process policy “Governance Style.” [This board rotates among its members the responsibility for formal assessment of each meeting, using a different board policy each time drawn from the Governance Process or Board-Management Delegation categories.] ADJOURNMENT Note: Board meetings under Policy Governance can take many forms. This example illustrates one possible sequence of agenda items. Italicized sections are our annotation for instructive purposes, not part of the actual agenda.

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Board Members It is very common for boards to recruit new members with the intent of duplicating skills needed at the staff level of organization. Hence boards become stocked with well-meaning people who believe, for good reason, that they are on the board in order to help with, assess, instruct about, or in some way be involved in staff work. New Policy Governance boards need to learn that their job breaks radically from this practice and that the skills they need to bring to the meeting may differ greatly from those they brought before. It is our experience that most board members can make this transition well, and in many cases they are relieved to be spending their time discussing and deciding issues that make a real difference. Some board members, a minority, find the change entirely disagreeable. They enjoy being involved in the day-to-day workings of the organization and wish to continue to be so involved. Such board members would do well to vacate their board position and apply for volunteer work in the organization. Both service-level and governance-level volunteers are valuable to the organization. The difference is a matter of aptitude and interest, not one of moral superiority of one over the other. It is also common to see boards appoint members based on their membership in designated groups. These are often called “constituency board members,” since there is an expectation that these persons represent the views of the particular group of which they are a member. Thus “student reps” on college boards or “consumer reps” on social service or health boards are given the unenviable task of voicing the point of view of a community of people who do not have just one point of view. Sometimes seats on boards have been created for persons who by tradition have been systematically excluded from governing positions, and we are sympathetic to the desire to put right this injustice. Our concern, however, is twofold. First, this method of appointing board members constituency by constituency will always

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exclude some group. Thus the desire to be inclusive results in exclusivity. Second, this method unfairly typecasts the board member. We would like all members of the board to see themselves as standing in for all of the owners. Recognizing that there will rarely be enough diversity on the board to represent the diversity in the ownership, the board as a whole should reach out to include input from those who are not on the board. An additional word about consumer reps may be useful. The most time-consuming and difficult job of the board is the determining of organizational Ends. Ends include the designation of the consumers of the benefits to be produced by the organization. Today’s consumers may be able to help greatly in such a designation, but it is important to remember that the most responsible decision may be that today’s consumers are not those who should be tomorrow’s consumers. This makes the job of board member particularly difficult for consumer reps. Boards are organs of ownership, not organs of customership or of any of the several other stakeholder groups. It is not that the board doesn’t care about, say, consumers or staff, but that consumers and staff, insofar as those roles are concerned, are not owners. We urge consumer reps or staff reps on boards (put there by law or other requirement) to refuse to accept the tokenism this practice implies and to take upon themselves the same wide-ranging portfolio held by other board members, that is, to represent the entire ownership. Moreover, we warn boards that their obligation to reach out in some systematic way to the entire ownership is not lessened because they have specifically so-called representatives of certain constituencies on the board. Officially designated as a constituency member or not, every board member is from somewhere. Governance would work better if designated constituency members were considered to be from a constituency rather than to represent it. Hence, a woman on a board doesn’t represent all women, nor does a person of color represent all persons of color. To so construe the role is disrespectful to the

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wide heterogeneity within these populations. Having a person from a certain neighborhood on the board does not excuse the board from designing strategies for reaching out to that neighborhood just as energetically as if no one from the neighborhood were on the board. Sometimes the tokenism effect of having constituency board members actually thwarts the result that was intended. Policy Governance requires board members who are interested in and capable of discussing the values underlying the actions taken every day in the organization and governing through the broader formulations of these values. Hence board members should enjoy conceptual argument, differing points of view, and values clarification. They should understand that they stand in for an ownership of diverse people who have many legitimate points of view, and they should actively seek to access and understand that diversity. They should welcome dissent but be able to honor group decisions once they are made. If your board has decided to use Policy Governance, it should • Remember that its job is not to help the staff. • Protect its staff from board members who wish to manage the organization without having gone through the formality of being hired. • Recruit people who are interested in the difficult task of Ends determination. • Encourage the expression of dissent in board discussion. • Deliberate with many voices but govern with one in instructing the CEO. • Remember that the diversity of the organization’s ownership is larger than can be represented directly by any board.

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• Seek to link with the ownership in as inclusive a way as possible, regardless of whether there are constituency members on the board.

Board Discipline Even highly disciplined individuals have trouble acting as part of a disciplined group. Yet a disciplined group is exactly what a board of directors must be. Boards must decide on a method to use in governing, and use it. Board members must understand there are familiar behaviors they will no longer be able to engage in. And they must understand there are unfamiliar behaviors to be practiced. They must decide what the group expectations are about such matters as attendance, individual use of authority, preparation for meetings, and conflict of interest—and then enforce them. We have often seen boards make statements about their intentions in governance but fail to police themselves when they don’t meet those expectations. It is as if the statement of intention suffices to fulfill the discipline. That doesn’t work for dieting or mowing the lawn—and it won’t work for governance, either. The CGO has a special responsibility for board discipline but is not the only enforcer. Group discipline simply works better if all the board members agree to help each other maintain the standards the board has set. Governance Process policies spell out board expectations in this regard and should be used as the criteria against which board performance is regularly assessed by the board. The board as a body has an additional responsibility to protect its staff from the board as individuals. This is done by instituting a policy stating that the CEO, while accountable to the board for complying with policies produced by the board, is not accountable for pleasing board members as individuals. If your board has decided to use Policy Governance, it should • Formally commit to observing the policies it has set for itself.

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• Enforce the agreed-upon rules when they are violated by board members. • Understand that being part of a disciplined board makes an individual’s attempted exercise of governing powers illegitimate. • Support the CGO when this officer undertakes to ensure group discipline.

Board Orientation Too often, board orientation, if it happens at all, is an exercise in teaching board members about everybody’s job but their own. Organizations ordinarily orient new members far more about what staff members are doing than about what the board’s specific job is and how it does it. The Policy Governance model needs to be known and understood in order to be used. New board members, and even experienced ones, need to be continually refreshed in their knowledge of the model. Using experienced members to instruct new members will keep both better educated. Governance discussions and reading relevant materials are two more ways of ensuring that the topic of governance remains on the board’s agenda. If your board has decided to use Policy Governance, it should • Ensure that new board members know the method of governance used by the board before they join the board if possible, but in any event, as soon as they join. • Use the principles of the model so that it is obvious that problem solving within the model enables and forces clarity. • Ensure that the policies are up-to-date, frequently reviewed, and immediately updated after any change.

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Board Officers and Committees If your board is to govern as a group and speak with one voice, it must avoid some time-honored practices with regard to officers and committees. Officers are traditionally given responsibilities that duplicate those given to the CEO. We have previously discussed the common practice of delegating portions of CEO responsibility to the treasurer, the CGO, and to a variety of committees. While this practice is contrary to Policy Governance principles, we do not mean to imply that there can be no valid role for officers or committees. Nor do we mean that board members with special expertise cannot be valuable in assisting other board members’ understanding. A financial expert, for example, can be useful in assisting the board to craft its policies related to finances (though that person need not hold an office). The CGO plays an essential and authoritative role in Policy Governance but should not have authority in the CEO’s domain. Traditionally, we have learned to speak of boards and committees much as we speak of peaches and cream or horses and carriages; they go together. People have a hard time conceiving of a board without committees. This is regrettable. Some boards never need a committee and, in any event, there is no committee that is generically necessary to governance. Moreover, people often have a clearer, albeit misinformed, notion of what certain familiar committees should do than they have of what the board should do. Yet, since a committee is a subpart of the board, the role or even the need for any committee cannot possibly be determined until the role of the board as a whole has been decided. We warn you about a particularly harmful committee—the executive committee—for it uniquely undermines both board and CEO authority. Since an executive committee is usually granted the authority to make board decisions when the board is not in session, its authority may in practice be more far-reaching than that of the

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board itself. Moreover, it inserts itself between the board and the CEO, making it difficult to tell exactly for whom the CEO works. Board members not on the executive committee often feel excluded from the real decision making and unable to control the committee’s activities, even though board committees are ostensibly subservient to the board. Indeed, we have almost never seen standards of performance or clear descriptions of the responsibility of executive committees, even though we have seen them make the majority of decisions. On the other hand, a board feels relieved of much of its burden when it defaults to a committee in this way. A Policy Governance board must forgo the illusion of efficiency provided by a traditional executive committee. If your board has decided to use Policy Governance, it should • Create no office or committee position for the purpose of helping, advising, instructing, or exercising responsibility for or authority over any aspect of organization that has been delegated to the CEO. • Use committees, if it wishes, to help the board with parts of its own job. • Allow no committee to be a board-within-the-board. • Create committees that last as long as the job the committee has to do, but no longer (some might possibly have perpetual jobs). • Be clear about the product the board is requiring from the committee (for example, advice to the board or a set of options for board action). • Be clear about the resources the committee is authorized to use (for example, money or staff time). • Use the expertise of board members to inform board wisdom, but not to substitute for it.

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We can assume, then, that your board has learned the theory, is committed to continually getting more clear about it, and has considered and accepted the implications of governing through the Policy Governance model. As you get started, it will be instructive to remember that implementing the model is a capital investment in your capability to govern, not just a board training exercise. It calls for a little extra work but saves unnecessary work in the long run. It calls for attention to what might look like housekeeping but grants you freedom from much of the housekeeping afterward. Most of all, you will be laying the framework in which your leadership can be expressed.

Next Chapter At this point, we have completed your preparation. Be prepared to come back to Part One or to the other Policy Governance publications to clear up any remaining issues about theory whenever you need to do so. You will find, in fact, that occasional discussions of the theory alone will help keep your implementation focused. In Chapter Four, we help you to examine the creation of Executive Limitations policies, those board policies that put off-limits certain organizational practices, decisions, activities, methods, and situations. These policies in effect put a fence around the CEO and the rest of the staff within which they may make whatever decisions they deem fitting. Now, let’s get into the work of Policy Governance.

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Part II Crafting Policies

P

art Two consists of four chapters in modified workbook form. We guide you through the establishment of board policies in the four Policy Governance categories. Because the Policy Governance model relies so much on explicit statements of board values and on carefully following the new policymaking principles, creating those policies is a fundamental part of implementation. In fact, a board cannot be said to have implemented the model if the policies are not in place; intent and even a change of mentality are not enough.

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4 Executive Limitations Policies Optimizing Empowerment by Setting Limits

I

n this chapter, we guide you through the formulation of Executive Limitations policies—those policies enabling the board to withdraw safely from most details of operation. On the circle diagram introduced in Chapter Two, these policies are located and will control everything in the lower right-hand quadrant (see Figure 4.1). Policy Governance cannot be implemented unless these policies are in place. They are the board’s way of telling the CEO the limits of acceptability regarding staff means (non-ends issues, including methods, situations, circumstances, and practices). Thus these policies are boundary setters. It is not necessary that you call them Executive Limitations, of course, but it is important that your title for this category of board policy indicate the limiting, constraining, or restrictive nature of these documents. Examples would be Operational Parameters, CEO Authority Limits, Administrative Boundaries, or even Unacceptable Operational Situations and Actions. Executive Limitations policies, like Ends policies, are addressed to the CEO, not to the entire staff. While Ends policies tell the CEO what the board intends for the organization to achieve, Executive Limitations policies tell the CEO what the board will not put up with. The CEO will be held personally accountable that all staff means fall within the boundaries established by the Executive Limitations policies. The idea of boundary setting is important for establishing optimal delegation. For the board to get the most out 65

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Figure 4.1. The Staff Means Quadrant. Governance Process Issues


Ends Issues

Staff Means Issues

Note: On the circle diagram introduced in Chapter Two, the issues dealt with in this chapter are in the lower right-hand quadrant.

of its staff, it is necessary to give the staff a great deal of room to make decisions. This is best done by giving total authority in a blanket kind of way but pulling some of it back in selected ways. This is accomplished by the negatively worded policies, for it is the Executive Limitations policies that do this pulling back and thereby establish the latitude of your CEO’s authority. It is important to remember that the board will pull back some of the CEO’s authority because it wishes to guard against CEO and staff decisions that are in violation of board values about prudence and ethics. Executive Limitations, therefore, describe what would

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Executive Limitations Policies

be unacceptable even it were effective. As we noted in Chapter Three, boards should resist the temptation to engage in backdoor prescription of means. Some examples we have seen include policies telling the CEO to use no management method other than Balanced Scorecard or a specific school program. It is clear that this kind of statement is a means prescription even though it is negatively worded. A helpful rule to remember is that Executive Limitations are justified by concerns about prudence and ethics and are not justified by a board’s desire to tell the CEO how to manage. It may be useful to think of Executive Limitations policies as establishing the conditions for preapproval of any staff decisions or activities that do not violate the policies. Thus if budgets, compensation plans, or other operational decisions are not in violation of Executive Limitations policies, they are automatically boardauthorized. It is as if the board says to the CEO, “Any action you take or situation you get into can be considered board-approved if it does not violate our policies.” These policies allow boards to take care of their worries about staff activities by defining those worries and explicitly proscribing them. Like all policymaking in the Policy Governance model, the creation of Executive Limitations policies starts at the most general, most inclusive level (the outside edge of the quadrant), and then policies are further defined until the point at which any remaining reasonable interpretation by the CEO would be acceptable to the board. At this point, delegation occurs. The board holds the CEO accountable for ensuring that all further decisions and actions do constitute reasonable interpretations. As you create Executive Limitations policies, at each stage you will be asking yourself whether you can accept any reasonable interpretation of your words by the CEO. We urge you to decide this question based not on your guess about your incumbent CEO’s likely interpretation but on your comfort with the entire range of interpretation allowed by your words. In other words, you will be making policies with your own values in mind, not your predictions about your current CEO. This will give your policies a durability that will outlive any given CEO. It will also avoid the disillusionment that

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leads to a board’s subsequent lament to the effect that its CEO didn’t do what board members naturally assumed they could expect, given their prior knowledge of that individual. Before we begin, let us clear up an impediment that causes many boards to get hung up in this process. Do not confuse the task of policymaking with the task of monitoring policy performance. The best policy—contrary to what is often said—will be created by completely ignoring how it will be evaluated. It is important that the board be true to itself and its values by clearly enunciating, in the case of Executive Limitations, the boundaries of prudence and ethics to which it commits the organization. If you combine that task with contriving measurement methods, you will warp the clarification of your values in the service of easier measurement. Therefore, as you enter upon the work of this chapter, simply take for granted that monitoring will be done acceptably. That is, assume that if you say the CEO shall not wear brown shoes, a way will be devised to determine whether brown shoes are worn. Now, let’s get on with Executive Limitations policies!

Let’s Take It from the Top: Level One So, in answer to the question of what to tell the CEO not to do or allow, begin by drafting the most general, most inclusive, largestmixing-bowl policy that the board can start with. In our experience assisting many boards with this process, we have found that a statement similar to the following is a good place to start. Because it is the first and broadest level of Executive Limitations, for reference in our step-by-step approach we refer to this statement of policy as EL #1. Policy EL #1: Global Executive Limitations Policy The CEO shall not cause or allow any organizational practice, activity, decision, or circumstance that is either unlawful, imprudent, or in violation of commonly accepted business and professional ethics and practices.

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Some boards find that their special circumstances require them to make this policy more inclusive. For example, a Catholic hospital board may add “violation of canon law,” or a national Red Cross board may add “violation of the principles of the international Red Cross and Red Crescent movement.” Many nonprofit boards dependent on grant funds add “violation of regulations of funding agencies or regulatory bodies.” Remember that the board’s task at this stage (EL #1) is to find policy wording that is of sufficient breadth to include all possible actions that it would find unacceptable. Breadth is the point here, not depth. Depth will be considered later as we expand upon this statement, but we must first have a statement of sufficient integrity and inclusiveness to support the expansions. Some board members will see no value in stating such a broad proscription, feeling that if a board has to tell its CEO not to break the law, it has the wrong CEO. They are right, of course, as far as that goes. But the point of Executive Limitations policymaking is to leave no holes in the understanding a board has with its CEO. Having a broad statement as the foundation for further detailed statements means that if the board overlooks a subsequent, more detailed prohibition, there is always the broader one to fall back upon. Therefore, expect some board members to complain that this broadest Executive Limitations statement is very broad and nonspecific, leaving a great deal open to interpretation. This is exactly the point. ASSIGNMENT: Discuss the broad Executive Limitations policy (EL #1) and decide what language would serve best for your board. Be careful not to prescribe means, and be careful not to go into more detail. You have now created the outermost policy within the Executive Limitations category of board policies, as shown in Figure 4.2. Although you will likely go into more detail, you have covered most of your worries with this simple policy standing alone. Most of the

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Figure 4.2. Executive Limitations, Level One.

#1

Staff Means Issues

EL

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Note: At this point in our exercise, the outer level of the policy circle has been completed in the Executive Limitations portion. Executive means have now been contained, even if only at a broad level.

trouble that nonprofit and governmental organizations get themselves into results from violations of this one-sentence policy. Although we have never encountered the situation, a board could stop at this EL #1 level of policymaking, thereby delegating to its CEO the broad latitude that stopping at this point would allow. In any event, either to continue or to conclude the process of Executive Limitations policymaking, your board must ask itself the question, Can we accept any reasonable interpretation of these words from our CEO? A board agreeing to accept the CEO’s interpretation at this stage has nothing further to say about the means its staff employ. Its Executive Limitations policymaking is over. (It will, however, have to monitor whether staff means do indeed respect the boundaries placed on them by this policy.) If, as we suspect, your board is not willing to entrust your CEO with the interpretation (no matter how reasonable those interpretations might be) of so broad a statement, then there is more Exec-

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utive Limitations work to be done. The reason, of course, is that if your board is not comfortable leaving Executive Limitations at the broadest level, it means that the board has worries within even reasonable interpretations of that broadest level. The next task for your board, then, will be to go into more detail about prohibitions than you have already stated in broad terms in EL #1. We’ll call this next level of detail EL #2.

Here’s a Little More Detail: Going to Level Two Only one statement can be made at the EL #1 level, for by its nature EL #1 addresses the entire spectrum of all possible staff actions and situations. When a board chooses to go into more detail, however, its concerns or worries fall into a number of subject areas. That is, EL #1 is global, but EL #2 and further levels are necessarily subglobal and topic-specific. We need to point out that the global Executive Limitation does not lose its breadth simply because the board chooses to enumerate some of the ways it would further limit the CEO’s range of interpretation. The board may wish to expand upon the global prohibition only in, say, two subtopics, but not in all. Having done so would not mean the board is prohibiting only those aspects it has chosen to define further. For this reason, the Board-Management Delegation describing delegation to the CEO (a topic to be dealt with in Chapter Six) makes the point that enumeration of further limitations at any level does not limit the scope of any foregoing levels. The topic areas could be organized in a number of ways, but our clients have typically employed categories like those in the list to follow. Each, you will notice, expands upon the more general prohibition against “organizational practice, activity, decision, or circumstance that is either unlawful, imprudent, or in violation of commonly accepted business and professional ethics and practices.” These topics, within the broader prohibition stated by EL #1, might deal with what the board would find unacceptable about:

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• Treatment of consumers • Treatment of staff • Financial planning/budgeting • Financial condition and activities • Emergency CEO succession • Asset protection • Compensation and benefits • Communication and support to the board At this stage, it may be helpful to pause and consider what reactions you have to the list of unacceptables. We sympathize with the intuitive reaction that such a starkly negative list is off-putting. But we encourage you to reflect on what this establishes in your delegation of operational means to your CEO: if the board hasn’t said the CEO can’t, the CEO may. Anything the CEO decides to do, except those things prohibited, is acceptable. This delegation approach is extremely empowering—but it cannot work without a stark delineation of what is out of bounds. Soften the language of what is unacceptable, and you risk throwing the massive empowerment into question. As we take your board through a consideration of Executive Limitations policies of greater depth than EL #1, we will use the foregoing topics simply because we have found them most useful for most organizations. There is no reason that your board could not create policies organized into different groupings than these. For example, a school board the senior author worked with some years ago saw fit to include at least two aspects of this list under a single “unacceptable treatment of people” policy. Further, some boards, due to the unique nature of their organization or environment, will develop policies with content unlike any of these (though the format and principles will be identical). To illustrate, as we get into the EL #2 level, we will include a policy that would be specific to grant-

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making organizations (such as foundations) or ones that contract out services to other organizations. Such a policy may be necessary to ensure that an ends focus is maintained even when outside vendors are utilized. So at this next level (EL #2), the board articulates further policy language regarding any area of concern for which it feels a need to narrow the broader language of EL #1. Although policies at this next level are more detailed than at the EL #1 level, they will be the most general policies within the chosen categories, that is, the broadest proscription about financial management that is more detailed than what appears already in EL #1. (Note that financial management is covered by EL #1 already, even though it isn’t even mentioned there by name.) It is important to keep the EL #2 proscriptions at the EL #2 level, for tempted though it may be, the board should not prematurely plunge into detail in any area. Rather it should proceed level by level. Proceeding through the list just shown, we will guide you through examples of policies developed by our clients. Each area addressed is assigned a letter suffix. Accordingly, the policy about the treatment of consumers is referred to as EL #2a and the policy about treatment of staff as EL #2b. Remember that these policies are not being offered as best for any particular organization but simply as examples of policies that are consistent with Policy Governance principles. A particular board may use some or all of the policy subject areas and may change many or few of the words. Let us say a word about our organization of this material. We are taking you through a level-by-level examination of your values, as they relate to the boundaries of acceptable staff situations and actions. In subsequent chapters, we take the same cascading-level approach in the other policy categories. We are about to begin dealing with various topics at Level Two within Executive Limitations. We are, therefore, addressing policies by topics within each level. However, when the policies are complete, using them efficiently calls for putting all the levels about one topic together so they can be followed easily. In this way board criteria about the same topic

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are not scattered. In Part Three, when we deal with maintaining Policy Governance, we revisit this issue and demonstrate what the completed actual policies look like. In Resource A, we assemble the various levels of policies on their various topics into the format used in a completed policy manual. For now, however, we enter our level-by-level treatment, one topic at a time. ASSIGNMENT: Go through each of the following EL #2 statements in turn, taking your time to discuss whether some or all of each one makes sense to your board. Resist going into more detail than this now. Also, resist the temptation to word-craft commas and semicolons and grammar. Instead, examine your differences of opinion about the values expressed. Don’t forget that each consideration that follows will have been preceded by the more general prohibition of the EL #1 statement. Hence, it would be unnecessary to state not to break the law with respect to, say, treatment of consumers. Further, as we remind you as we go along, failing to cover a topic at the EL #2 level does not mean the board will have no control over that topic. It simply means that the control will be the broader (one might say, looser) control about that topic imposed by the proscriptive language in your global EL #1 policy. Policy EL #2a: Treatment of Consumers With respect to interactions with consumers or those applying to be consumers, the CEO shall not cause or allow conditions, procedures, or decisions that are unsafe, untimely, undignified, or unnecessarily intrusive.

Remember that the benefits to be produced for consumers, as well as the identification of the consumers, are ends matters and are not at issue here. This policy merely establishes that the organization’s interaction with consumers may not violate the principles stated. Does this policy state your board’s values with respect to treatment of consumers? If you are a hospital board or city council, would “unduly undignified” be better than simply “undignified” be-

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cause of the nature of your organization’s work? The best medical and police activity, for example, can incur some unavoidably undignified situations. If a board were to use wording such as that shown in this policy, it would again raise the question as to whether it can accept any reasonable interpretation of these words by the CEO. For example, a range of interpretations could reasonably be given to the words undignified or intrusive. If only a part of that range is acceptable, then these words are insufficient to describe what the board intends. ASSIGNMENT: Discuss this policy and decide whether it is needed at all, establishes sufficient control, or needs further definition. Deciding that it is not needed means the board is satisfied for the CEO to be limited only by the broader language of EL #1 with respect to this topic. If this EL #2 policy provides necessary and sufficient control, the CEO will have the right to use any reasonable interpretation of its narrower language. If still greater control of CEO options is needed, further definition of this EL #2 policy is required. Consider the examples of EL #3 policies shown later in this chapter. Policy EL #2b: Treatment of Staff With respect to the treatment of paid and volunteer staff, the CEO may not cause or allow conditions that are unfair, undignified, disorganized, or unclear.

Let us remind you again that all policies at EL #2 (and further) are contained within the general proscription of EL #1. Hence, boards that are concerned about the laws relating to staff treatment, as well as about collective agreements, should recall that the CEO has already been placed under a general instruction that the violation of any law or any legally binding agreement (general prudence and ethics) will not be permitted. In fact, unless the board’s proscriptions about treatment of staff go further than law and business ethics, there is no need for this policy at all, even at the EL #2 level.

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It is important to note that however detailed the board may get in its policymaking, when it does delegate, it delegates to the CEO. Hence, in the case of this policy, definition of the words unfair and undignified is the prerogative of the CEO, not of staff members. ASSIGNMENT: Discuss and decide whether this policy is needed at all, establishes sufficient control, or needs further definition. Deciding that it is not needed means the board is satisfied for the CEO to be limited only by the broader language of EL #1 with respect to this topic. If this EL #2 policy provides necessary and sufficient control, the CEO will have the right to use any reasonable interpretation of its narrower language. If still greater control of CEO options is needed, further definition of this EL #2 policy is required. Consider the examples of EL #3 policies shown later in this chapter. Policy EL #2c: Financial Planning/Budgeting The CEO shall not cause or allow financial planning for any fiscal year or the remaining part of any fiscal year to deviate materially from the board’s Ends priorities, risk financial jeopardy, or fail to be derived from a multiyear plan.

This policy acknowledges that the most important aspect of a budget is that it enables the accomplishment of ends in proper proportionality. (Conventional line-item budgets do not demonstrate the link between Ends priorities and financial allocations.) The policy also acknowledges that the CEO will be engaged in financial planning on a virtually continual basis. Hence its proscription applies year-round. Contrast this with the fiction maintained by many boards that financial planning occurs only once per year and results in one budget that the board must approve (against unstated criteria). Here, the board states a proscription that requires the CEO to maintain integrity in financial planning however often budgets are updated. Note that the wording indicates only three interests the board has in budgeting (beyond the global interest imbedded in the EL #1

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policy). Is this true for your board? What other interests are there beyond mere, but understandable, curiosity? This is not the time to concern yourself with those aspects of budget that the board merely wants to know about (rather than to control). At this point the board is setting criteria for performance, which is a very different undertaking from listing what it would like to know about. So be careful not to confuse curiosity with giving direction. Since these are the only criteria (perhaps to be augmented later by Level Three or beyond), any budgeting your CEO does that is consistent with the policy that emerges here is automatically approvable. ASSIGNMENT: Discuss this policy and decide whether it is needed at all, establishes sufficient control, or needs further definition. Deciding that it is not needed means the board is satisfied for the CEO to be limited only by the broader language of EL #1 with respect to this topic. If this EL #2 policy provides necessary and sufficient control, the CEO will have the right to use any reasonable interpretation of its narrower language. If still greater control of CEO options is needed, further definition of this EL #2 policy is required. Consider the examples of EL #3 policies shown later in this chapter. Policy EL #2d: Financial Condition and Activities With respect to the actual, ongoing financial conditions and activities, the CEO shall not cause or allow the development of financial jeopardy or material deviation of actual expenditures from board priorities established in Ends policies.

Policy Governance boards commonly enact an Executive Limitations policy about actual financial situations, in addition to intentions about financial situations (budget). They acknowledge that despite the most skilled planning, the organization can still wander into an unacceptable position. Accordingly, the board here defines those financial conditions and activities that it would deem unacceptable. Indeed, actual financial condition and activities are far more important than budget, even though traditional boards place

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most of their financial emphasis on budgets. No organization ever went broke because of its budget; plenty have gone broke because of their actual financial condition! Thus the board has reason to worry far more about its actual financial condition than about its budget. This policy should provoke a discussion by your board of the traditional practice of actual-to-budget comparisons as a way of reporting financial condition. While we are not dealing with the monitoring of these policies in this chapter, a digression on this matter is in order. One might ask, If the organization has a budget, why have a separate financial condition policy? Why not simply compare how the organization is doing to the budget? The reasons are twofold. First, if the board’s expectation is that there be no deviation from budget at all, then every financial report will be out of compliance. If it is not to deviate from budget more than some percentage, why should the board assume that deviation in any amount is bad? Or is the organization not to deviate about certain aspects of budget, but others don’t matter? Experienced traditional boards know that separate judgments have to be made about deviations of different sorts. If separate judgments are made, upon what criteria are they made? We are back to making evaluative determinations against unstated criteria. In other words, that there is deviation is not very important. The question is still, What kinds of actual financial conditions or actions are unacceptable? These can be directly codified and placed in the Financial Condition and Activities policy. Second, budget detail has been turned over to the CEO anyway. So the board has not decreed a set of specific numbers that the CEO must follow. The board has said that any budget the CEO wants to have is acceptable, as long as the provisions of the budget policy (shown earlier as EL #2c) are not breached. So comparing actualto-budget merely tells the board how well the CEO is tracking with his or her own choice of budget numbers. This information is not a critical matter at the governance level. Besides, if the board’s interest in financial planning has to do with its concern about integrity in planning the future, the only budget that addresses this

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concern is budgeting from the present, actual situation into the future—something the actual-to-budget comparison misses entirely! Policy Governance calls upon your board to define what it would not want to happen in budgeting (dealt with in EL #2c) and then what it would not want to occur in the organization’s actual financial condition. This policy (EL #2d) provides your opportunity to settle the second question. ASSIGNMENT: Discuss this policy and decide whether it is needed at all, establishes sufficient control, or needs further definition. Deciding that it is not needed means the board is satisfied for the CEO to be limited only by the broader language of EL #1 with respect to this topic. If this EL #2 policy provides necessary and sufficient control, the CEO will have the right to use any reasonable interpretation of its narrower language. If still greater control of CEO options is needed, further definition of this EL #2 policy is required. Consider the examples of EL #3 policies shown later in this chapter. Policy EL #2e: Emergency CEO Succession To protect the board from sudden loss of CEO services, the CEO shall not permit there to be fewer than two other executives sufficiently familiar with board and CEO issues and processes to enable either to take over with reasonable proficiency as an interim successor.

The board here is not requiring the CEO to name a long-term successor. It is, however, requiring that in the event of a sudden loss of the existing CEO, the board will have other staff members able to take over the helm while the board organizes its search for a replacement CEO. This policy does not deal with temporary absences, such as when the CEO is on vacation; the CEO is still CEO despite his or her absence. The CEO is accountable for the actions of those left in charge; the board needs no policy to deal with that continuing accountability. Far more frequently than with the other EL #2-level policies in this discussion, our clients have regularly chosen not to go into further

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detail. If they did, they would be defining, for example, degrees of familiarity, which issues and processes are meant, and so forth. You, of course, may decide to do just that. On the other hand, what our clients ordinarily do is adjust the number of familiarized executives to be appropriate for the size of their organization. ASSIGNMENT: Discuss this policy and decide whether it is needed at all, establishes sufficient control, or needs further definition. Deciding that it is not needed means the board is satisfied for the CEO to be limited only by the broader language of EL #1 with respect to this topic. If this EL #2 policy provides necessary and sufficient control, the CEO will have the right to use any reasonable interpretation of its narrower language. If still greater control of CEO options is needed, further definition of this EL #2 policy is required. We have not included an EL #3 policy on this topic, although you may choose one for your board. Policy EL #2f: Asset Protection The CEO shall not cause or allow corporate assets to be unprotected, inadequately maintained, or unnecessarily risked.

The board legally possesses assets of different types. The board itself exercises little direct control over those assets, having by necessity put them under the care of the CEO. While the global Executive Limitations policy EL #1 requires general prudence about everything, this policy more specifically targets the stewardship of assets. Notice that there are in this policy, as in all policies, many words that are open to interpretation. What is the definition of asset? Does it include nonmonetary goods, such as public image? What does inadequately mean? What is unnecessary risk? ASSIGNMENT: Discuss this policy and decide whether it is needed at all, establishes sufficient control, or needs further definition. Deciding that it is not needed means the board is satisfied for the CEO

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to be limited only by the broader language of EL #1 with respect to this topic. If this EL #2 policy provides necessary and sufficient control, the CEO will have the right to use any reasonable interpretation of its narrower language. If still greater control of CEO options is needed, further definition of this EL #2 policy is required. Consider the examples of EL #3 policies shown later in this chapter. Policy EL #2g: Compensation and Benefits With respect to employment, compensation, and benefits to employees, consultants, contract workers, and volunteers, the CEO shall not cause or allow jeopardy to financial integrity or to public image.

As written, this policy concentrates on two aspects of compensation and benefits: financial jeopardy and public image. Its message, which may or may not be the appropriate one for your board, is that beyond the basic proscription of EL #1, the board’s only concern about compensation and benefits is that they not endanger the organization’s financial health or cause a problem in the public’s perception of the organization. As always, the board defines what would not be acceptable and allows the CEO to interpret its words. ASSIGNMENT: Discuss this policy and decide whether it is needed at all, establishes sufficient control, or needs further definition. Deciding that it is not needed means the board is satisfied for the CEO to be limited only by the broader language of EL #1 with respect to this topic. If this EL #2 policy provides necessary and sufficient control, the CEO will have the right to use any reasonable interpretation of its narrower language. If still greater control of CEO options is needed, further definition of this EL #2 policy is required. Consider the examples of EL #3 policies shown later in this chapter. Policy EL #2h: Communication and Support to the Board The CEO shall not cause or allow the board to be uninformed or unsupported in its work.

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For a board to fulfill its role, it must have information that is likely to be in the hands of the staff, and it may need administrative support that the staff is best suited to provide. For example, a board may need legislative information or demographic data to which the staff has access. Or a board may need notices mailed, minutes prepared, and meeting rooms acquired. Certainly, a board needs information about performance from the staff when it has determined that staff is the preferred source of such information. Further, a board may simply want to know organizational information for personal or political reasons. This policy says that board ignorance is one of the several unacceptable situations that the CEO is to avoid. As written at this EL #2 level, of course, the board isn’t specific about all the kinds of information and support it wants. At this level, interpreting those things is left up to the CEO. ASSIGNMENT: Discuss this policy and decide whether it is needed at all, establishes sufficient control, or needs further definition. Deciding that it is not needed means the board is satisfied for the CEO to be limited only by the broader language of EL #1 with respect to this topic. If this EL #2 policy provides necessary and sufficient control, the CEO will have the right to use any reasonable interpretation of its narrower language. If still greater control of CEO options is needed, further definition of this EL #2 policy is required. Consider the examples of EL #3 policies shown later in this chapter. Policy EL #2i: Ends Focus of Grants or Contracts The CEO may not enter into any grant or contract arrangements that fail to emphasize primarily the production of Ends and, secondarily, the avoidance of unacceptable means.

This policy would be considered by the board of an organization that funds other organizations, such as a foundation or governmental funding agency. It would also be considered by the board of an or-

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ganization that contracts with other organizations for some portion of its Ends. It is included here to illustrate a policy that is not typical. Policy Governance boards spend most of their time focusing on the Ends to be achieved by their organizations. It would seem incongruous to permit their organizations to fund other organizations in a way that forces a focus on means. The EL #2i policy requires a relationship between the funding organization and the contractor or vendor organization that is very different from that commonly seen in nonprofit and public arenas. The policy forces the CEO’s grant making to emphasize the performance of a grantee along lines of proper results for the intended recipients at the appropriate cost, rather than to intrude into the grantee’s methods. Although requiring the “primary determinant” to be these Ends factors, the policy leaves the CEO room for a secondary focus on unacceptable means (such as racial or gender discrimination, unsafe conditions, and so forth). ASSIGNMENT: Discuss this policy and decide whether it is needed at all, establishes sufficient control, or needs further definition. Deciding that it is not needed means the board is satisfied for the CEO to be limited only by the broader language of EL #1 with respect to this topic. If this EL #2 policy provides necessary and sufficient control, the CEO will have the right to use any reasonable interpretation of its narrower language. If still greater control of CEO options is needed, further definition of this EL #2 policy is required. Consider the examples of EL #3 policies shown later in this chapter.

Let’s Check the Map to See Where We Are Now let’s see where all this Level Two work has gotten you. Figure 4.3 indicates the “thicker” sealing of the boundary of acceptability formed by these more detailed policies. The effect is to restrict to a greater degree the CEO’s potential choices in operating the organization than was possible at Level One. The Level Two controls, of

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Figure 4.3. Executive Limitations, Levels One and Two.

2e

#1 2f

2g

2h

2i

Staff Means Issues

EL

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2d

2a

2b

2c

Note: With policy language at the EL #2 level, the initial global proscription of staff means has been extended into topic-specific areas.

course, may or may not be sufficient. For those areas in which they are insufficient, we next demonstrate going to the next level of detail (EL #3). The institution of EL #2 policies narrows the latitude left to the CEO by the board in EL #1. Further definition by the board of its EL #2 words, if it chooses to do it, will again narrow this latitude. We are not encouraging either going into more detail or staying out of it. We are, however, urging your board to be honest about the matter. If the board is truthfully not going to allow the CEO the entire range of reasonable interpretation of the EL #2 policies, it is duty bound to provide further definition. The board that eschews greater detail, yet is perfectly willing to make judgments about those unstated details, will damage its CEO’s trust and its own integrity. ASSIGNMENT: Look over your work so far. You have now created one EL #1 global policy and several further defined constraints on the CEO at the EL #2 level. The CEO is bound by all these taken together. Does your board have any worries about staff methods,

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practices, and situations that are not covered by these statements? Remember that you will have further opportunity to make the policies more specific, but these should provide the foundation upon which any further specifics are based. You will notice in our diagram (Figure 4.3) that the EL #2 policies do not completely cover the arc. We have left that gap to symbolize some further defining at Level Two that the board has either accidentally or intentionally omitted. Such omission is possible because no board can think of everything right at the beginning of its Policy Governance implementation. But the principle of logical containment, illustrated by the “coming in on the circle” scheme of policies, ensures that at whatever level the board’s omission occurs, the safety net about staff means merely drops back to the next larger level. It never falls all the way through as if there were no policy protection at all.

Going into Even More Detail: Level Three The policy language constructed thus far gives the CEO a comfortable latitude for decision making, perhaps more latitude in some areas than your board wishes. Assume for a moment that your CEO consistently uses a reasonable interpretation of these policies and can demonstrate this to the board. Would it then be possible for the CEO to do or allow things that, while consistent with your policies, are still not acceptable to the board? If not, your Executive Limitations policymaking is complete. You can stop. If so, there is more policy crafting to do. A third level of detail will be necessary for one or more of the topics already covered. In the following pages of this chapter, we demonstrate some Level Three policies (EL #3). These take the words of the Level Two policies and further define them. Remember that Level Two policies are themselves built upon the Level One policy that started this sequence. For example, your board does not need to repeat the proscription about breaking the law, since this was included at Level

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One. Also remember—we are not recommending that every board go into the level of detail shown or that boards should never exceed it. That is the board’s decision. Policy Governance provides a framework for effectively codifying your board’s values; it does not dictate what the content or breadth of those values will be. So let’s return to the same policies you have just completed and consider taking their proscriptions into the next level of detail. At this point you may have changed the language of these EL #2 policies to fit your own values. Since we can’t know what changes you made, we proceed using the samples with which we began. Earlier we pointed out that EL #1 is global and is, therefore, a single statement standing alone. When you drop below the global level, that is, when you go into more detail with EL #2, there are a number of parallel topics. We illustrated several as EL #2a, EL #2b, and so forth. Similarly, you could see each of the EL #2 policies as global within its topic area, so that going into the level of EL #3 will produce a number of parallel items within each of the EL #2 topics. That is what you will see as we take the next step. ASSIGNMENT: For each of the EL #2 policies that in the previous exercise you decided on, review each of the EL #3 points that follow. Discuss whether each one adds needed specificity to your Level Two policy. Remember, policymaking at any depth is an exercise in clarifying your board’s own values, not one of mimicking a standardized recipe. Examine each of the points for content as well. Some of the content may not apply to your situation. Policy EL #2a (Treatment of Consumers) states: With respect to interactions with consumers or those applying to be consumers, the CEO shall not cause or allow conditions, procedures, or decisions that are unsafe, untimely, undignified, or unnecessarily intrusive. This policy may be further defined in a number of ways, thereby creating Level Three policies. Here are some of the further policies developed by several of our clients. Notice that the language remains proscriptive as increasing detail is included. At no point does

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it wander into prescribing the means, that is, into telling the CEO how to manage. So, keeping in mind that further specification does not release the CEO from the scope of the broader levels, the board could become even more restraining than EL #1 and EL #2a by saying in Policy EL #3a that the CEO shall not 1. Elicit information for which there is no clear necessity. 2. Use methods of collecting, reviewing, transmitting, or storing client information that fail to protect against improper access to the material. 3. Fail to operate facilities with appropriate accessibility and privacy. 4. Fail to establish with consumers a clear understanding of what may be expected and what may not be expected from the service offered. 5. Fail to inform consumers of this policy or to provide a way to be heard for persons who believe they have not been accorded a reasonable interpretation of their rights under this policy. Now, go over the policy at your newly defined Level Three to see if it makes sense as a whole. Does it sufficiently expand your Level Two policy on the same topic? Remember that what will be binding on your CEO will be the combined effects of all the levels with respect to any given topic. ASSIGNMENT: Discuss this policy and decide whether it is needed at all (being sure to think of it as including all levels thus far), establishes sufficient control, or needs further definition. Deciding that it is not needed means the board is satisfied for the CEO to be limited only by the broader language of EL #1 and EL #2 with respect to this topic. If this EL #3 policy provides the additional necessary and sufficient control, the CEO will have the right to use any

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reasonable interpretation of its narrower language. If still greater control of CEO options is needed, consider language even more detailed as you go on your own into Level Four policies or beyond. Policy EL #2b (Treatment of Staff) states: With respect to the treatment of paid and volunteer staff, the CEO shall not cause or allow conditions that are unfair, undignified, disorganized, or unclear. Further definition will create Level Three policies by defining what is meant by the words unfair and undignified and might even make differentiations between paid and volunteer staff. Notice that the language remains proscriptive as increasing detail is included. At no point does it prescribe means. So, keeping in mind that further specification does not release the CEO from the scope of the broader levels, the board could become even more restraining than EL #1 and EL #2b by saying in Policy EL #3b that the CEO shall not 1. Operate without written personnel rules that (a) clarify rules for staff, (b) provide for effective handling of grievances, and (c) protect against wrongful conditions such as nepotism and grossly preferential treatment for personal reasons. 2. Retaliate against any staff member for nondisruptive expression of dissent. 3. Fail to acquaint staff with the CEO’s interpretation of their protections under this policy. 4. Allow staff to be unprepared to deal with emergency situations. It is common for boards to worry about the monitoring of this policy. We advise, as always, that monitoring methods be considered separately from setting the criteria. Monitoring will be discussed in Chapter Six when we deal with Board-Management Delegation policies. ASSIGNMENT: Discuss this policy and decide whether it is needed at all (being sure to think of it as including all levels thus far), es-

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tablishes sufficient control, or needs further definition. Deciding that it is not needed means the board is satisfied for the CEO to be limited only by the broader language of EL #1 and EL #2 with respect to this topic. If this EL #3 policy provides the additional necessary and sufficient control, the CEO will have the right to use any reasonable interpretation of its narrower language. If still greater control of CEO options is needed, consider language even more detailed as you go on your own into Level Four policies or beyond. Policy EL #2c (Financial Planning/Budgeting) states: The CEO shall not cause or allow financial planning for any fiscal year or the remaining part of any fiscal year to deviate materially from the board’s Ends priorities, risk financial jeopardy, or fail to be derived from a multiyear plan. A policy developed like EL #2c, combined with the greater detail afforded by EL #3c, enables a board to establish more control before telling its CEO that any budget that does not violate its values as expressed in policy is acceptable. So, keeping in mind that further specification does not release the CEO from the scope of the broader levels, the board could become even more restraining than EL #1 and EL #2c by saying in Policy EL #3c that there will be no financial plans that 1. Risk incurring those situations or conditions described as unacceptable in the board policy “Financial Condition and Activities.” 2. Omit credible projection of revenues and expenses, separation of capital and operational items, cash flow, and disclosure of planning assumptions. 3. Provide less for board prerogatives during the year than is set forth in the “Cost of Governance” policy. Notice that each statement is a further defined criterion about budgeting. At no point does the policy say anything about board approval. Board approval is not a criterion about the nature of budgeting. It is merely an action that implies the board is afraid its criteria

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setting is insufficient, therefore it wants to take another look at any budget or budget change, using whatever criteria come to mind at that time. Pay particular attention, as always, to those words upon which CEO interpretation might cause the board the most worry. For example, what is credible projection? The term surely has meaning, but is its range of meaning acceptable? Notice, too, that the requirement for cash flow to be an integral part of the CEO’s planning is more stringent than most nonprofit and public boards have typically been. Notice that the board takes responsibility for clarifying what it will spend on governance and instructs the CEO to put that amount aside for the board. ASSIGNMENT: Discuss this policy and decide whether it is needed at all (being sure to think of it as including all levels thus far), establishes sufficient control, or needs further definition. Deciding that it is not needed means the board is satisfied for the CEO to be limited only by the broader language of EL #1 and EL #2 with respect to this topic. If this EL #3 policy provides the additional necessary and sufficient control, the CEO will have the right to use any reasonable interpretation of its narrower language. If still greater control of CEO options is needed, consider language even more detailed as you go on your own into Level Four policies or beyond. Policy EL #2d (Financial Condition and Activities) states: With respect to the actual, ongoing financial condition and activities, the CEO shall not cause or allow the development of financial jeopardy or material deviation of actual expenditures from board priorities established in Ends policies. So, keeping in mind that further specification does not release the CEO from the scope of the broader levels, the board could become even more restraining than EL #1 and EL #2d by saying in Policy #3d that the CEO shall not 1. Expend more funds than have been received in the fiscal year to date unless the board’s debt guideline is met.

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2. Incur debt in an amount greater than can be repaid by certain and otherwise unencumbered revenues within sixty days. 3. Use any long-term reserves. 4. Conduct interfund shifting in amounts greater than can be restored to a condition of discrete fund balances by certain and otherwise unencumbered revenues within thirty days. 5. Fail to settle payroll and debts in a timely manner. 6. Allow tax payments or other government-ordered payments or filings to be overdue or inaccurately filed. 7. Make a single purchase or commitment of greater than $______. Splitting orders to avoid this limit is not acceptable. 8. Acquire, encumber, or dispose of real estate. 9. Fail to aggressively pursue receivables after a reasonable grace period. EL #3d shows how, if it wishes, a board may place certain operations completely off-limits to the CEO (Sections 3 and 8). Remember, though, that an item taken out of the CEO’s authority would have to become part of the board’s own hands-on responsibility. Section 4 only makes sense when there is fund accounting; the issue does not arise in every organization. Section 7 demonstrates a method of placing a spending limit on the CEO. Such a limit would require that the board make spending decisions in excess of the sum named. Traditional boards commonly place ridiculously low limits on the CEO. Policy Governance boards commonly find that their concerns are so well covered by policy that they can be far more liberal in the spending ability they give to the CEO, sometimes to the point of imposing no limit at all. We are not, by including Section 7, implying that the board should necessarily set a spending limit on single purchases. Now go over the policy at your newly defined Level Three to see if it makes sense as a whole. Does it sufficiently expand your Level Two policy on the same topic?

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ASSIGNMENT: Discuss this policy and decide whether it is needed at all (being sure to think of it as including all levels thus far), establishes sufficient control, or needs further definition. Deciding that it is not needed means the board is satisfied for the CEO to be limited only by the broader language of EL #1 and EL #2 with respect to this topic. If this EL #3 policy provides the additional necessary and sufficient control, the CEO will have the right to use any reasonable interpretation of its narrower language. If still greater control of CEO options is needed, consider language even more detailed as you go on your own into Level Four policies or beyond. Policy EL #2e (Emergency CEO Succession) states: To protect the board from sudden loss of CEO services, the CEO shall not permit there to be fewer than two other executives sufficiently familiar with board and CEO issues and processes to enable either to take over with reasonable proficiency as an interim successor. We have no EL #3 statements to suggest for this policy. It is the only EL #2–level statement for which neither of the authors has ever had a client who went into more detail. If you want to do so, consider expanding upon the interpretation of familiar and perhaps upon which issues and processes are meant. ASSIGNMENT: You have already discussed whether this policy can stand alone (during your work on Level Two). Regardless of what we have usually found, does your board wish to go into further definitions at Level Three? If so, do so at this time. Policy EL #2f (Asset Protection) states: The CEO shall not cause or allow corporate assets to be unprotected, inadequately maintained, or unnecessarily risked. Keeping in mind that further specification does not release the CEO from the scope of the broader levels, the board could become even more restraining in definition than EL #1 and EL #2f by saying in Policy EL #3f that the CEO shall not 1. Fail to insure adequately against theft and casualty and against liability losses to board members, staff, and the organization itself.

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2. Allow unbonded personnel access to material amounts of funds. 3. Subject facilities and equipment to improper wear and tear or insufficient maintenance. 4. Unnecessarily expose the organization, its board, or its staff to claims of liability. 5. Make any purchase (a) wherein normally prudent protection has not been given against conflict of interest; (b) of more than $______ without having obtained comparative prices and quality; (c) of more than $______ without a stringent method of assuring the balance of long-term quality and cost. Orders shall not be split to avoid these criteria. 6. Fail to protect intellectual property, information, and files from loss or significant damage. 7. Receive, process, or disburse funds under controls insufficient to meet the board-appointed auditor’s standards. 8. Compromise the independence of the board’s audit or other external monitoring or advice, such as by engaging parties already chosen by the board as consultants or advisers. 9. Invest or hold operating capital in insecure instruments, including uninsured checking accounts and bonds of less than AA rating at any time, or in non-interest-bearing accounts except when necessary to facilitate ease in operational transactions. 10. Endanger the organization’s public image, its credibility, or its ability to accomplish Ends. 11. Change the organization’s name or substantially alter its identity in the community. 12. Create or purchase any subsidiary corporation unless (a) more than 80 percent is owned by this organization; (b) initial capitalization by this organization is less than $__________ or ___________ percent of the reserve fund; (c) no staff member

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has an ownership interest; and (d) there is no reasonable chance of resultant damage to the reputation of this organization. Is “insuring adequately” enough detail? Do you need to specify the amount of liability coverage? Are the three different levels of care in purchasing needed or simply superfluous? Does it make sense to think of public image as an asset? Are the investment criteria in Section 8 appropriate for your organization? These and other issues beg for discussion. ASSIGNMENT: Discuss this policy and decide whether it is needed at all (being sure to think of it as including all levels thus far), establishes sufficient control, or needs further definition. Deciding that it is not needed means the board is satisfied for the CEO to be limited only by the broader language of EL #1 and EL #2 with respect to this topic. If this EL #3 policy provides the additional necessary and sufficient control, the CEO will have the right to use any reasonable interpretation of its narrower language. If still greater control of CEO options is needed, consider language even more detailed as you go on your own into Level Four policies or beyond. Policy EL #2g (Compensation and Benefits) states: With respect to employment, compensation, and benefits to employees, consultants, contract workers, and volunteers, the CEO shall not cause or allow jeopardy to financial integrity or to public image. This policy as well may be further defined, perhaps by EL #3g language like the following. Keeping in mind that further specification does not release the CEO from the scope of the broader levels, the board could become even more restraining than EL #1 and EL #2g by saying in Policy EL #3g (Level Four is reached in Section 5) that the CEO shall not 1. Change the CEO’s own compensation and benefits, except as those benefits are consistent with a package for all other employees.

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2. Promise or imply permanent or guaranteed employment. 3. Establish current compensation and benefits that deviate materially from the geographic or professional market for the skills employed. 4. Create obligations over a longer term than revenues can be safely projected, in no event longer than one year and in all events subject to losses in revenue. 5. Establish or change pension benefits so as to cause unpredictable or inequitable situations, including those that a. Incur unfunded liabilities. b. Provide less than some basic level of benefits to all fulltime employees, though differential benefits to encourage longevity are not prohibited. c. Allow any employee to lose benefits already accrued from any previous plan. d. Treat the CEO differently from other key employees. Your board will doubtlessly have to argue some of the foregoing points. To illustrate, the CEO’s authority to make changes in pension plans is curtailed in three steps: (1) by the initial provisions of EL #1, (2) by the more specific provisions of EL #2g (and any other relevant policies, for example, financial condition and staff treatment), and now (3) by Sections 5a through 5d of this policy. You might need to use a pension consultant to help you with these provisions, but be sure the consultant understands the Policy Governance approach to board control of these matters. If your board wants the CEO to have no authority over pensions, you would merely reduce Section 5 to its first five words, “Establish or change pension benefits,” deleting the remainder of Section 5 and its lettered subparts. That will take pension determinations out of the CEO’s hands entirely. But the board must then be willing to be responsible for the matter, and that will likely require the same degree of study of the principles involved.

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ASSIGNMENT: Discuss this policy and decide whether it is needed at all (being sure to think of it as including all levels thus far), establishes sufficient control, or needs further definition. Deciding that it is not needed means the board is satisfied for the CEO to be limited only by the broader language of EL #1 and EL #2 with respect to this topic. If this EL #3 policy provides the additional necessary and sufficient control, the CEO will have the right to use any reasonable interpretation of its narrower language. If still greater control of CEO options is needed, consider language even more detailed as you go on your own into Level Four policies or beyond. Policy EL #2h (Communication and Support to the Board) states: The CEO shall not cause or allow the board to be uninformed or unsupported in its work. To further restrict the range of CEO interpretations of EL #1 and EL #2h (keeping in mind that further specification does not release the CEO from the scope of the broader levels), the board could become even more restraining by adding in Policy EL #3h that the CEO shall not 1. Neglect to submit monitoring data required by the board in Board-Management Delegation policy “Monitoring CEO Performance” in a timely, accurate, and understandable fashion, directly addressing provisions of board policies being monitored, and including CEO interpretations consistent with Board-Management Delegation policy “Delegation to the CEO,” as well as relevant data. 2. Allow the board to be unaware of any actual or anticipated noncompliance with any Ends or Executive Limitations policy of the board regardless of the board’s monitoring schedule. 3. Allow the board to be without decision information required periodically by the board or let the board be unaware of relevant trends. 4. Let the board be unaware of any significant incidental information it requires including anticipated media coverage,

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threatened or pending lawsuits, and material internal and external changes. 5. Allow the board to be unaware that, in the CEO’s opinion, the board is not in compliance with its own policies on Governance Process and Board-Management Delegation, particularly in the case of board behavior that is detrimental to the work relationship between the board and the CEO. 6. Present information in unnecessarily complex or lengthy form or in a form that fails to differentiate among information of three types: monitoring, decision preparation, and other. 7. Allow the board to be without a workable mechanism for official board, officer, or committee communications. 8. Deal with the board in a way that favors or privileges certain board members over others, except when (a) fulfilling individual requests for information or (b) responding to officers or committees duly charged by the board. 9. Fail to submit to the board a consent agenda containing items delegated to the CEO yet required by law, regulation, or contract to be board-approved, along with applicable monitoring information. You might find it curious that the CEO’s monitoring instruction appears in this policy. Remember, the rule in Policy Governance is that the CEO is accountable to the board only for the organization’s performance of a reasonable interpretation of Ends and avoidance of a reasonable interpretation of Executive Limitations. The board in Board-Management Delegation describes what it expects of itself with regard to the rigor and fairness of monitoring, but policies in that category are not instructions to the CEO. To officially convey the CEO’s obligation with respect to supplying monitoring information, it is necessary to include that instruction as part of Executive Limitations.

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Policy Governance requires boards to understand the difference between what they wish to control and what they simply wish to know about. In addition to the sharing of certain monitoring data, quickly dispensed with in Section 1, this policy allows the board to say what it wishes to be informed about, things about which it has set no criteria. It is important to remember that the board can form no judgments of CEO performance from these no-criterion items, but the board will be informed about them. The board can, of course, later set criteria on these matters, after which the topics become monitorable items, not just ones to satisfy board curiosity. Since many boards feel that they know only what the CEO decides to tell them, this policy is useful in removing from the CEO the need either to guess about or to manipulate what the board wants. Section 2 can provide a useful listing of desired incidental information. Does the list include all the information the board wants? The CEO can, of course, give the board whatever additional information he or she chooses, but the CEO cannot omit the items listed by the board. ASSIGNMENT: Discuss this policy and decide whether it is needed at all (being sure to think of it as including all levels thus far), establishes sufficient control, or needs further definition. Deciding that it is not needed means the board is satisfied for the CEO to be limited only by the broader language of EL #1 and EL #2 with respect to this topic. If this EL #3 policy provides the additional necessary and sufficient control, the CEO will have the right to use any reasonable interpretation of its narrower language. If still greater control of CEO options is needed, consider language even more detailed as you go on your own into Level Four policies or beyond. Policy EL #2i (Ends Focus of Grants or Contracts) states: The CEO may not enter into any grant or contract arrangements that fail to emphasize primarily the production of Ends and, secondarily, the avoidance of unacceptable means. Remember our note earlier that this sam-

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ple is included to illustrate an atypical policy, one that applies only to grant-making or subcontracting organizations. If it does not apply to your organization as do the previous generic issues, please skip past it. This policy clarifies that the purpose of funding or contracting with organizations is to purchase certain results for certain recipients at the cost being granted. The CEO is required to make this the primary consideration in decisions regarding funding. In order to further restrict the range of possible CEO interpretations of statements already found in EL #1 and EL #2h, the board may add that, according to Policy EL #3i, the CEO shall not 1. Fail to prohibit particular methods and activities to preclude grant funds from being used in imprudent, unlawful, or unethical ways. 2. Fail to assess and consider an applicant’s capability to produce appropriately targeted, efficient results. 3. Fund specific methods except when doing so for research purposes, when the result to be achieved is knowledge about differential effectiveness of various methods. Does your board find these additional three EL #3i points necessary, or are they covered quite well enough by the EL #2i statement? It is certainly important that your CEO is held accountable for Ends and Executive Limitations, regardless of whether the achievements and behaviors are in-house or contracted out. Note that Section 3 has the effect of leaving an opening for a very specific kind of attention to means. ASSIGNMENT: Discuss this policy and decide whether it is needed at all (being sure to think of it as including all levels thus far), establishes sufficient control, or needs further definition. Deciding that it is not needed means the board is satisfied for the CEO to be limited only by the broader language of EL #1 and EL #2 with respect

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to this topic. If this EL #3 policy provides the additional necessary and sufficient control, the CEO will have the right to use any reasonable interpretation of its narrower language. If still greater control of CEO options is needed, consider language even more detailed as you go on your own into Level Four policies or beyond.

Let’s Check the Map to See Where We Are You now have a policy quadrant that your board, depending on your decisions in the foregoing exercise, has controlled all the way to Level Three, at least on some topics, and in one case to Level Four. This has been the most common depth for our clients to reach before delegating to the CEO. But it need not be the level at which your board delegates any particular issue. Let us illustrate in Figure 4.4 what the policymaking will have done so far if your board is similar to most of our client boards. Remember the pairing of two important rules. First, the board has the choice of further defining any policy provision it enacts. Second, the board has the obligation to allow the CEO to use any reasonable interpretation of whatever language the board decides is sufficient. Monitoring CEO performance will be against the policy language the board chose, not the language it meant. When we refer to monitoring always being against criteria, the criteria we mean are the words (and sometimes numbers) of the policies. In short, the policies are the monitoring criteria. All the CEO will have to do is convince the board that a reasonable interpretation of those words has been attained or avoided. To address the creation of Executive Limitations policies, we have had to assume that the board has made the decision to delegate in the Policy Governance manner. Of course, you would not be using this book if you hadn’t decided to follow Policy Governance concepts, so we feel safe in the assumption. The assumption is made explicit in Chapter Six, where we demonstrate the manner

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Figure 4.4. Executive Limitations Policies Completed.

EL

2e

#1 2f

2g

2h

2i

Staff Means Issues

2d

2a

2b

2c

Note: Your Executive Limitations policies cover all possibilities (because they begin at the broadest level) yet extend to the board-desired level of specificity. Now it is safe to say that, with respect to operational means, if the board has not said no, the answer is yes!

in which Policy Governance boards delegate authority into the operating organization, define the job of the CEO, and monitor the appropriate use of the delegated authority.

Next Chapter Next we turn in Chapter Five to developing the Governance Process policies, ones in which the board determines the features of its own job. In this category of policies, the Policy Governance board establishes its own tailored statements committing it to proper governance.

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5 Governance Process Policies Defining the Board’s Job

I

n this chapter we focus on those policies with which the board instructs itself and subparts of itself, such as officers and committees, about its own job. This category, Governance Process, appears on the circle diagram first presented in Chapter Two in the upper left-hand quadrant and as shown in Figure 5.1. Of course, there are other legitimate titles that could be used for this policy category, such as Board Job. It is in this quadrant that the board explicitly describes the standards of group and individual behavior to which it agrees to hold itself. Remarkably, it is unusual for traditional boards to discuss or decide issues that are routinely addressed by the Governance Process policies that you will find in this chapter. We think your board will find the exercise of making explicit rules challenging and rewarding. Having a succinct description of the board’s job and the manner in which it will operate is not only handy for new board members but useful as a continuing guide to experienced ones as well. But more important, having a carefully thought-out process for governing will go nowhere unless it is codified. Under Policy Governance this self-examination is a required exercise. The process by which a group fulfills its governing commitment will not occur in a defensible form by chance. We are more directive in this chapter and in Chapter Six in terms of the levels of policy your board goes into because these two 103

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Figure 5.1. The Governance Process Quadrant. Governance Process Issues


Ends Issues

Staff Means Issues

Note: On the circle diagram introduced in Chapter Two, the issues dealt with in this chapter are in the upper left-hand quadrant.

chapters deal with describing the board’s own means. We have found that in most cases the board needs the personal buy-in and understanding that comes from developing these policies in depth. They would work if sketched more loosely, because the CGO will be given the right to flesh them out by interpreting them, but the board will be better off for having outlined them in greater detail. (You will remember from Chapter Two that we are referring to the board leader as CGO—chief governance officer—rather than the potentially confusing chair or president.)

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Governance Process Policies

But there is another reason for in-depth attention to Governance Process and Board-Management Delegation policies, regardless of the board’s philosophy about policy depth in Ends and Executive Limitations. Although Policy Governance is a conceptual model that appears in several of our books and other publications, your board’s model of governance can only be found in its Governance Process and Board-Management Delegation policies. In other words, these two categories of board means policies are the governance model for you. For that reason, it will serve you and your subsequent replacements well to have a relatively thorough description of your plan of governance. As we begin, then, remember that as in the other policy categories, policy development proceeds from the most general and inclusive level to levels of further specificity. An orderly sequence is used, and the board stops defining its words when it can accept any reasonable interpretation by the CGO.

Let’s Take It from the Top: Level One The most general and inclusive policy—the largest-mixing-bowl policy—used by most of our clients relies on language similar to the following: Policy GP #1: Global Governance Process Policy The purpose of the board, on behalf of [identify the ownership here], is to see to it that [name of organization] (a) achieves appropriate results for appropriate persons for an appropriate cost (as specified in board Ends policies) and (b) avoids unacceptable actions and situations (as prohibited in board Executive Limitations policies).

You will notice that the statement, broad as it is, incorporates the key concepts that the board acts upon on behalf of a larger group and that it must assure accountable organizational performance. It introduces the concept of separating required ends from

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unacceptable means, and most important, makes the point that the board must ensure the accomplishment of what it has decided the organization must attain. This policy declares the board’s leadership duty in an unmistakable fashion. In a sense, it starkly states the reason for having a board at all, so there is no place to hide. The policy requires the board to identify its ownership. This may be no easy task. In membership organizations, the membership is almost certainly the ownership. In city councils, the residents are the owners. Our community-based clients often eventually decide that it is the community itself whose interest must be expressed by the board. But many organizations (for example, a public radio station) will find the ownership not nearly as easy to name. It is tempting for boards to take a shortcut and act as if they represent the consumers, the staff, or the funders. But while these may be part of the total ownership, they are not owners by virtue of these roles. Globally addressing the role of governance in the organization is, like all Level One policies, necessarily broad and open to a wide range of interpretation. Policy Governance as a complete model, of course, places the right to interpret Governance Process policies primarily in the hands of the board CGO and, secondarily, of anyone else to whom the board explicitly delegates. As this chapter progresses, we get to the policy in which the board explicitly grants the CGO the right to interpret policy language in both Governance Process and Board-Management Delegation categories. We assume that you will follow our sequence as it leads toward giving the CGO the right and obligation to interpret and implement board wishes as expressed in these policies. That assumption allows us to remind you of the reasonable interpretation test at each stage, even before we have taken you to the point where anyone is given the right to reasonably interpret! ASSIGNMENT: Discuss the wording of this Level One Governance Process policy, arriving at wording that both expresses your board’s global intent for governance and, at the same time, is model-

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consistent with Policy Governance principles. After arriving at your final wording, you are ready to proceed into the more detailed wording that we recommend. At this stage, with Governance Process Level One in place, the policy coverage is visually presented in Figure 5.2.

Here’s a Little More Detail: Going to Level Two You may not be surprised to know that we have never seen a board leave further interpretation to its CGO at this stage. Faced with having to further define their expectations in Governance Process, most boards have found that their more detailed policymaking falls into the following Level Two topic areas: • Governing style (the way in which the board goes about its task)

G

P#

1

Figure 5.2. Governance Process, Level One.


Note: In the Governance Process quadrant of the policy circle, GP #1 encloses all further considerations.

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• Board job description (what the board is to produce; job outputs) • CGO’s role (granting some of the board’s authority to the CGO) • Board members’ code of conduct (what is expected of individual members) • Board committee principles (philosophy and rules about using committees) • Cost of governance (putting a value on board capability and contribution) This chapter will guide you through these policy topics, as well as policy topics found at more detailed levels, should your board wish to pursue the greater detail. Policies dealing with the topics just listed will be referred to as GP #2 policies. To keep them separate, we’ll attach a letter suffix to each. Accordingly, the policy entitled Governing Style will be referred to as GP #2a, and the others will follow suit. Remember that the policy wording shown may not be the exact words your board should use. But the language we present demonstrates the manner of developing policies in this quadrant that are consistent with Policy Governance. If your board decides to use the samples, it will doubtless need to adapt the wording to match its own values. The Level Two sample policies follow. ASSIGNMENT: Go through each of the following GP #2 statements in turn, taking your time to discuss its implications for your board. Be extremely careful that your tailoring of these policies do not result in abandoning Policy Governance principles. Resist going into more detail at this time. Also, resist the temptation to wordcraft commas and semicolons and grammar. Don’t forget that each consideration that follows will have been preceded by the more general GP #1 statement.

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Policy GP #2a: Governing Style The board will govern lawfully, observing the principles of the Policy Governance model, with an emphasis on (a) outward vision rather than internal preoccupation, (b) encouragement of diversity in viewpoints, (c) strategic leadership more than administrative detail, (d) clear distinction of board and chief executive roles, (e) collective rather than individual decisions, (f) future rather than past or present, and (g) proactivity rather than reactivity.

At first reading, you may be tempted to dismiss this policy as motherhood and apple pie. After all, who can argue with it? But please note that it commits the board to a style that is rarely seen in governing boards. Of course, the policy is quite general, as would be expected at Level Two, but it establishes a required board behavior capable of accomplishing the obligation set out in GP #1. Note that the language does not prevent the board from involving itself in current issues, short-term issues, internal matters, or even in being reactive. It merely pledges the board to govern with an emphasis on the more proactive and profound end of the spectrum. ASSIGNMENT: Discuss the implications of this policy for your board. Keep in mind that you will judge board conduct against these provisions in the future, so these words are not merely window dressing. We always recommend that boards further define this policy and encourage you to examine the Level Three policy that is presented later in this chapter. Policy GP #2b: Board Job Description Specific job outputs of the board as an informed agent of the ownership are those that ensure appropriate organizational performance.

This policy introduces the obligation of specifiable job products peculiar to the board itself, as distinct from outputs of the organization.

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The board is here committing itself to producing whatever outputs will connect those who own the organization to the performance of the organization. Our clients always go to a Level Three policy to more exactly define these products, which consist of those outputs generic to governance anywhere plus any additional ones chosen by a specific board. A third level of this policy will be shown later in the chapter. ASSIGNMENT: Discuss the implications of this policy for your board. Keep in mind that you will judge board conduct against these provisions in the future, so these words are not merely window dressing. We always recommend that boards further define this policy and encourage you to examine the Level Three policy that is presented later in this chapter. Policy GP #2c: Chief Governance Officer’s Role The chief governance officer (CGO), a specially empowered member of the board, ensures the integrity of the board’s process and, secondarily, occasionally represents the board to outside parties.

Notice that this policy moves us from defining the role of the board to defining that of the CGO or, more accurately, by describing the value-added created by the CGO. We use this policy and its secondary reference to the CGO “occasionally” speaking to outside parties as a reminder that the CGO’s role is intimately related to the board’s job, not to the CEO’s. Note that the job of assuring fulfillment of the board’s process sets the foundation for, and could be said to be the broad statement of, delegation of a specific right to interpret the board’s words as far as the board’s own process is concerned. ASSIGNMENT: Discuss the implications of this policy for your board. Keep in mind not only that you will judge the CGO’s conduct against this policy in the future but also that these words grant

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authority to the CGO. We always recommend that boards further define this policy and encourage you to examine the Level Three and Four policies presented later in this chapter. Policy GP #2d: Board Secretary’s Role The board secretary is an officer of the board whose purpose is to ensure the integrity of the board’s documents.

This policy defines the role of another key board officer. Once again, this role is described in value-added terms, just as was that of the CGO. ASSIGNMENT: Discuss the implications of this policy for your board. Keep in mind that this policy does not require the board secretary to take minutes or be the organizer of the board’s papers. Rather, it gives the board secretary the role of ensuring that such clerical actions are completed satisfactorily. We encourage you to examine the Level Three and Four policies presented later in this chapter. Policy GP #2e: Board Member’s Code of Conduct The board commits itself and its members to ethical, businesslike, and lawful conduct, including proper use of authority and appropriate decorum when acting as board members.

Having dealt with the board’s job and the CGO’s job, policy development in the Governance Process category turns to the definition of the expectations placed on individual board members. If your board already has a code of conduct, its sentiment—though probably not its current form—may be adapted for this category as it is. Check it, though, to ensure that it places demands or restrictions on board members that are required by Policy Governance. This short statement goes beyond the usual conflict of interest provisions.

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ASSIGNMENT: Discuss the implications of this policy for your board. Keep in mind that you will judge board member conduct against these provisions in the future, so these words are not merely window dressing. We always recommend that boards further define this policy and encourage you to examine the Level Three policy presented later in this chapter. Policy GP #2f: Board Committee Principles Board committees, when used, will be assigned so as to reinforce the wholeness of the board’s job and so as never to interfere with delegation from board to CEO.

It is useful to recall the definition of committees. A board committee is any group of people that is set up by, instructed by, and ordered to report to the board, no matter who is in the group or what the group is called. Even as broadly stated as this policy is, it is clear that under Policy Governance many traditionally sanctioned committees would not belong to the board, if they existed at all. This is because many traditional committees do interfere with delegation from board to CEO. Our clients find this principle easy to understand. If they experience difficulty with it, the difficulty usually surrounds the political awkwardness of disbanding an established committee. ASSIGNMENT: Discuss the implications of this policy for your board. Keep in mind that you will judge future board actions with respect to committees against these provisions. We always recommend that boards further define this policy and encourage you to examine the Level Three policy presented later in this chapter. Policy GP #2g: Cost of Governance Because poor governance costs more than learning to govern well, the board will invest in its governance capacity.

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Boards seldom recognize the costs that they themselves incur, though they are more aware of their direct costs than of other costs associated with governance. Direct costs include meeting and travel expense, though these are usually the smaller, if more visible, costs of governance. Larger costs include the expense of staff time in supporting unnecessary board committees or producing unnecessary reports. The greatest expense of governance, however, is in the waste that results from organizational resources being expended in the absence of any required Ends. This policy is cognizant of all of these costs and maintains that the cost of even minor lack of capability is likely to be greater than the cost of education. ASSIGNMENT: Discuss the implications of this policy for your board. Keep in mind that you will judge board conduct against these provisions in the future. We always recommend that boards further define this policy and encourage you to examine the Level Three policy presented later in this chapter.

Let’s Check the Map to See Where We Are The Level Two policies listed earlier further define the broadest Governance Process policy, GP #1. They are shown in Figure 5.3 as having clarified the initial policy, and as having narrowed the range of possible interpretation of that policy.

Going into Even More Detail: Level Three and Further A third level of policy development would further define expectations the board has of itself, while simultaneously outlining the rules that the board will ask its CGO to further define and enforce. Since the effect is to leave the CGO less range of interpretation, a third level provides greater specificity as to the intentions of the board as a whole.

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Figure 5.3. Governance Process, Levels One and Two.

2g 2e

2b

2c

2d GP #1

2f


2a

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Note: More depth, that is, definition has been added by GP #2 policies in the Governance Process quadrant, leaving less decision latitude to the chief governance officer.

In the following pages, we demonstrate some Level Three policies. Once again, we remind you that we deliberately recommend this level of specificity. We return to the policies you just completed and take their provisions into more detail. ASSIGNMENT: For each of the GP #2 policies in the preceding exercise, review each of the GP #3 points that follow, considering its implications for your board. Be extremely careful that if you tailor these policies, you do not abandon Policy Governance principles. Don’t forget that each consideration that follows will have been preceded by the more general GP #1 and GP #2 statements. Governing Style Policy GP #2a states: The board will govern lawfully, observing the principles of the Policy Governance model, with an emphasis on (a) outward vision rather than an internal preoccupation, (b) encouragement of di-

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versity in viewpoints, (c) strategic leadership more than administrative detail, (d) clear distinction of board and chief executive roles, (e) collective rather than individual decisions, (f) future rather than past or present, and (g) proactivity rather than reactivity. While this policy includes a great deal already, our clients have found that expanding its implications for board operating style is instructive. Your Level Three policy, then, might be as follows: Policy GP #3a: Governing Style: Level Three 1. The board will cultivate a sense of group responsibility. The board, not the staff, will be responsible for excellence in governing. The board will be the initiator of policy, not merely a reactor to staff initiatives. The board will not use the expertise of individual members to substitute for the judgment of the board, although the expertise of individual members may be used to enhance the understanding of the board as a body. 2. The board will direct, control, and inspire the organization through the careful establishment of broad written policies reflecting the board’s values and perspectives. The board’s major policy focus will be on the intended long-term impacts outside the staff organization, not on the administrative or programmatic means of attaining those effects. 3. The board will enforce upon itself whatever discipline is needed to govern with excellence. Discipline will apply to matters such as attendance, preparation for meetings, policymaking principles, respect of roles, and ensuring the continuance of governance capability. Although the board can change its Governance Process policies at any time, it will scrupulously observe those currently in force. 4. Continual board development will include orientation of new board members in the board’s governance process and periodic board discussion of process improvement.

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REINVENTING YOUR BOARD 5. The board will allow no officer, individual, or committee of the board to hinder or serve as an excuse for not fulfilling group obligations. 6. The board will monitor and discuss the board’s process and performance at each meeting. Self-monitoring will include comparison of board activity and discipline to policies in the Governance Process and Board-Management Delegation categories.

Look over the combination of commitments now set into place by Level One, Two, and Three policies. Are they descriptive of the kind of board process to which your board would commit? Is a further level required in any area? Our clients usually notice at this point that their current attendance requirement is merely for courtesy (phoning in so an absence can be counted as “excused”) rather than for ensuring that people show up. In any event, the governance commitment signaled by this policy is greater than many boards have previously taken on. Discuss the implications fully. Your board may also wish to expand upon the method to be used for board orientation or for board self-evaluation. If it does, then a subsection can be added to the appropriate point, thereby taking this policy into Level Four. Some boards express surprise that the policy we offer requires board self-evaluation on a meeting-by-meeting basis. We ask boards to consider that self-evaluation is a way to ensure that the board stays on track with its new governance style. Since it is so easy to stray from new territory back into familiar territory, frequent self-evaluation is called for. In fact, we expect any board that selfevaluates less often will have a hard time keeping integrity in its governing task. ASSIGNMENT: Discuss and decide whether the parts of this Level Three policy can stand alone (being sure to think of any policy as including all levels thus far) or need further definition. If you desire

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more definition than is provided in Level Three, consider language even more detailed as you go on your own into Level Four policies or beyond. Board Job Description Policy GP #2b states: Specific job outputs of the board, as an informed agent of the ownership, are those that ensure appropriate organizational performance. Building upon GP #2b, it is common for boards to proceed to a Level Three policy in order to articulate the job outputs to which it refers. We believe this will be useful for your board. Consider the following as a Level Three policy (this sample contains elements of Level Four as well). Remember that the language is an expansion of the meaning of job outputs or values-added that bind ownership to performance. The way we do this is to posit an output style job description rather than an activity style description. In other words, the point is not what the board stays busy doing but what it produces. That is why the language that follows is not the more familiar list of activities typically found in job descriptions. Policy GP #3b: Board Job Description: Level Three 1. Authoritative linkage between the ownership and the operational organization 2. Written governing policies that realistically address the broadest levels of all organizational decisions and situations a. Ends: The organizational impacts, benefits, outcomes; recipients, beneficiaries, impacted groups; and their relative worth in cost or priority b. Executive Limitations: Constraints on executive authority that establish the prudence and ethics boundaries within which all executive activity and decisions must take place c. Governance Process: Specification of how the board conceives, carries out, and monitors its own task

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REINVENTING YOUR BOARD d. Board-Management Delegation: How power is delegated and its proper use monitored; the CEO’s role, authority, and accountability 3. Assurance of successful organizational performance on Ends and Executive Limitations

Now, go over the Level Three policy and see if it sufficiently defines your Level Two policy. In this example, the board is of course listing those products it holds itself responsible for producing. Nothing, in other words, that has been delegated to the CEO would show up on this list. Your board may feel that additional items should be added. If your board has placed some organizational assets off-limits to the CEO, the care of those assets would be included in the board’s own job description. In addition, your board may hold itself accountable for some aspect of donor funding. The board should be clear about what it is in fact taking on. If it is committed to finding prospective donors, it should say this. If it is committed to a certain level of gala ticket sales, it should say so. If it is responsible for all aspects of fundraising (this is rarely the case), it should say this in terms of the fundraising goal amount. Both the board and the CEO are then clear about who has responsibility for what. We encourage boards to consider Level Four and Five policies that expand upon the list of board products into a plan for future agendas. We offer the following Level Four and Five policies for your examination. Policy GP #4b: Board Job Description: Level Four To accomplish its job products with a governance style consistent with board policies, the board will follow an annual agenda that (a) completes a re-exploration of Ends policies annually and (b) continually improves board performance through board education and enriched input and deliberation.

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Policy GP #5b: Board Job Description: Level Five 1. The cycle will conclude each year on the last day of September so that administrative planning and budgeting can be based on accomplishing a one-year segment of the board’s most recent statement of long-term Ends. 2. The cycle will start with the board’s development of its agenda for the next year. a. Consultations with selected groups in the ownership, or other methods of gaining ownership input, will be determined and arranged in the first quarter, to be held during the balance of the year. b. Governance education and education related to ends determination (presentations by futurists, demographers, advocacy groups, staff, and so on) will be arranged in the first quarter, to be held during the balance of the year. c. A board member may recommend or request an item for board discussion by submitting the item to the CGO no later than five days before the board meeting. 3. Throughout the year, the board will attend to consent agenda items as expeditiously as possible. 4. CEO monitoring will be on the agenda if reports have been received since the previous meeting, if plans must be made for direct inspection monitoring, or if arrangements for third-party monitoring must be prepared. 5. CEO remuneration will be decided during the month of February after a review of monitoring reports received in the last year.

Notice that using this method, your board can move from deciding on its job products to arranging its agenda around their accomplishment. This enables the board to be in control of its own

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agenda. Your board will perhaps wish to establish an even more detailed policy about annual planning. The rule is, as always, that the board should define its words in enough detail that any reasonable interpretation by the CGO would be acceptable. With a policy like the foregoing sample and armed with the authority to use any reasonable interpretation, any CGO would be able to arrange the finetuning of agendas. The board agenda can truly become the board’s agenda, not the CEO’s agenda for the board. ASSIGNMENT: Discuss and decide whether the parts of these Level Three, Four, and Five policies can stand alone (being sure to think of any policy as including all levels thus far), or need further definition. If you desire more definition than provided in the levels shown, consider language even more detailed as you go on your own into further levels. Chief Governance Officer’s Role Policy GP #2c states: The chief governance officer (CGO), a specially empowered member of the board, ensures the integrity of the board’s process and, secondarily, occasionally represents the board to outside parties. Your CGO has an important role in ensuring that the board stays on track and abides by its own rules. While every member of the board has a responsibility to exercise discipline in the group, the CGO has a special role in this respect. For this reason, many of our clients decide in favor of including a third and fourth policy level regarding the CGO’s role. We strongly encourage you to do the same. In the following policy, GP #3c, we have shown a fourth level of detail. Policy GP #3c: Chief Governance Officer’s Role: Levels Three and Four 1. The assigned result of the CGO’s job is that the board behaves consistently with its own rules and those legitimately imposed upon it from outside the organization.

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Governance Process Policies a. Meeting discussion content will consist solely of issues that clearly belong to the board to decide or to monitor according to board policy. b. Information that is neither for monitoring performance nor for board decisions will be avoided or minimized and always noted as such. c. Deliberation will be fair, open, and thorough but also timely, orderly, and kept to the point. 2. The authority of the CGO consists in making decisions that fall within topics covered by board policies on Governance Process and Board-Management Delegation, with the exception of (a) employment or termination of the CEO and (b) areas where the board specifically delegates portions of this authority to others. The CGO is authorized to use any reasonable interpretation of the provisions in these policies. a. The CGO is empowered to chair board meetings with all the commonly accepted powers of that position, such as ruling and recognizing. b. The CGO has no authority to make decisions about policies created by the board within Ends and Executive Limitations policy areas. Therefore, the CGO has no authority to supervise or direct the CEO. c. The CGO may represent the board to outside parties in announcing board-stated positions and in stating CGO decisions and interpretations within the area delegated to that role. d. The CGO may delegate this authority but remains accountable for its use.

You will notice that this policy at Level Three divides the CGO’s job into its output performance and its authority. In both areas, our Level Four gives further definition to the language. The

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policy clarifies the powers made available to the CGO, as well as those not available to this officer. If you are accustomed to traditional job descriptions, you will be tempted to describe the CGO’s job in activity rather than outcome terms. Resist the temptation. Just as we stated about the board’s job, any position exists to provide specific values-added, not to stay busy at even commendable pursuits. ASSIGNMENT: Discuss and decide whether the parts of this Level Three and Four policy can stand alone (being sure to think of any policy as including all levels thus far) or need further definition. If you desire more definition than provided in the levels shown, consider language even more detailed as you go on your own into further levels. Board Secretary’s Role Policy GP #2d states: The board secretary is an officer of the board whose purpose is to ensure the integrity of the board’s documents. Your board secretary has the important role of ensuring that the board’s various documents are up to date. We strongly recommend that you include third and fourth policy levels regarding the secretary’s role. In the following policy, we have shown Levels Three and Four. Policy GP #3d: Board Secretary’s Role: Levels Three and Four 1. The assigned result of the secretary’s job is to see to it that all board documents and filings are accurate and timely. a. Policies will be current in their reflection of board decisions. Decisions upon which no subsequent decisions are to be based, such as consent agenda decisions, motions to adjourn, and staff or board member recognitions, need not be placed in policy. b. Policies will rigorously follow Policy Governance principles. c. Bylaw elements necessary for legal compliance and for consistency with the principles of Policy Governance will be known to the board.

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Governance Process Policies d. Requirements for format, brevity, and accuracy of board minutes will be known to the CEO. 2. The authority of the secretary is access to and control over board documents, and the use of staff time not to exceed X hours per year.

You will notice that this policy at Level Three divides the secretary’s job into its required outputs and its authority. In the former area, Level Four gives further definition to the language. ASSIGNMENT: Discuss and decide whether the parts of this Level Three and Four policy are sufficient, given all levels so far, or need further definition. If you desire more definition than provided in the levels shown, consider language even more detailed as you go on your own into further levels. Board Members’ Code of Conduct Policy GP #2e states: The board commits itself and its members to ethical, businesslike, and lawful conduct, including proper use of authority and appropriate decorum when acting as board members. Boards vary a great deal in how much further they wish to define their own expected conduct. We suggest going further than this GP #2e policy simply because the new discipline required for Policy Governance calls for board members not only to be very clear about their standards of conduct, which could be defined in interpretations by the CGO, but to take a direct hand in them. Accordingly, we show Level Three and Level Four detail of the policy. Policy GP #3e: Board Member’s Code of Conduct: Levels Three and Four 1. Members must demonstrate loyalty to the ownership, unconflicted by loyalties to staff, other organizations, or any personal interest as consumers. 2. Members must avoid conflict of interest with respect to their fiduciary responsibility.

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a. There will be no self-dealing or business by a member with the organization. Members will annually disclose their involvements with other organizations or with vendors and any associations that might be reasonably seen as representing a conflict of interest. b. When the board is to decide upon an issue about which a member has an unavoidable conflict of interest, that member shall withdraw without comment not only from the vote but also from the deliberation. c. Board members will not use their board position to obtain employment in the organization for themselves, family members, or close associates. A board member who applies for employment must first resign from the board. 3. Board members may not attempt to exercise individual authority over the organization. a. Members’ interaction with the CEO or with staff must recognize the lack of authority vested in individuals except when explicitly authorized by the board. b. Members’ interaction with the public, the press, or other entities must recognize the same limitation and the inability of any board member to speak for the board except to repeat explicitly stated board decisions. c. Except for participation in board deliberation about whether the CEO has achieved any reasonable interpretation of board policy, members will not express individual judgments of performance of employees or the CEO. 4. Members will respect the confidentiality appropriate to issues of a sensitive nature. 5. Members will be properly prepared for board deliberation.

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Governance Process Policies 6. Members will support the legitimacy and authority of the final determination of the board on any matter, without regard to the member’s personal position on the issue. 7. Members will contribute [no less than $xxxx][no fewer than 100 hours as operational volunteers as directed by staff] each year.

Some boards find this a difficult policy to decide upon. It so explicitly limits the power of individuals and sets out expectations for their conduct that it may seem to seriously challenge some of the freedom sometimes assumed by board members. This is one requirement we are totally unapologetic about. Governance is too important to be compromised by individual board members’ needs or wants. You may wish to discuss the special mention made of loyalty to subparts of the ownership, especially our suggestion about consumers on the board. It is common to hear that placing consumers on the board is an enlightened and correct thing to do. We disagree. Consumers can make very good board members, but only if they set aside their consumer hat in favor of their owner-representative hat. The portfolio of the consumer (or member of any other constituency) on the board should be defined to be just as broad as that of any other board member, that is, to stand in for the owners. ASSIGNMENT: Discuss and decide whether the parts of this Level Three and Four policy can stand alone (being sure to think of any policy as including all levels thus far) or need further definition. If you desire more definition than provided in the levels shown, consider language even more detailed as you go on your own into further levels. Board Committee Principles Policy GP #2f states: Board committees, when used, will be assigned so as to reinforce the wholeness of the board’s job and so as never to interfere with delegation from board to CEO. Tradition has encouraged

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boards to set up committees to advise, help, supervise, or be involved in virtually all areas of staff work. Boards that understand that the same job should not be delegated twice, or that inserting components of the board into staff functions renders the CEO less accountable, nonetheless may balk at the absoluteness of the rule expressed in the policy. Accordingly, many of our clients further define this policy to emphasize their determination to break with an insidious tradition before they delegate interpretation to their CGO. Policy GP #3f: Board Committee Principles: Level Three 1. Board committees are to help the board do its job, never to help or advise the staff. Committees ordinarily will assist the board by preparing policy alternatives and implications for board deliberation. In keeping with the board’s broader focus, board committees will normally not have direct dealings with current staff operations. 2. Board committees may not speak or act for the board except when formally given such authority for specific and time-limited purposes. Expectations and authority will be carefully stated in order to prevent conflict with authority delegated to the CEO. 3. Board committees cannot exercise authority over staff. The CEO works for the full board, and will therefore not be required to obtain the approval of a board committee before an executive action. 4. Board committees are to avoid overidentification with organizational parts rather than the whole. Therefore a board committee that has helped the board create policy on some topic will not be used to monitor organizational performance on that same topic. 5. Committees will be used sparingly and ordinarily in an ad hoc capacity. 6. This policy applies to any group that is formed by board action, whether or not it is called a committee and regardless of whether

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Governance Process Policies the group includes board members. It does not apply to committees formed under the authority of the CEO.

Policy GP #3f leaves no doubt that board committees are instruments of governance, not of management. It also recognizes that the organization might have any number of committees that have nothing to do with the board. Parenthetically, we might add here that staff-formed committees can be made up partially or wholly of volunteers with no necessity whatsoever that these “worker” volunteers have a direct connection to the “governor” volunteers on the board. Note that a board committee is defined as any committee formed by action by direct board authority, regardless of who is on the committee. In other words, the fact that the board “owns” a committee is what defines a board committee, not whether board members are serving on the committee. Although not the topic at this point, the same rule is true for staff committees. That is, if a committee is formed by direct staff authority, it is a staff committee no matter who is on it. In addition to a policy like this one on the principles by which a board will use committees, many boards find it useful as well to create a “Committee Structure” policy. Such a policy would describe each board committee quite explicitly in terms of the product the committee is to produce and the authority (in terms of use of organizational resources) it is granted. These two elements are vitally necessary to keep board committees effective. Hence, the policy might set up a committee to assist with the job of forming a linkage with the ownership; it might be charged crisply with the product of “alternative methods of establishing an inclusive community consultation” and the authority to use “fifty staff hours and spend no more than $2,000.” ASSIGNMENT: Discuss and decide whether the parts of this Level Three policy can stand alone (being sure to think of any policy as including all levels thus far) or need further definition. If you desire

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more definition than provided in Level Three, consider language even more detailed as you go on your own into Level Four policies or beyond. Cost of Governance Policy GP #2g states: Because poor governance costs more than learning to govern well, the board will invest in its governance capacity. This Level Two policy recognizes that governance unavoidably has a cost but that the costs of governing poorly are greater than the cost incurred in learning to govern well. Reference to investing in capability (increasing a certain kind of cost) is a commitment not to be penny-wise and pound-foolish. We suggest that straightforwardly dealing with board costs opens this matter up for discussion. One way to do this is to define the major cost areas and to allocate resources to those areas. We show further definition of this policy at Levels Three and Four. Policy GP #3g: Cost of Governance: Levels Three and Four 1. Board skills, methods, and supports will be sufficient to ensure governing with excellence. a. Training and retraining will be used liberally to orient new members and candidates for membership, as well as to maintain and increase existing members’ skills and understandings. b. Outside monitoring assistance will be arranged so that the board can exercise confident control over organizational performance. This includes but is not limited to financial audit. c. Outreach mechanisms will be used as needed to ensure the board’s ability to listen to owner viewpoints and values. 2. Costs will be prudently incurred, though not at the expense of endangering the development and maintenance of superior capability.

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a. Up to $__________ in fiscal year ______ for training, including attendance at conferences and workshops. b. Up to $__________ in fiscal year ______ for audit and other third-party monitoring of organizational performance. c. Up to $__________ in fiscal year ______ for surveys, focus groups, opinion analyses, and meeting costs. 3. The board will establish its Cost of Governance budget for the next fiscal year during the month of October.

Notice that these levels of detail spell out types and amounts of costs that the board expects to incur. The board that has been explicit about its own resource needs can instruct its CEO in Executive Limitations policy to ensure that the amount the board has specified will be available in the budget. ASSIGNMENT: Discuss and decide whether the parts of this Level Three and Four policy can stand alone (being sure to think of any policy as including all levels thus far) or need further definition. If you desire more definition than provided in the levels shown, consider language even more detailed as you go on your own into further levels. Additional Governance Process Policies Some boards work in special situations that require adding specialized policies to the more generic types listed in this chapter. We use one as an example. Most hospital boards use their formal medical staff organization to assist them in assuring the quality of medical practice and of medical practitioners in the organization. From a strictly governance perspective, the organized medical staff is an important means with which the board would not normally involve itself. However, since the board is accountable for that which it cannot judge, that is,

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medical excellence, it requires assistance from those who are qualified to make such judgments. This phenomenon is not unlike the situation the board finds itself in with respect to financial issues. In that case, the board relies on qualified financial auditing firms. So a medical staff’s enabling a board to be accountable is the medical equivalent of engaging an auditor. Theoretically, the board could obtain such assistance from any qualified source, but traditional practice is to use the hospital’s own medical practitioner structure. Such a decision requires that the board describe in a Governance Process policy how it will use the organized medical staff structure. A sample policy is shown next in three levels. Note that the board in question makes a clear distinction between the formal organization called medical staff and the individual practitioners who are members of that formal entity. We introduce this sample policy as one example of any number of Governance Process policies that can be developed by organizations with special circumstances (hospitals in this case). Because this topic is not for general applicability, we present it here for illustration in its completed state of three levels. Naturally, it begins at Level Two, just below the global, largest-mixing-bowl policy. Policy GP #2–4h: Charge to the Medical Staff: Levels Two, Three, and Four The board’s accountability for the quality of medical practice will be discharged in part by depending on the medical judgment of an organized Medical Staff. While the formal Medical Staff organization, consisting of all physicians privileged to practice in the organization, shall be responsible directly to the board, this does not relieve or otherwise affect the responsibility of individual physicians to meet requirements duly imposed by the CEO. 1. The Medical Staff will provide to the board its judgment as to the capability of relevant practices, personnel, and premises to support or provide quality care. 2. The Medical Staff will provide to the board its judgment as to the qualification of medical practitioners to render services and stan-

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Governance Process Policies dards incumbent upon the organization or upon the Medical Staff. 3. The Medical Staff will provide the board with a representative summary of physician opinion by September 1 each year with respect to Ends deliberations of the board. 4. The Medical Staff will be held accountable by the board for its compliance with all laws, regulations, and standards that may be binding on the formal Medical Staff organization itself. 5. The Medical Staff will be accountable for an assessment of medical performance on the criteria in Sections 1 and 2. a. Annually by an internal examination by a mechanism established by the Medical Staff b. Not less than every three years by an external, disinterested third party of the board’s choice, with whom the Medical Staff must fully cooperate c. At any time the board deems it necessary by either internal or external audit

Let’s Check the Map to See Where We Are The Governance Process category of board policies can now be represented in Figure 5.4 by a policy quadrant controlled all the way to at least Level Three. This has been the most common depth for our clients to reach before letting the CGO handle further fleshing out in action.

Next Chapter In our work so far, we have made assumptions about the board-CEO relationship. Now, in Chapter Six, we complete the policy category that describes that relationship: Board-Management Delegation.

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Figure 5.4. Governance Process Policies Completed.

2g

2e

2b

2c

2d GP #1

2f


2a

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Note: Your Governance Process policies cover all possibilities (because they begin at the broadest level), yet extend to the board-desired level of specificity. Even with the chief governance officer having authority to use any reasonable interpretation of the policy words, the board can be said to be in control of its own products and process.

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6 Board-Management Delegation Policies Linking Governance to the CEO

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n this chapter, we guide you through the policies used by the board to describe how it transfers a large portion of its authority to management. We call this category of board policies Board-Management Delegation, but any similar title, such as “Board-Staff Connection” or “Governance-Management Relationship,” would work as well. These policies deal with the methods and practices (means) of the board that describe not only the nature of delegation but the way in which the proper use of delegated authority is ascertained (monitoring). This section of policy appears in the lower left-hand quadrant of the circle diagram as shown in Figure 6.1. Note that this quadrant does not describe what is delegated to the operational organization but rather how delegation occurs. Hence this quadrant of policies does not instruct management but is targeted at the nature of the board-management interface. If there is a CEO, it addresses why the board has a CEO, what a CEO actually is, and how the board will behave in relating to the CEO.

Let’s Take It from the Top: Level One These policies start, as do all categories of board policy, with the most general, inclusive, and broad statement of the board’s values. Our clients often form their first and broadest Board-Management Delegation policy by defining the CEO position as the sole pathway 133

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Figure 6.1. The Board-Management Delegation Quadrant. Governance Process Issues


Ends Issues

Staff Means Issues

Note: On the circle diagram introduced in Chapter Two, the issues dealt with in this chapter are in the lower left-hand quadrant.

between governance and operations. Your board can begin by examining the following example. Policy BMD #1: Global Board-Management Delegation Policy The board’s sole official connection to the operational organization, its achievements, and conduct will be through a chief executive officer, titled [specific job title].

We refer to this policy as BMD #1 for, as shown on the circle diagram in Figure 6.2, it is the most inclusive statement within this

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Board-Management Delegation Policies

Figure 6.2. Board-Management Delegation, Level One.


BM

D

#1

Note: At this point in our exercise, the outer level of the policy circle has been completed in the Board-Management Delegation portion. The foundation for the governance-management relationship is established.

category. Although it is extremely general, note that it puts offlimits any other paths between board and operations for purposes of organizational achievement and conduct. As is true for all the toplevel policy statements, BMD #1 sets the stage for all further considerations in this category of board policies. For example, this simple statement would keep committees from serving as paths between board and staff. It also keeps the CGO from being the path. The implication is that board committees and officers shall not get between the board and the CEO. (To make no mistake about that interpretation, a Level Two statement will be offered later.) Figure 6.2 illustrates the capstone role played by BMD #1 in this category. If your board is not intending to use a CEO position, it must devise some other way to ensure accountability for organizational performance. It could hold separate persons accountable for separate domains of performance. It could hold committees accountable as groups for separate domains of performance. Both these alternatives, while difficult to avoid when there is no staff, cause the board a

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great deal of work. By far the most convenient choice for a board, even when the organization is small or the staff unpaid, is a CEO. ASSIGNMENT: Discuss the wording of this Level One BoardManagement Delegation policy, arriving at wording that both expresses your board’s global intent for this important relationship and, at the same time, is model-consistent with Policy Governance principles. After arriving at your final wording, discuss whether you can accept any reasonable interpretation of these words by the CGO. If you can, no further work is needed in this category. If you cannot, going into more detailed description (Level Two) is called for. For the same reasons offered when dealing with Governance Process policies, we strongly recommend that you go at least as far as Level Three.

Here’s a Little More Detail: Going to Level Two Our clients always decide to further expand upon the meaning of this largest Board-Management Delegation policy. In going into more detail, they define Level Two policies about a number of topics, usually consisting of the following: • Unity of control—authority exercised only by the board as a body • Accountability of the CEO—CEO as embodiment of the organization • Delegation to the CEO—the nature of authorizing and instructing • Monitoring CEO performance—rules and process of evaluation Broad board statements about this second level of definition will be referred to as BMD #2 policies, and each will be assigned a let-

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ter, as in previous chapters. Let us review some examples of such Level Two policies. ASSIGNMENT: Go through each of the following BMD #2 statements in turn, taking your time to discuss their implications for your board. Resist going into more detail at this time. Also resist the temptation to word-craft commas and semicolons and grammar. Instead, examine your differences of opinion about the values expressed. Don’t forget that each consideration that follows will have been preceded by the more general BMD #1 statement. Policy BMD #2a: Unity of Control Only officially passed motions of the board are binding on the CEO.

This policy baldly states the only condition under which the board’s authority can be expressed, indeed, under which the board has any authority at all. Being unambiguous about this matter protects the board from the possible undermining of board authority by individual board members. It also protects the integrity of governance, in that the CEO and staff are less likely to respond to stray comments by individual board members, even when these board members are not trying to undermine board authority. Notice that it also protects the CEO from the renegade board member who would construe the CEO to be answerable personally to that member. ASSIGNMENT: Discuss and decide whether this policy is sufficient with respect to its topic or needs further definition. If this policy is sufficient, the CGO will have the right to use any reasonable interpretation of its words. If you think further definition is needed, consider language described later in this chapter as Level Three policies. Policy BMD #2b: Accountability of the CEO The CEO is the board’s only link to operational achievement and conduct, so that all authority and accountability of staff, as far as the

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REINVENTING YOUR BOARD board is concerned, is considered the authority and accountability of the CEO.

Policy BMD #2b clarifies that, from the board’s perspective, the CEO and the organization are indivisible in terms of performance. Since the CEO is accountable for the success of the total organization, the matter of who does what on the staff is immaterial to the board. Using this approach, it is not possible to have a successful organization and a poor CEO, or an unsuccessful organization and a good CEO. Does your board understand that for this policy to be truly followed, the board must never instruct persons who report to the CEO? Does it consider that the wording of this policy at Level Two adequately describes the powerful yet controlled nature of its delegation? It may wish to further define its terms before allowing the CGO to interpret its words. If so, a Level Three policy is required. ASSIGNMENT: Discuss and decide whether this policy is sufficient with respect to its topic or needs further definition. If this policy is sufficient, the CGO will have the right to use any reasonable interpretation of its words. If you think further definition is needed, consider language described later in this chapter as Level Three policies. Policy BMD #2c: Delegation to the CEO The board will instruct the CEO through written policies that prescribe the organizational Ends to be achieved and proscribe organizational situations and actions to be avoided, allowing the CEO to use any reasonable interpretation of these policies.

You will have noticed that this policy demands rigorous board discipline. It commits the board to a number of practices that, if followed, totally change board behavior. First, the requirement to write down instructions is vital if a group is going to act as a body. After

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all, it is impossible to know what a group has said unless it writes its words and agrees to them. Second, using discipline to stay positive about ends and negative about means demands a rigor that both clarifies expectations and allows for meaningful CEO understanding of the job to be done. This policy also clearly acknowledges that words must be interpreted and assigns the right to interpret them to the CEO. Is your board ready to undertake such a powerful and unambiguous delegation? Policy Governance enables your board to delegate in this manner safely. ASSIGNMENT: Discuss and decide whether this is sufficient with respect to its topic or needs further definition. If this policy is sufficient, the CGO will have the right to use any reasonable interpretation of its words. If you think further definition is needed, consider language described later in this chapter as Level Three policies. Policy BMD #2d: Monitoring CEO Performance Systematic and rigorous monitoring of CEO job performance will be solely against the only expected CEO job outputs: organizational accomplishment of board policies on Ends and organizational operation within the boundaries established in board policies on Executive Limitations.

Boards have traditionally found CEO evaluation to be a difficult task. We are sure that the difficulty they have experienced stems from their failure to produce criteria against which monitoring can take place. Put another way, deciding what is expected must precede monitoring. This policy clarifies that the requirements stated by the board in Ends and Executive Limitations policies are the criteria for CEO evaluation. We discuss monitoring in more depth in Chapter Eight. The purpose of this chapter section is to demonstrate how the board expresses its intention to handle the monitoring of the CEO.

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The board’s obligation to evaluate organizational performance can only be met by evaluating its CEO against criteria the board has already set. The implication of such a requirement is that there can be no evaluation of CEO performance and, in fact, there can be no defined CEO job outputs at all, until the board has completed its obligation to clearly articulate its requirements. Is your board prepared to exercise the discipline required to strictly adhere to such a policy? How could it justify anything else? As to the depth of this policymaking about monitoring, our experience is that boards wish to go into much more detail in describing their monitoring methods and in devising an actual schedule of monitoring before handing off to the CGO. ASSIGNMENT: Discuss and decide whether this policy is sufficient with respect to its topic or needs further definition. If this policy is sufficient, the CGO will have the right to use any reasonable interpretation of its words. If you think further definition is needed, consider language described later in this chapter as Level Three policies.

Let’s Check the Map to See Where We Are Now you have completed Level Two policies in the BoardManagement Delegation category of board policies. While we recommend that your board provide still further definition, what has now been produced constitutes a complete overview of the CEO’s job and relation to the board’s work, as well as the wholeness of the board in that relationship. Once again, let’s return to the policy circle in Figure 6.3 to visualize this new layer of policy. ASSIGNMENT: Look over your work so far. You have now created one BMD #1 global policy and several further refinements at the BMD #2 level. As further interpreted by the CGO, these policies put both board and CEO on notice about the nature of this impor-

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Figure 6.3. Board-Management Delegation, Levels One and Two.

2a


2b

BM

D

#1

2c 2d

Note: With policy language at the BMD #2 level, the initial global description of the relationship between governance and management has now been further defined with respect to a few critical dimensions.

tant relationship. You will have further opportunity to make the policies more specific (Level Three), but these Level Two policies provide the foundation upon which any further specifics are based.

Going into Even More Detail: Level Three In the following pages, we demonstrate some Level Three policies (BMD #3). As before, Level Three further defines the words of Level Two. Remember that Level Two policies were themselves built upon the Level One policy that started this sequence. Unity of Control Policy BMD #2a states: Only officially passed motions of the board are binding on the CEO. This policy states broadly the principle that only the board as a body may instruct the CEO and that the CEO is accountable for meeting only the expectations expressed by the

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whole board. This point seems unambiguous enough, but examine the following embellishments to see the additional definition they contribute. Policy BMD #3a: Unity of Control: Level Three 1. Decisions or instructions of individual board members, officers, or committees are not binding on the CEO except in rare instances when the board has specifically authorized such exercise of authority. 2. In the case of board members or committees requesting information or assistance without board authorization, the CEO can refuse such requests that require, in the CEO’s opinion, a material amount of staff time or funds, or are disruptive.

This policy makes clear that board members have no power to act as individuals in the organization. Its second section introduces a new implication for many boards. Often board members fail to realize that individually demanding information from staff is, in fact, a unilateral commandeering of resources. Most boards have no idea what one or more of their colleagues cost the organization in staff time to research questions. The reason the board chooses in this policy to save the CEO from individual requests is not to make life easier for the CEO but to protect its own group authority. Individual board members can surely get their questions answered unless their doing so burdens the organization. The board as a body, of course, can get any question answered it chooses. ASSIGNMENT: Discuss and decide whether the parts of this Level Three policy can stand alone (being sure to think of any policy as including all levels thus far) or need further definition. If you desire more definition than provided in Level Three, consider language even more detailed as you go on your own into Level Four policies or beyond.

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Accountability of the CEO Policy BMD #2b states: The CEO is the board’s only link to operational achievement and conduct, so that all authority and accountability of staff, as far as the board is concerned, is considered the authority and accountability of the CEO. This policy clearly establishes the pivotal role of the CEO. We have found that the details of a Level Three policy are useful to boards, and we recommend that you consider the following policy sample: Policy BMD #3b: Accountability of the CEO: Level Three 1. The board will never give instructions to persons who report directly or indirectly to the CEO. 2. The board will not evaluate, either formally or informally, any staff other than the CEO. 3. The board will view CEO performance as identical to organizational performance so that organizational accomplishment of board-stated Ends and avoidance of board-proscribed means will be viewed as successful CEO performance.

These provisions are straightforward, to be sure, but your board will profit from a discussion of its proper relationship to non-CEO staff. Note that this policy does not prohibit contact and interaction but does require the board to avoid even informally instructing or evaluating these staff. Can you see the usefulness to all board members of clarifying these issues? ASSIGNMENT: Discuss and decide whether the parts of this Level Three policy can stand alone (being sure to think of any policy as including all levels thus far) or need further definition. If you desire more definition than provided in Level Three, consider language even more detailed as you go on your own into Level Four policies or beyond.

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Delegation to the CEO Policy BMD #2c states: The board will instruct the CEO through written policies that prescribe the organizational Ends to be achieved and proscribe organizational situations and actions to be avoided, allowing the CEO to use any reasonable interpretation of these policies. Our clients commonly decide to define this policy further, since it differs so markedly from standard board practice. They wish to be explicit in describing the “go till we say stop” manner of their delegation, since they are aware that the traditional manner of delegating is “stop till we say go.” Taken together with the Level Two portion of this topic, the combined BMD #2c-3c policy is a succinct treatise on CEO delegation in the Policy Governance model. Policy BMD #3c: Delegation to the CEO: Levels Three and Four 1. The board will develop policies instructing the CEO to achieve specified results, for specified recipients, at a specified cost. These policies will be developed systematically from the broadest, most general level to more defined levels and will be called Ends policies. All issues that are not ends issues as defined here are means issues. 2. The board will develop policies that limit the latitude the CEO may exercise in choosing the organizational means. These limiting policies will describe those practices, activities, decisions, and circumstances that would be unacceptable to the board even if they were to be effective. Policies will be developed systematically from the broadest, most general level to more defined levels, and they will be called Executive Limitations policies. The board will never prescribe organizational means delegated to the CEO. a. Below the global level, a single limitation at any given level does not limit the scope of any foregoing level.

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Board-Management Delegation Policies b. Below the global level, the aggregate of limitations on any given level may embrace the scope of the foregoing level, but only if justified by the CEO to the board’s satisfaction. 3. As long as the CEO uses any reasonable interpretation of the board’s Ends and Executive Limitations policies, the CEO is authorized to establish all further policies, make all decisions, take all actions, establish all practices, and pursue all activities. Such decisions of the CEO shall have full force and authority as if decided by the board. 4. The board may change its Ends and Executive Limitations policies, thereby shifting the boundary between board and CEO domains. By doing so, the board changes the latitude of choice given to the CEO. But as long as any particular delegation is in place, the board will respect and support the CEO’s choices.

These provisions more finely describe the method the board will use to empower the CEO position. They describe the way that CEO authority is packaged. ASSIGNMENT: Discuss and decide whether the parts of this Level Three and Four policy can stand alone (being sure to think of any policy as including all levels thus far) or need further definition. If you desire more definition than provided here, consider language even more detailed as you go on your own into additional Level Four policies or beyond. Monitoring CEO Performance Policy BMD #2d states: Systematic and rigorous monitoring of CEO job performance will be solely against the only expected CEO job outputs: organizational accomplishment of board policies on Ends and organizational operation within the boundaries established in board policies on Executive Limitations. This policy, which emphasizes that CEO performance is exactly the same as organizational performance, introduces the strict

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definition of monitoring used in Policy Governance. The board is required to state its criteria for organizational success, to whatever detail it chooses, using the ends-means distinction. It is then obliged to monitor that reasonable interpretations of its requirements were met. The board’s written policies are the only criteria that may be used. Having established this important principle, many boards wish to enumerate the methods by which they may obtain the monitoring data they need, thereby not leaving the mechanics to CGO choice. Some also wish to enlarge upon their definition of monitoring itself. Accordingly, it is common to see Level Three and Four policies about monitoring.

Policy BMD #3d: Monitoring CEO Performance: Levels Three and Four 1. Monitoring is simply to determine the degree to which board policies are being met. Information that does not do this will not be considered to be monitoring information. 2. The board will acquire monitoring information by one or more of three methods: a. By internal report, in which the CEO discloses interpretations and compliance information to the board b. By external report, in which an external, disinterested third party selected by the board assesses compliance with board policies c. By direct board inspection, in which a designated member or members of the board assess compliance with the appropriate policy criteria 3. In every case, the board will judge (a) the reasonableness of the CEO’s interpretation and (b) whether data demonstrate accomplishment of the interpretation.

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Board-Management Delegation Policies 4. The standard of compliance shall be any reasonable CEO interpretation of the board policy being monitored. The board is the final arbiter of reasonableness, but will always judge with a “reasonable person” test rather than with an interpretation favored by board members or by the board as a whole. 5. All policies that instruct the CEO will be monitored at a frequency and by a method chosen by the board. The board can monitor any policy at any time by any method, but will ordinarily depend on a routine schedule: Policy

Method

Frequency

Treatment of Consumers

Internal

Annually

Treatment of Staff

Internal

Annually

Financial Planning and

Internal

Quarterly

Financial Condition and

Internal

Quarterly

Activities

External

Annually

Emergency CEO

Internal

Annually

Compensation and

Internal

Annually

Benefits

External

Every two years

Communication and

Direct

Annually

Support

Inspection

Budgeting

Succession

You will remember that the Executive Limitations policy Communication and Support to the Board requires that the CEO provide to the board the monitoring information spelled out in its monitoring schedule. Section 4 of this policy is where that monitoring schedule can be found. Of course, the only portions incumbent upon the CEO to provide are those marked “internal.” This policy, therefore, defines what monitoring is, explains alternate methods that the board can use to carry it out, and further specifi-

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cally establishes the board’s expectations for the receipt of monitoring information. The monitoring schedule shown includes only policies of the Executive Limitations category, since at this time no Ends policies have been developed. It is important, of course, that as Ends policies are created, they are placed into this schedule to ensure proper monitoring. We have chosen methods and frequencies that correspond roughly to those our clients often use. Your board, however, should discuss which methods (that is, those methods listed in Section 2 of this policy) and frequencies would satisfy its continual need for assurance, bearing in mind the cost of monitoring. As you see in the case of Financial Condition and Activities, the board can select more than one method for a given policy. The “external” report in this case would be that typically done by an outside auditing firm. ASSIGNMENT: Discuss and decide whether this policy can stand alone (being sure to think of any policy as including all levels thus far) or needs further definition. If you desire more definition than shown here, consider language even more detailed as you go on your own into further levels.

Let’s Check the Map to See Where We Are The Board-Management Delegation policies now describe the governance-management connection in a more powerful, clear way. Now that we have completed a round of Level Three policies, let’s see in Figure 6.4 how that policy circle is looking. ASSIGNMENT: Look over your work so far. You have now created a reasonably complete set of Board-Management Delegation policies. Do these make sense as a whole in describing an empowering and fair yet rigorous relationship between the functions of governance and management? Have you been careful to stick carefully to Policy Governance principles as you tailored the policy samples?

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Figure 6.4. Board-Management Delegation Policies Completed.

2a


2b

BM

D

#1

2c 2d

Note: With a more or less full complement of Board-Management Delegation policies in place, your Board policies lack only the important Ends category to be complete.

Summary In summary, then, the Board-Management Delegation policies establish three important components of the accountable organization: • A carefully crafted method with which the board will express its expectations for the operational organization. • A powerfully simple avenue along which authority and accountability flow from the full board to, if possible, one individual (the CEO). • A thorough but fair evaluative stance vis-à-vis the CEO: all official instructions will be monitored, and only official instructions will be monitored in determining CEO job performance.

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Next Chapter At this point in your work, all policy categories have been completed except the most exciting and compelling one of all, Ends. In Chapter Seven, we help you begin this important process. While Executive Limitations, Governance Process, and Board-Management Delegation categories can be completed relatively quickly, Ends require more study and creativity. They are the central challenge to board decision making.

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7 Ends Policies The Real Bottom Line

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n this chapter, we are going to guide you through the process of developing the Ends policies of your organization. Although this challenge will be the heart of the board’s work forever, it is not necessary to finish your Ends work prior to putting the other three categories of policies into effect. Policies in the other three categories should be relatively complete in order to codify the board’s job and the board’s relationship with management, as well as to provide the safety to let go afforded by Executive Limitations. But with those policies in place, the board and CEO can begin operating in a Policy Governance manner. We refer you to Chapter Nine for tips on getting that process started. The work of this chapter, however, is to describe the board’s never-ending task of determining not what the organization does but what it is for. Our attention turns, then, to the creation of Ends. In Policy Governance, the term Ends refers to the effects an organization seeks to have on the world outside itself. Its work will cause something to be different for someone at some cost. The concept embraces • The impact, difference, change, benefit, or outcome to be obtained in the lives of consumers or consumer-like populations. Let’s call this results. 151

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• The identity, description, or characteristics of the consumers or populations to receive the results. Let’s call these recipients. • The monetary expense, relative worth, or relative priority of a result or set of results, or the comparative priority of certain recipients rather than others getting the results. Let’s call this feature cost. Keep in mind that cost can mean cost in other results forgone, not just cost in monetary terms. Ends policies, then, are policies that address a threefold concept: your organization’s results, recipients, and cost of results. To qualify as an ends statement, a proposition must describe at least one of the three components. Taken as a whole, of course, your Ends policies will describe all three. We intentionally risk overkill in defining the ends concept, for we have found that despite its simplicity, it is persistently misinterpreted. We strongly urge compulsive attention to the ends definition. You will sometimes hear ends mistakenly equated with results only. Be careful not to fall into this trap, as the concept is broader than a simple designation of outcome. (If results were the only meaning of ends, there would have been no need to use a word other than results in the first place.) You will find yourself tempted to define ends as anything that is important, required by law, or the end point of a process. None of these are correct definitions in Policy Governance. You will find yourself tempted to define ends as your programs, services, or curricula. These are not ends; they are packages of means. Financial soundness and a good budget are means also. You will find yourself calling all of these ends occasionally. Watch out for this! We suggest that board members develop a habit of friendly but rigorous policing of each other in order that the concept not deteriorate with misuse. Ends issues are located on the circle diagram in the top righthand quadrant, as shown in Figure 7.1.

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Ends Policies

Figure 7.1. The Ends Quadrant. Governance Process Issues


Ends Issues

Staff Means Issues

Note: On the circle diagram introduced in Chapter Two, the issues dealt with in this chapter are in the upper right-hand quadrant.

As with all other policy types, Ends are developed beginning from the broadest, most inclusive and general level first, then toward progressively more defined levels. Also in common with the other policy types, Ends are developed to the point that the board can accept any reasonable interpretation of a delegatee. In this case, the delegatee is the CEO. Despite these features in common with the other policy types, this chapter will be very different from the three preceding chapters. For policy development within Executive Limitations, Governance Process, and Board-Management Delegation (all means

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policies), we were able to present you with some generic samples. Those policies were model-consistent examples of what many boards have used. While we expect that you will have changed them somewhat, the format and content of means policies have general applicability across organizations of all types. To recap, Governance Process and Board-Management Delegation policies describe both the Policy Governance model and its practical application. If you accept the model, your policies in these categories will merely be slightly tailored restatements of the model itself. Executive Limitations policies are really an expression of the board’s values of prudence and ethics, since these values are the only reasons to constrain your CEO’s choice of means. Because people in a culture have somewhat similar ideas about ethics and prudence, these policies tend to be similar across organizations of very different types. (While policies that tell the CEO how to manage would not be generically applicable, policies that tell the CEO how not to manage are.) Ends policies, in sharp distinction, are not generic at all. In fact, the uniqueness of any organization lies in its Ends. The meaningful difference between a city government and a hospital, or a mental health center and a trade association, lies not in different concepts of what is prudent and ethical nor in the principles of governance. The meaningful difference lies in the results they seek to produce for consumers, the particular consumers to whom they are targeted, and the worth or priority they assign to those results and recipients. A further difference between the process of developing means policies (for board and staff) and that of developing Ends policies is the time involved in the policy work. Means policies, as you have seen, can be developed in a relatively short time. They are internally focused, and most of the information required for their formulation is available inside the board or staff organization. Ends policies, on the other hand, deal directly with issues of the world outside the board and the operating organization. Your board, in making its Ends policies, will be making hard choices about who

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Ends Policies

will and who will not benefit from your organization, and in what ways. Such decisions are difficult, perhaps painful, and may be politically charged. They always need to be made with proper diligence from a very informed position, for a board makes such determinations on behalf not of itself, or its staff, or even today’s consumers, but on behalf of the ownership in general. Hence, we are not able to present you with samples of Ends policies that you can work from, as we did in the other policy quadrants. What this chapter will do is provide a format, or a sequence, for your board to use when it involves itself in the long and difficult task of Ends policy development. When your board sets out on its Ends work, approach the task with the following perspectives: 1. Don’t assume that your existing mission statement is an Ends policy. We often find that our clients have inspiring and rhetorically attractive mission statements, and we do not at all mean to minimize either the effort that went into preparing such documents or their possible public relations value. It is rare, however, that they are written in ends terminology, that is, that they define who is to benefit from the organization, in what way, or at what cost. They therefore do not qualify as Ends policies. 2. Expect it to be difficult. This may be counterintuitive. Our clients often start the policy development process expecting that means policies will be difficult to write and that Ends policies will be easy. After all, they reason, it’s pretty obvious why the organization exists. After not very long, they realize it is not at all obvious what benefits should accrue, much less to which consumers at what cost. It is clear that boards have seldom considered such issues and that, as a result, they need to start virtually from scratch to define organizational purpose. 3. Be rigorous about Ends attributes. This is difficult at first, since you will find that it feels more natural to describe activities and intentions than to prescribe results, recipients, and cost. In time, you

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will get used to speaking in ends terminology, but for this to happen, you must learn to recognize that effort and action words almost always describe means, not ends. If you prescribe means to your staff, you will surely get them, but you will still be in the dark as to whether the right results were produced for the right people at the right cost. 4. Never assume that your existing strategic plan is or contains an Ends policy. You may have spent some time developing a strategic plan. These plans usually contain a number of goals, objectives, or strategies for future years. Our experience is that they almost always are means documents. Plans, after all, describe how to get from here to there. Ends policies describe “there” with a consumer benefit focus. It only illustrates the aimless means focus of many nonprofit and governmental organizations that it is common to have extensive strategic planning even though ends are largely undefined! In Policy Governance, the CEO has the same prerogatives with strategic planning as with any other staff means issue: to make sure that all planning is within constraints established by the board. 5. Develop Ends policies with a long-term perspective. Your board should aim at defining what the organization is to accomplish, for whom, and at what cost over the next several years, not by next month. Using a horizon that is appropriately distant will force the board to have a future orientation and to inform itself about future developments in the profile of needs and populations. It also recognizes that the staff needs time to plan and implement change in pursuit of the board’s Ends. 6. Make sure Ends are doable. Ends policies, even at the most global level, describe the achievements for which the CEO will be held accountable. Accordingly, the board must be careful to make its requirements realistically ambitious. You should expect the maximum possible, not the maximum conceivable. So avoid rhetorical flourish. “A world that works for everyone,” “A community free of alcoholism,” or “Every child a wanted child” are Ends statements, but probably not yours! These are ideal states to which your board may have a philosophical commitment and, for that reason, bear

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stating. In other words, your board may want to make a statement of philosophy or be explicit about its motivation or the beliefs that bring it together in the first place. This is understandable, but such statements are not Ends. They belong in the Governance Process quadrant of board policy, declaring, in effect, where the board is coming from or the board’s mentality. 7. Ignore current organizational divisions or departments. Your board should not make Ends policy on a department-by-department basis. Remember that the organizational structure, or division of labor, is a staff means issue within the purview of the CEO. The CEO has the right, unless specifically constrained by Executive Limitations policies, to change internal organizational structure. Do not allow staff structure to drive board thinking about the impact your organization should have. 8. Never allow the problem of measurement to come up as you decide Ends. We are aware of how odd this sounds. We, too, have heard the rules about always having measurable objectives. We are not opposed to measurement! We are simply asserting that if the board allows measurement questions to contaminate its deliberations about what is to be accomplished, for whom, and at what cost, it will prescribe what is measurable rather than what is meaningful. We urge you to demand meaningful performance from your organization. The CEO will be required to convince the board that a reasonable interpretation of the board’s Ends demands was delivered. So let measurement be the CEO’s problem, but be realistically prepared to accept crude measures. It would be wonderful if Ends could be precisely measured, but at this stage of history they will likely be measured only crudely. Here’s a useful adage to remember: “A crude measure of the right thing beats a precise measure of the wrong thing.” For too long, our nonprofit and public organizations have been precisely measuring the wrong things! 9. Expect to find that there is information you need and don’t have. Policy Governance boards spend a large amount of time getting educated. To demand doable results, to specify recipients, and to set acceptable costs raise many difficult questions. Just what is doable?

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Who are the potential consumers for whom we could make a difference, and how do we choose among them? What choices do our owners want us to make, and how will we deal with the inevitability that the owners themselves don’t agree? How much should the results we demand cost? How should the results we seek change over the next few years? How will changes in public policy affect our choices? You can undoubtedly think of many more examples of information required for Ends decisions. Now with those observations in mind, let us proceed through a set of exercises aimed at assisting your board to find the broadest, most inclusive, largest-mixing-bowl Ends policy for your organization. To do these exercises, it would help to appoint a member of the board to use a flip chart so that the various attempts that your board makes can be kept together. We strongly urge that all board members be involved in this exercise.

Let’s Take It from the Top: Level One Your board will start its Ends policy development by deciding on the largest appropriate Ends statement. We have found that focusing on the results aspect of ends is a good start-up tactic. That is, don’t try to cover results, recipients, and cost all in this beginning exercise. Not having to focus on recipients and cost makes the job easier at this juncture. You might find that specification of recipients will occasionally emerge naturally. If it does so, fine, but our initial focus will be results. Let’s give this approach a rational grounding as well as a practical one. Results precede the other two components. Organizations exist to cause something to be different. What is the difference? What is your organization for, stated in its simplest and most focused form? In other words, what should result from organizational activity? What does it produce? For this reason we’ll look for getting a handle on results first.

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Only then will we concern ourselves with who gets the results. Obviously, your organization can’t produce its results for the whole world. Some populations or individuals will get the benefits, and some will not. Who should benefit? How will the benefits be apportioned? Finally, we concern ourselves with what these results with these people are worth. What are they worth in monetary terms? What are they worth in opportunity cost, that is, other things given up in order to get them? Or what is their importance relative to each other rather than relative to money or opportunities foregone? In other words, what are their relative priorities? This succession of questions (first what results, next which people, finally what cost) can be asked at all levels of abstraction. That is, they can be asked at the Level One stage that we are about to start. But they recur throughout the Ends domain. For example, think of a school system in which the board addresses what skills and insights are to be attained by young persons of a particular geographic area for a tax burden of a certain amount. In that same system, a classroom teacher is faced with deciding what skill level should be attained by little Consuela by this afternoon and whether that is worth letting a few other children wait awhile. So let’s begin our work by looking for the results component at the highest level of ends. We suggest starting the Ends development process by naming “candidates” for the largest Ends policy, which we call E #1. To begin, ponder questions like these: If this organization were to disappear from the face of the earth tomorrow, why would we put it back? What are we buying with (or what justifies) the resources consumed by this organization every year? What does our ownership demand from this organization? Remember you are concerning yourselves with what the organization is for, not what it does. This is a brainstorming exercise, so it would be helpful for someone to record on a flip chart the various suggestions as they emerge from the discussion. Pay no attention to your existing mission

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statement except as its content comes up naturally during the brainstorming. Press for full participation, encouraging the various differences in emphasis or values held by your board members to be represented. We use examples from a mental health center board, but you will see that there are obvious parallels with other nonprofit or public organizations. We assume that your board has just produced a list like that to follow. (The items are the sort that commonly show up at this point in the process.) Remember, we are looking for what results this organization exists to produce. What is this organization for? The following are brainstormed “candidates” for the Level One Ends policy. The question: What is our organization for? Offer quality programs and services Support parents of mentally ill people Help mentally ill people Help people reach their potential Marriage counseling Jobs Advocate for the mentally ill Make life enjoyable for low-functioning people Responsible use of resources Community support Assist families in solving problems When engaged in this exercise, continue the process until a dozen or so phrases are on the list or as long as the contributions keep coming, whichever is longer. As in any brainstorming, it is best if you do not stop to judge or even discuss any one of the suggestions. Just keep adding to the list until a natural stopping point is reached. Having collected these candidates for top billing, review them. A certain amount of weeding out will be required. It will be

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helpful if you have a brief discussion aimed at reducing the pride of authorship some board members might feel, for everyone will be invited to be brutal in critiquing the list. We illustrate by critiquing our own: • We begin by eliminating the words that describe good intentions or effort rather than results. Examples from our list include the words support, assist, and advocate. They bespeak not the attainment of anything but commitment and intention. They can be fulfilled while having absolutely no effect upon consumers. Be tough; allow yourselves and your CEO no points for supporting, assisting, or advocating; rather, hold yourselves to the discipline of requiring results for people. Your staff will no doubt have to support and assist and advocate, but these are means and have no value apart from the benefits they produce. Do not inappropriately dignify these efforts as Ends. Your organization does not exist to try. • Now, we go beyond effort words and eliminate means of all types from the list. Even the most Ends-conscious board will find that it has produced some. Our list contains several. Programs and services, even high-quality ones, are means, not ends. (Actually, their quality can only be determined in relation to their ability to produce the Ends. So, apart from their achievement of Ends, how would we know they are high-quality?) That resources be used responsibly is important but is not an ends issue, as it fails to identify even one of the three components of ends. Helping mentally ill people, while broadly identifying the recipients of intended results, does not state the outcome or result those recipients should expect to receive; helping per se is an activity (means). Marriage counseling is likewise an activity. Be suspicious of verbs (help, offer). If they describe your organization’s actions rather than the benefit to be received by the consumer, they signify means. To teach reading to children is a means; children can read is an end. • We eliminate or clarify the candidate statements that are ambiguous as to their ends or means identity. Notice that on our

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list, jobs and community support could be ends or means. If the board is remarking on the fact that the organization employs people, this is a means issue and should be discarded from the list. If the board intends, on the other hand, that certain consumers should be employed as a result of the organization’s efforts, this is an ends issue. Likewise, community support could mean that the board wishes the community to be supportive of the organization. This is a means issue. If the board intends that it wants to see a difference in the ability of clients to integrate into the community, or in the ability of the community to include clients in everyday life, these are ends issues and should stay on the list. Education is a similar word; if it means the state of being educated, it is a result. If it means the process of education, it is a means. Beware of words that can go either way. It is so easy to get off-track in working with Ends that we strongly caution you not to put even one foot on the slippery slope. Let’s see what a revised version of our list might look like, along with brief comments about the reason for revising. Candidate Statement

Comment

Offer quality programs and services

Entirely means

Support parents of mentally ill people

Recipients are defined but no results; support is means

Help mentally ill people

Recipients are defined but no results; help is means

Help people reach their potential

That people reach their potential is a result; helping, however, is a means

Marriage counseling

Entirely means

Jobs

Ambiguous; could be ends or means

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Advocate for the mentally ill

Recipients are defined but no results; advocate is means

Make life enjoyable for low-functioning people

Very close; if “life [is] enjoyable . . . ” then results and recipients are defined

Responsible use of resources

Entirely means

Community support

Ambiguous; could be ends or means

Assist families in solving problems

Means because the focus is on assisting; if “families solve problems,” then a result and recipients are defined

Our revised list shows that the elimination of means statements, including “effort words,” and the identification of ambiguous statements change the picture considerably. As you can tell, we are bending over backward to weed out anything that isn’t strictly a result. We haven’t argued with the vagueness of stated results, but we have been brutal on means masquerading as results. We know that such care may seem to be overkill. But keep in mind that the toplevel statement sets the stage for all further Ends work. If we cannot observe the simple principles at this global level, how can we hope to observe them as we go into more detail and potentially more complexity? Since subsequent Ends work further defines the global intention, putting the wrong elements into the global statements destines further work to define the wrong things. That is exactly what boards customarily do; they waste a great deal of time working on the wrong questions. At this point, your board should make a new list. Now that the board is prepared to be more rigorous about the results component, you may be able to add in the recipients component as you move ahead. If you find it necessary to stick to the results part even longer, do so. It is better to have an extra step than to take a chance on forsaking rigor.

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So far, we have identified that the parents of mentally ill people may be recipients of undefined results produced by the organization. What should the results be? Does the board want to prescribe that parents of mentally ill persons get an occasional rest? Does it want them to acquire certain skills? Does it want them to achieve a level of psychological comfort? Suppose the board has massaged these points and produced new candidates for the top Ends statement that look like this: • Parents of mentally ill people will have an occasional rest. • Mentally ill people will achieve life skills consistent with their abilities. • Mentally ill people will have the opportunity to fulfill their potential. • Mentally ill people will have job skills or jobs. • Public policy and community standards will be accepting of the mentally ill. • Chronically mentally ill people will have the ability to enjoy life. • Families will have the ability to solve problems without violence. If you’ve moved along like our example board, it looks as if you have identified results and recipients. (Don’t even worry yet about the cost component; we will attend to it in a little while.) Now examine the items on the list for their level of ambition. To hold yourself accountable for mentally ill people having the opportunity to meet their potential is less ambitious than being accountable for their actually meeting it. What if your staff produced a great deal of opportunity, but no one reached potential (remember, the CEO gets

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to use any reasonable interpretation of that word)? Would that be OK? Likewise, being accountable for people having job skills is less ambitious than being accountable for their having jobs. Which level of ambition is appropriate? Try to be as ambitious as is still doable. At this point, you will notice that you have created an incomplete list of results and recipients, none of which by itself constitutes the broadest level of Ends policy, Policy E #1. The list contains Ends statements that may be important to include at further levels of definition. But the largest Ends statement must encompass all other statements in this category. Said another way, if you are relatively certain about these less-than-global designations of results and recipients, then the eventual global statement must encompass all of these and possibly more. Upon inspection, your board’s list, as does this one, may fall into some identifiable areas or themes. Our list seems to fall into three areas: mentally ill individuals and their parents, families with emotional or adjustment difficulties, and the general public (its policy or point of view). What is needed is a statement that encloses these lower-level themes. Here is an attempt at such a statement: People with psychiatric and emotional problems will achieve their potential in a caring community. We make no attempt to defend this sample Ends policy, since reasonable people on a board, in different situations, may decide very differently. We simply offer it as an example for discussion. We will not discard the list we labored over, even though it has yielded its most important contribution: helping us conceive of a global statement. Sometimes the original list has within it the global statement; that may be what happens in your brainstorming experience. But be ready to extrapolate if you need to, as we just did. In any event, the list that is left will be used later when we consider expanding our Ends to Level Two. But to round out our tentative global statement (E #1), let’s now add the cost element. Remember the intent of cost as an ends concept

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in Policy Governance is to declare what some result is worth, or how much of the result we want for the money or other cost entailed. That can be expressed in different ways: an exact monetary amount, a relative priority among other results, or an external comparative statement. In the case of government, the cost of results is likely to be taxes and user fees imposed. At this topmost level in our exercise, we will use an external comparison, possibly the easiest to use at this level. The kind of external comparison will be “market,” the average amount of good that would ordinarily be possible for whatever amount of money is expended. In other words, the efficiency (results per cost) should be about what others can do. This is a useful comparison in that it works even with changes in budget size, and it affirms that we want to do at least an average job of producing desired effects for the money being spent. Taking that path, the Ends Policy E #1 in its entirety might be worded thus: Policy E #1: Global Ends Policy People with psychiatric and emotional problems will achieve their potential in a caring community with a level of efficiency comparable to similar organizations.

This Level One Ends policy appears on the circle diagram as depicted in Figure 7.2. Your board would undoubtedly argue several aspects of the foregoing E #1 policy. For example, someone would say that producing at the average is not ambitious enough, that the wording should be, say, “at an efficiency materially beyond the median.” Another will argue with the word potential, preferring that the statement reflect an external instead of internal reference point like “will achieve a substantially normal life.” And still others will argue other issues. This is as it should be. Also, the board would be gathering information so as not to come up with an undoable dream. Remember, Ends may flow from your dreams, but they are meant to be practical tools in directing the organization.

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Figure 7.2. Ends, Level One.

E# 1

Ends Issues

Note: The global or mega-Ends statement, shown in the upper right-hand quadrant, encloses or forms the base for all further Ends decisions.

So the E #1 policy, only somewhat like what is traditionally meant by “mission,” will be characterized as follows: • Brief, but including all three ends components • Doable, not merely a wish or unattainable goal • Clear, but not having to bear the burden of being snappy like a slogan • Expansive enough to embrace the fullness of your intent • Narrow enough to distinguish your organization from the larger world Take another look at the E #1 statement we have produced. Even though the board will probably choose to define the words further in E #2 and maybe E #3 levels of policy, the purpose of the organization is quite succinctly and clearly put as the statement stands. If the board chooses to leave Ends development at this level

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without further expansion, the CEO would set out to construct definitions of the words, undoubtedly taking great care in doing so, for the board will be expecting a convincing argument that reasonable interpretations are being achieved. On the other hand, the CEO knows that no credit will be forthcoming for well-designed programs, busy and competent staff, low costs per client visit or staffclient ratios, or full work schedules. The board will no longer mistake such means for Ends performance. In fact, if the CEO can achieve the Ends as stated in this global statement with no professional staff, or a high cost per visit, or by waving a magic wand, the board will be happy. As an aside, if we really want to harness innovation and creativity to the public’s benefit in health care, education, municipal government, and other public services, this is exactly the way our governing boards must behave. Not doing so—staying stuck in the traditional mode—is a travesty imposing a massive toll in human and material cost. Before we move on from the creation of the top level of Ends, let us look at some first-level Ends statements in various types of organizations. City Government The City of Greattown will be a community in which people can live, work, and visit safely and profitably worth a tax rate of no greater than cities of comparable size in this state.

Professional Association Members of the National Association of Policy Governance Boards will have the skills and knowledge to govern responsibly in an environment supportive of real accountability worth an annual membership fee of $1,200.

Hospital/Health Care System The purpose of Healing Health System is a maximally healthy county population worth total expenditures of $320 million.

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Research Institution The Hangnail Research Institute will produce knowledge necessary for a life without the pain of hangnails worth $18 million per annum.

ASSIGNMENT: Examine the E #1 policy that your board has developed. Check to see that it really is an Ends statement, that it contains no means, and that it is the most general yet doable statement of what your organization is for. Then ask yourself if your board would be willing to accept any reasonable interpretation the CEO chooses to give the words of that policy. If the board is willing to do so, it need say no more about Ends. If it cannot, it must go to the next level, Level Two.

Here’s a Little More Detail: Going to Level Two Moving to the next level involves defining which aspects of the higher-level policy the board wishes to control further than the “any reasonable interpretation” control it already has. If the Level One policy is crafted well, this will mostly involve the further definition of what is already contained in it. Let’s return to our mental health center example. Policy E #1 states: People with psychiatric and emotional problems will achieve their potential in a caring community with a level of efficiency comparable to similar organizations. What components of this statement can the board further define? Clearly, a number of words in the Level One policy are open to a great deal of interpretation. Which people are we referring to? Do we mean old or young people, rich or poor people, urban or rural people, members of families or single people? All of these categories? In what proportions? What sorts of psychiatric or emotional problems do we mean? Mild ones, severe ones, those that lead to criminal behavior, intermittently disabling ones? Indeed, just what constitutes a psychiatric or emotional problem? Who hasn’t had an emotional “problem” of some sort?

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And what does it mean to achieve one’s potential? Is that everything one is capable of or everything one desires? Is potential measured in life satisfaction or in economic achievement? Is this potential as perceived by experts, by affected persons, or by their families, friends, or employers? And which community or communities do we mean? Local, regional, or national communities, communities of similarly troubled people, church communities, the community at large? Are the various results that could be contained in the broad statement equally important in terms of access to our resources? If not equally important, then what are the various relative importances? Are the various recipient groups equally important? Could the CEO target one specific subset of people with psychiatric problems, or must the CEO be sure to cover a representative group of all types? And just what does efficiency mean? Cost for results can be the same when we accomplish a lot for a few or a little for many. What are comparable organizations? In our community, our state or province, our country? Of our size, type of staff, organizational maturity? Make no mistake, every one of these questions will be answered, because they must be answered in the process of operation. True, they may not be answered in words and may not be answered consciously, but things will turn out one way or another along all these dimensions purely as a function of operating. The board does not have to answer them, but if it does not, it is duty bound to accept the way the answers come out (either by CEO-staff choice or by default) as long as a reasonable interpretation of the global statement is honored. The board, then, has first opportunity to provide the general answers that will control further definitions made by the CEO. In our example, let us suppose that the board has given further definition to its Level One policy by the four Level Two policies that follow. Again, Policy E #1 states: People with psychiatric and emotional problems will achieve their potential in a caring community with a level of efficiency comparable to similar organizations. Moving to Level Two might have this result:

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Policy E #2a: Independent Living Chronically ill or disabled persons achieve a level of independence commensurate with their circumstances, worth 55 percent of all resources.

Policy E #2b: Public Policy A public policy environment supportive of the particular needs of lowor intermittently functioning people worth 10 percent of all resources.

Policy E #2c: Work and Family Adult persons with emotional or family problems achieve enhanced family and occupational functioning worth 25 percent of all resources.

Policy E #2d: School Readiness Emotionally disturbed children gain the ability to utilize educational resources in the general community worth 10 percent of all resources.

We assume that the board spent some time discovering the extent of the need in the community and listening to the input of the various parties in the ownership who would have an opinion about the board’s choices. In many communities the example given here would be indefensible, in light of the demographics and the other resources in the community. In other communities our example might be appropriate. In any event, our purpose is not to suggest what the Ends should be but to offer an example of their framing. Each board will develop its own unique method of controlling the organizational Ends. You will have noticed in this example that the board has stated its estimation of the worth of each result area from the standpoint of the use of available resources. It is obvious in this illustration that cost and relative priority are virtually the same issue. But this is only one approach to cost or worth that may make sense to the board. If a board can only agree on a statement that one result is to have the

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“dominant priority,” then that is what it should say. We are not recommending that the board say this but simply stating that the board must say what it feels. And if dominant priority captures it best, then those are the words to be used. Are they meaningless? Absolutely not. The CEO would then set out to pursue an interpretation that can later be justified to the board as a reasonable interpretation of this broad term. One board of our acquaintance made the “market penetration” in various need areas constant across all results. That is, if available funds and methods were capable of reaching 25 percent of the need in each area, OK. If they made it possible, due to better methods or more funds, to reach 45 percent of the need in each area, OK. In any case, the CEO would be called upon to demonstrate that at least commonly accepted efficiency was met (due to the global policy), but the results would be spread across the various result areas (or it could have been across various recipient classifications with the same result) in the way prescribed. It is not our intention to dictate one manner in which the cost or relative worth of the many possible organizational results can be expressed. Only your creativity limits the ways the board can express relative priority or cost of the results it wants. Take this a step further. Consider that the board might want to control the proportions of results that require expending its scarce resources but is willing to let results that pay for themselves go uncontrolled. In other words, the organization has some funding base that allows it to subsidize certain results, that is, to offer them at no cost to the recipient or at a cost below the cost of production. While carefully husbanding those scarce subsidy funds, the board in our illustration feels no need to limit what the CEO can accomplish when providing results that are paid for in full by the recipients. The board can express its priorities, then, with respect to use of subsidy money, enabling the CEO to do as much as he or she believes to be desirable and feasible beyond the use of subsidy. The only control over the self-financing results is that they must be a

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reasonable interpretation of the E #1 policy. As we said, there is no end to possibilities. As you examine your Level One policy and go further into Level Two, allow yourself to reexamine Level One from time to time. Sometimes you will find that the experience of going into Level Two informs your wisdom in such a way that another iteration of Level One is in order. On the other side, if you find that at Level Two you are developing more than a handful of policies, there is a good chance you are jumping levels, going into too much detail too soon. You may frame your Level Two policies around the “which people” aspects of Ends, or around the “what benefit” aspects, or you may decide to use both aspects. The choice is absolutely yours, and you can be as creative as you wish, as long as you use ends terminology and move into detail one level at a time. As in the other policy categories, each Level Two policy can be further defined by the board, if the board is not willing to accept any reasonable interpretation of some part of Level Two by the CEO. The board that decides to further define at this level will simply take the words of Level Two policies as a starting point and proceed to define them. Thus, one of the further definitions of Policy E #2a, Chronically ill or disabled persons will achieve a level of independence commensurate with their circumstances worth 55 percent of resources, could be as follows: Policy E #3a: Independent Living: Level Three Occupational independence is a priority result area for chronically but moderately ill persons, while for severely ill persons, the acquisition of basic life skills will be the priority result to be achieved.

Your board should engage in similar further definition using its Level Two policies as starting points. As in previous policy categories, the board can then decide to further define its newly created Level Three policies. As always, the board defines its own words until it can accept any reasonable interpretation from the CEO.

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The Level Two Ends policies, in addition to the policy E #3a just added, increase the board’s definitional control of Ends as illustrated in Figure 7.3. The exercise we have just described is likely to pose as many questions as it answers with regard to the Ends demands that your board should make on the CEO. It is to be expected that your board may not be sure of just what is reasonable to expect of the CEO in terms of results for consumers, or who all the possible consumers are. The board may not know what future need is likely to be or how it may change. Your board inevitably will need to arrange for education and consultation in order to collect the information it requires to make good Ends decisions. This education is so important that we can easily conceive of over half the board’s time being spent in its pursuit. You have probably noticed that there are more potential consumers of the benefits to be produced by your organization than there are resources to go around. This puts the board squarely in the position of deciding the distribution of a scarce commodity, that is, Figure 7.3. Ends Policies Completed.

2a

2b 2c

1 E#

2d

Ends Issues

Note: Ends policies, as illustrated in the text, now extend from the outside edge of the policy circle (the broadest level) into varying depths, depending on the board’s need to make further definitions before turning Ends over to the CEO.

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organizational outputs. This is not an easy position to be in, but one for which a board representing the owners is required. This is why a board exists—to carry out this crucial ownership function that, as the organization develops, is truly definitive. Your job is to create the future. At this point, take a look at where we’ve come in the mental health example. Admittedly, the Ends policy depth is not great. There is not a lot of detail, and much latitude has been left to the CEO to make decisions about just what results will be received by just which subpopulations, and at what cost those results will be produced. But policymaking at only the depth shown has given this hypothetical board greater control over the real impact of their organization than most boards ever dream of. Even a two-level Ends control by the board expresses monumentally more governance leadership than many times this amount of involvement in how the staff operates. Specifying Ends even broadly is like telling the taxi driver your destination in a few words rather than backseat driving with volumes.

Next Chapter This chapter completes Part Two, in which we have described the process of developing policies in the Policy Governance mode. We have found policies in the Executive Limitations, Governance Process, and Board-Management Delegation categories to be quite stable. You will undoubtedly need to adjust them from time to time, but if you have created your set of policies attending closely to Policy Governance principles and to your own values, the ones you have now will likely be with you for years. Ends policies are more likely to undergo regular review and updating. In Chapter Eight, we examine the frequently problematic process of evaluating management’s performance. Because Policy Governance introduces a more precise and rigorous (yet fair) approach to monitoring, we have added in this edition more details about the mechanics and formats of receiving and responding to monitoring reports.

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Part III Ready, Steady, Go

P

art Three deals with creating and maintaining a Policy Governance culture. When a board makes the change from traditional governance—even competently done traditional governance—the boardroom is never the same again. In fact, the word transformation comes closer to describing the shift. Having created the policies illustrated thus far certainly sets the stage. But there is further important work yet to come!

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8 Monitoring Organizational Performance Getting the Right Information About the Right Things

O

ur purpose in this book is to guide you through the details of policymaking in the four categories that together establish board control over the entire organization. But one aspect of subsequent implementation stands out as difficult for many boards— that of performance monitoring (we use the word as a synonym for evaluation). One of the policies in the Board-Management Delegation category deals with the monitoring process. That policy, “Monitoring Executive Performance,” sets out the board’s manner of monitoring performance on a frequent, rigorous, and fair basis. In this chapter, we look more closely at the nature of monitoring along with a method and format that will enable both board and CEO to complete their share of the monitoring task in a complete and rigorous manner. We guide you through the steps of requiring, receiving, and appropriately responding to monitoring reports. We also demonstrate that delegating authority to make any reasonable interpretation of board policies solves many of the apparent problems thought to exist in the monitoring of performance.

The Nature of Monitoring in Policy Governance At the outset, we need to make clear how the word monitor in Policy Governance is used. One common definition of the word is to “follow along” or “keep up with.” For example, you might monitor 179

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the room temperature, monitor the weather, or monitor the enemy’s troop movements. Those are perfectly acceptable applications of the word. Boards typically use the word in just that way when they speak of monitoring financial matters or personnel changes. But monitoring in the “follow along” sense does not count as monitoring in Policy Governance. The term in Policy Governance means to compare actual conditions or achievements with authoritatively stated expectations about those conditions or achievements. For example, if the board has stated no performance criteria, no monitoring is possible. The board must perform its own job before it can judge performance of the operational organization. Consequently, even though burdened with massive reports, many if not most current governing boards are in Policy Governance terms not monitoring performance at all. Practicing governance under the less demanding definition enables the board to be passive and exposes the CEO to capricious judgment.

The Two Components of Monitoring The purpose of monitoring is to allow the board to check to see whether everything is in order, that is, whether the operational organization is performing satisfactorily. Satisfactory performance is defined as the accomplishment of a reasonable interpretation, any reasonable interpretation, of the board’s Ends and Executive Limitations policies. The history of boards and their monitoring has been so steeped in poor governance practice, however, that we regularly find boards having trouble with this part of their obligation, even with the simplification that Policy Governance affords. This chapter discusses the practicalities of monitoring, which will make it easier to stick with the policy you’ve already written. We begin by restating the role played by monitoring in the larger scheme of accountability. Accountable delegation requires that the delegating party (1) sets expectations, (2) assigns the expectations as well as the au-

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Monitoring Organizational Performance

thority to meet them to someone, and (3) checks to see if the expectations are met. The trouble boards have traditionally had with monitoring is commonly caused by not completing the first step first (setting expectations). A Policy Governance board, however, will have stated everything it expects of the CEO—and, therefore, everything the board has any rightful prerogative to monitor—in Ends and Executive Limitations policies. The board’s monitoring stance with respect to the CEO, then, is simply to inspect whether the CEO has given the board what it wants (Ends) and has avoided what the board doesn’t want (Executive Limitations). Proper monitoring is this and only this. Policy Governance provides boards a method to hand over a great deal of authority to their CEOs. It makes sense that the person responsible to the board for ensuring acceptable organizational performance would be given plentiful authority. What would be the sense of relying on someone to make your business work, yet allowing little authority to make decisions? Yet when extensive authority is given to a manager or CEO, it is a requirement of responsible governance that the use of that authority be carefully monitored. Let’s look more closely at the nature of the authority given to the CEO. The CEO has been told to achieve any reasonable interpretation of the board’s Ends policies while avoiding any reasonable interpretation of the board’s Executive Limitations policies. The “any reasonable interpretation” authority should be carefully noted here, for it places two requirements on the CEO. First, the CEO must reasonably interpret the policies of the board. Second, the CEO must accomplish the interpretation. Since the board has agreed to accept any interpretation that can be shown to be reasonable, it only follows that the board should be informed as part of the monitoring process what exactly the interpretation was. Indeed, the board should also expect to be shown why the CEO’s interpretation should be considered reasonable. Only then can performance data be considered, because what the

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sequence amounts to is that monitoring data are measures of the CEO’s accomplishment of that interpretation. We are making a radical point here. Organizational success must be demonstrated by data. But these data measure the CEO’s interpretation of board policies, not the policies themselves. Hence we can argue that all board policies no matter how broadly expressed are ultimately measurable, because they will all be interpreted. From Chapter Six, you will remember that the board can require monitoring reports to be prepared under the authority of the CEO (an internal report), an outside party not under CEO authority chosen by the board (an external report), or by one or more board-authorized members of the board itself (a direct board inspection). But no matter who collects the data for monitoring reports, the interpretation of the board’s policy must always be that of the CEO. Accordingly, the CEO must provide to outside monitors or the board’s monitoring group a disclosure of the interpretation currently being used. Consequently, the board has two judgments to make about monitoring reports: first, it must judge the reasonableness of the CEO’s interpretation, and then, if the interpretation is found to be reasonable, the board must assess the data presented in order to judge if the interpretation was accomplished. Exhibit 8.1 is a format that we have found useful for monitoring reports. We have chosen to show an internal report, but the format works also for external and direct inspection reports. The section in which the CEO describes the interpretations in use is virtually always the longest of the sections. That is because it includes the CEO’s justification for the asserted reasonableness, measurably operationalized. CEO Interpretations The CEO’s interpretations of board policies transform those policies into operational definitions of performance standards. These interpretations will be the starting point for internal policies and requirements issued under CEO authority. It is common for CEOs

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Exhibit 8.1. Monitoring Report Format. INTERNAL MONITORING REPORT Policy # ________________

Date __________

I certify that the following information is true. Signed ________________________, CEO Policy Language: __________________________________________________________ CEO’s interpretation and its justification: __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ Data directly addressing the CEO’s interpretation: __________________________________________________________ __________________________________________________________ Note: Repeat this format for each section of the policy being monitored.

to make some or all of the following errors when they are learning the monitoring method we have described. Unuseful and Useful CEO Interpretations Consider this Executive Limitations wording: “The CEO shall not allow employees to be treated in an unfair manner.” An unuseful interpretation: The CEO simply repeats the policy: “It is not acceptable for employees to be treated in a way that is unfair.” An unuseful interpretation: The CEO simply replaces the board’s words with a dictionary definition: “People who work for us may not encounter treatment that is unjust.”

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An unuseful interpretation: The CEO simply makes a statement of good intent. “We will always treat employees in a way that is fair and just.” A useful interpretation: The CEO further defines the board’s words in such a way as to yield an operational definition, interpreting the words “shall not allow employees to be treated in an unfair manner” as follows: This policy requires fairness, which is defined as the consistent application of defensible rules and requirements, as well as a just system, in which complaints are seriously considered. This interpretation is consistent with the definitions used by the provincial Association of Human Resource Management as well as our legal counsel. a. Rules that impact employees must be largely consistent in content with such rules in settings of similar size and type, as judged by our Trade Association. b. Rules and requirements include those relating to behavior, appearance and dress, promotions, discipline, attendance, and harassment and other forms of violence. c. Rules and requirements are enforced uniformly. 85 percent of personnel surveyed in a stratified random sample must report that enforcement is consistent. [Note: 85 percent is the level chosen because HR research suggests that 15 percent of staff will complain of unfairness regardless of the facts.] d. 85 percent of staff surveyed report that there are 1) no negative consequences to voicing concerns, 2) clear channels for the expression of dissent or grievance, 3) speedy resolutions to complaints, and 4) clear explanations for management decisions.

Consider this Ends wording: “Students will have literacy skills at grade level.” An unuseful interpretation: The CEO simply repeats the policy: “Students must have grade-level literacy skills.” An unuseful interpretation: The CEO simply replaces the board’s words with a dictionary definition: “Students will be able to read and write at a level that is expected at their grade.”

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An unuseful interpretation: The CEO simply makes a statement of good intent: “We will make sure that all our students perform on this measure at grade level.” A useful interpretation: The CEO further defines the board’s words, producing an operational definition by interpreting the words “literacy skills at grade level” in these terms: Based on research from the University of X Faculty of Education and studies recently reported in the XYZ Journal of Educational Accomplishment (references provided), accomplishments of this policy requirement will be as follows: a. 100 percent of students who demonstrate intellectual abilities in the normal range will be expected to read and write English at or above a skill level characterized by level [x] on the [abc] literacy test. b. 100 percent of students with intellectual abilities in the superior range will be expected to read and write English at or above a skill level described as [y] on the [abc] literacy test. c. Students who demonstrate intellectual abilities below the normal range will be expected to be able to read and write to the highest extent of their potential, as measured by psychometric testing. d. Exception: Students for whom English is a second language and who have been in our system for less than 2 years will be expected to demonstrate English reading and writing skills at a level not more than [f] levels below that of their native-born classmates.

The Sequencing of Interpretations Each of the levels of policy stated by the board must be monitored. For example, if the board requires monitoring of an Executive Limitations policy and has defined its expectations to Level Four, the CEO must provide interpretations and data for Level Two (the starting level for topic-specific policies that follow the global constraint of Level One), Level Three, and Level Four. We strongly suggest that the interpretations be made by the CEO starting at the narrowest level of board policy. Note that while the board spells out its policies from the broadest to increasingly narrow levels, the CEO

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should interpret the policies from their narrowest to their increasingly broad levels. When the CEO has made a thorough interpretation of the elements of the board’s Level Four policy wording, interpreting Level Three policy wording consists of interpreting those aspects of the Level Three policy that were not interpreted in the Level Four interpretations. Likewise, interpreting Level Two policy wording consists in interpreting those aspects of Level Two that were not addressed by interpretations of Levels Three or Four. There will be times when it may be possible for the CEO to make the case that the interpretation of Levels Three, Four and so on makes further interpretation of Level Two redundant. Interpreting the board’s policies starting at the narrowest level and proceeding to broader levels results in an interesting finding at the Executive Limitations Level One. This policy forbids the occurrence of any situation that is unlawful, imprudent, or unethical. It turns out that the rest of the Executive Limitations policies have further defined the meaning of “imprudent” and “unethical” and may or may not have further expanded on these two prohibitions so exhaustively as to leave no further interpretation necessary at Level One. What has possibly gone insufficiently monitored, however, may be the prohibition against situations that are unlawful. For many of our clients, therefore, the primary monitoring of Executive Limitations Level One consists in interpretations and data relevant to lawfulness. The Timing of Interpretations Unbelievably, we have encountered CEOs who view an upcoming requirement to produce a monitoring report as a signal to start interpreting the policy to be monitored. This is far too late. The purpose of the exhaustive system of board policies in Policy Governance is to ensure that the organization is instructed about all aspects of required performance. The board has the right to expect that the entire organization, its staffing, finances, programs, organization chart, and all other decisions operate in accordance with a reason-

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able interpretation of the board’s expectations. Accordingly, it is hard to understand how an organization can function without interpretations of policy being made all the time. The CEO must initiate the sequence of staff-level decision making by interpreting board policy as soon as it is enacted. We visualize the sequence shown in Figure 8.1, which shows that after the board has enunciated a policy, the CEO interprets it in readiness to make further decisions including further delegation of responsibilities to other staff. Note that the staff activities shown in Figure 8.1 may include planning for the future too, so that strategic planning and budgeting are activities that are driven by board expectations, but are not themselves expectations set by the board. Board Members’ Receipt of Reports Since monitoring reports are sent to board members between meetings, they must be clear enough to allow every board member to arrive at a personal answer to two key monitoring questions: First, Can I tell whether the board policy has been reasonably interpreted? This is not the same as asking, Do I agree with the CEO’s interpretation? The CEO was given authority to make not any interpretation with which board members later agree but any interpretation that can be shown to be reasonable. If a board member feels that the interpretation, though reasonable, is not acceptable, the board member must agree that the CEO’s interpretation is not a problem, though the board’s policy may be. The board member should argue that the board reconsider its policy wording so that the requirements placed on the CEO going forward are changed. Second, Do the data submitted demonstrate that the CEO has accomplished the interpretation? Note that descriptions, no matter how interesting, of how the organization is attempting to accomplish the interpretation are not performance data. Describing the reading and writing curriculum does not provide data that the students can read and write. Describing the level of attendance at the reading and writing classes equally is not a demonstration of accomplishment.

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Figure 8.1. The Cycle from Policy to Monitoring.

Board

Board Judges Acceptability of Performance

’s D o m a i n

Board Establishes Ends and Executive Limitations Policies

Submission of Monitoring Reports

CEO’s Interpretations

Performance Data Gathering

Strategic Planning Update

Directing, Supervising, Controlling

Man

Sub-CEO Delegation

a g e m e n t ’s D o m a

in

Note: The cycle begins with board establishment of Ends and Executive Limitations policies and terminates with board receipt and judgment of both the reasonableness of the CEO’s interpretation and the credibility of performance data.

Although reports should be received, read, and considered by board members between meetings, there should still be an item on the agenda in which the board notes that it has received, read, and evaluated the monitoring reports due since the last meeting. This is where the board formally expresses its opinion that the reports demonstrated (or did not demonstrate) the accomplishment of a reasonable interpretation of board policy. This is a significant demonstration of due care, and is a matter for the true governance

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agenda of the board, though it may take very little time to attend to it. Because this action requires the exercise of board judgment, it does not fall into the class of actions that belong on a consent agenda as that term is described in Policy Governance.

What to Keep in Mind About Monitoring As the board implements Policy Governance, it would be wise to think about and occasionally discuss the following points about the monitoring process: 1. The policies are the criteria. Boards sometimes forget that the policies are the whole set of criteria for measurement. Perhaps because boards are traditionally so remiss in clarifying expectations, new Policy Governance boards find it hard to remember that in making Ends and Executive Limitations policies, they have just established all the criteria for organizational performance they need. We have seen boards conscientiously struggle with and decide upon their policies, then go on to set up superfluous additional monitoring requirements, some of which bear no relationship to the policies. They proceed to receive reports on a number of indices and review them in the absence of any standards of acceptability known to them or, of course, to the CEO. One such example was a board that required reports on employment equity, staff orientation, and a number of other staffrelated matters even though it had no board-stated expectations in any of these areas, except that the law be observed. When asked how they would judge these reports after having received them, the board acknowledged that they would have to do so with unstated criteria. Meanwhile, the laboriously developed staff treatment policy (which, of course, did state expectations) was going unmonitored! In another example, a board of a college carefully defined expected student achievement and then received so-called monitoring reports tracking the number of students enrolled in a certain selection of

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classes. Social service organizations occasionally make this error also, mistaking the numbers of people attending their programs and services for monitoring data about Ends. In both examples, the board was receiving information that may have been interesting but was not monitoring any criteria in existence. There is nothing wrong with the board knowing about these data, but to think of them as monitoring cheats the integrity of governance. 2. The monitoring of criteria is a passive process that is different from the setting of criteria. We have encountered boards that, having failed to monitor the criteria they have set, find themselves examining information about which they have no criteria and thus establishing criteria on the fly. Monitoring in Policy Governance is simply the comparison of what is to the CEO’s interpretation of what was required. (Notice that traditional budget approval or financial report approval are instances of on-the-fly criterion setting.) The only judgment applied to true monitoring data is simply to determine whether the data demonstrate the accomplishment of a reasonable interpretation of the requirement set out in policy. 3. “Any reasonable interpretation” means just that. New Policy Governance boards occasionally forget that they have allowed the CEO to use any reasonable interpretation of their words. Board members find themselves judging the monitoring data they receive against the standard of their own personal preference. Would I have made that decision? is a different question from Is that decision or outcome a reasonable interpretation of what we said? The first compares CEO performance to an unstated and individually determined criterion, exactly the shoot-from-the-hip comparison that the Policy Governance board has determined not to make! The latter compares CEO performance to a group expectation that was previously known. A variant of this mistake in monitoring occurs when board members defer to the opinion of the board expert (either real or selfproclaimed) on the subject at hand. Needing to please the expert on the board is a different requirement from needing to prove one has performed a reasonable interpretation of board policy.

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Another version of this monitoring mistake occurs when the board finds that the CEO made a decision that none of the board members like and, because of this, decide that the CEO is out of compliance. While this board opinion is an interesting phenomenon, it does not establish CEO wrongdoing, since the crucial judgment is the one still pending: Is the decision a reasonable interpretation of board policy? Of course, it is possible for a CEO decision to be a reasonable interpretation of board policy and still be a decision the board does not like. But this situation says nothing about CEO performance (except to congratulate it). It indicates that the board needs either to change or to further define its policy, leaving a new range of interpretation that the board can live with. In other words, in such an instance, the error is in board policy, not in CEO action. 4. Policy violation can mean one of several things. When a board has found that a policy has not been accorded a reasonable interpretation by the CEO, it has no choice but to reject the interpretation. If the CEO has made a reasonable interpretation but has failed to accomplish it, the board must examine a number of possibilities. It may be that the violation is the result of a temporary and insignificant blip and will be righted immediately. The board may decide to take no action about such a violation, other than noting it. Or it may be that the CEO is performing below the level required by the board and that this constitutes a pattern that emerges through monitoring. Noncompliance trends should be noted and acted upon by the board. 5. The board is not there to help the CEO but to instruct and monitor the CEO. When a board finds that its CEO is performing below the required standards, it is sometimes tempted to fix, or to help the CEO fix, the problem. This is precisely the wrong thing to do, as it makes the board unable to hold the CEO accountable for fixing a problem and keeping it fixed. Accordingly, in the case of a policy infraction, the board must decide if it can wait the amount of time the CEO feels will be needed to restore functioning to the criterion level. If it can, it should monitor that the problem has indeed been fixed within the time allowed. If it cannot, it should consider replacing the CEO.

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This is occasionally difficult for board members to understand, especially if some of them are managers in their own right. Managers know that management includes coaching and helping staff. Governors must learn that governance differs from management; the accountability placed on the CEO is not a burden that can be lifted from the CEO without serious damage to the board’s overall accountability for the organization. Naturally, the CEO who is held accountable for policy compliance can request from individuals the help needed in order to deliver to the board what is required. The CEO can even request help from individual board members if they seem—to the CEO!—to be the most appropriate helpers. But allowing the decision about the need for help and the choice of helper to be freely made by the CEO enables the board to continue to hold the CEO accountable. 6. The relevant question must be answered. Unbelievably, we have encountered boards that fail to truly examine their monitoring reports to determine if they show that a reasonable interpretation of the policies was made and achieved. They accept reports that do not answer the questions posed by the policies. There are two variants of this problem. One is when the board accepts reports that are full of data but that do not address policy criteria at all. We have seen boards accept pages and pages of financial data purporting to monitor the requirement that the organization not spend more money than it had received in the fiscal year to date. But boards only require two numbers to monitor this policy provision, and mountains of information can serve to obscure the answer to this relatively easy but important question. Remember that too much information is much worse than none; having none is hard to miss, while having too much may be falsely reassuring. The second variant occurs when the board accepts a report that affirms compliance without providing data. We have seen reports submitted by CEOs that merely include a statement by the CEO that everything is in order. These reports are of the “trust me” variety, disclosing nothing of substance to the board. Only more amaz-

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ing than the CEO who submits such a report is the board that accepts it. We are not advising against the CEO personally “certifying” or assuring that policy provisions have been met, just making the point that such an assurance cannot not pass muster in the absence of presenting data as well. 7. The monitoring report should contain both the CEO’s interpretation and the relevant data. We are sometimes asked if it would be useful for the board to see the CEO’s interpretation in advance. It would prevent, goes the argument, the possibility that the CEO could spend months pursuing the accomplishment of an interpretation that does not please the board. As persuasive as this may sound, we do not recommend that the board preview the CEO’s interpretation. First, assuming the board did preview the interpretation and found it to be reasonable, would this mean that the CEO was locked in to the use of an interpretation that had been “approved” by the board? If so, then “any reasonable interpretation” does not mean what was intended, that is, the granting of a range rather than a fixed point of authority. It would then mean “any reasonable interpretation the board has previously approved.” But if the board is really to mean “any” reasonable interpretation, what was the point of the exercise? Second, reviewing and virtually approving an interpretation in advance ensures the board has in effect made policy beyond the level at which it had already agreed to stop. Third, the CEO was not required to make an interpretation that pleased the board, only one that was reasonable. It is much more consistent with a carefully crafted separation of the roles of governance and management for the board to carefully consider the range of interpretation that it is leaving to the CEO before completing the policy writing. CEO and other expert input can be very helpful during this stage. 8. Monitoring reports should contain only monitoring information. The board may wish to receive decision information at times, as well as incidental information. It is important to take care not to mix up different types of information in the same report, as they require

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different responses from the board. The board must judge CEO performance using monitoring information, without using either decision or incidental information for that purpose. Cluttering up the pointed focus of a monitoring report with other information will be distracting. 9. If a policy is worth stating, it is worth monitoring. We have occasionally been surprised by a board balking at the need to institute rigorous monitoring of its criteria. Often the objection raised centers around the perception that a great deal of staff time will be used in preparing reports for the board. Traditional boards expressing such concerns forget that their staff already prepare huge amounts of information for them, information that does not relate at all to any stated expectations the board may have and that could be described as hundreds of answers looking around desperately for ten good questions. There is no doubt that some staff time must be spent in preparing reports for the board that demonstrate organizational performance as measured against board criteria. Boards certainly should be careful not to demand reports from staff that they don’t actually need. But a Policy Governance board that has made its policies carefully, defining its requirements to the level at which it can accept any reasonable interpretation by the CEO, has a set of rules that it has itself determined to be necessary. If it is necessary to set such rules, it is necessary to check them too! Remember that the board must state the frequency with which its criteria are to be monitored. There is no need for it to demand reports at a high frequency if it will be satisfied by a lower frequency. This also will limit the time staff spend in report writing.

Setting the Monitoring Schedule Sometimes the monitoring problem for a board is simply not going ahead and doing it! We recommend establishing a schedule for monitoring as soon as possible after crafting the Executive Limitations policies. Go about doing that in three steps, each of which we out-

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line. Then place the monitoring schedule you will have developed into the Monitoring CEO Performance policy (shown in Chapter Six) as subparts of Section Four. Here is the method we use. Try it. 1. Using a flip chart or other group recording method, list all the Executive Limitations policies in a first column. Head column two “method” and column three “frequency.” 2. Now begin at the top of your list and for each policy answer the question, What source of monitoring data do we want? a. Let us suggest that with each policy, you begin with an assumption that internal report will be the method. It is the cheapest and, as it turns out, the most common monitoring source. With that as a point of departure, see if anyone can make a strong enough case for external report or direct inspection to get a majority of votes for either of those. We recommend you use direct inspection sparingly if at all. b. Be aware that at this stage, you might want to have more than one method or source per policy, but at different frequencies. For example, it is common for Policy Governance boards to monitor their Financial Condition and Activities policy once a month or quarter with data from the CEO (internal report) and once annually from a boardappointed auditor (external report). 3. Taking one policy at a time again, consider only the frequency of monitoring. Just answer the question, How often must we see monitoring data about this policy in order to feel confident about CEO performance? Here is how you can quickly determine your monitoring frequencies: a. Ask, “How many board members would be satisfied with once per year?” Perhaps a hand or two will go up. Ask those persons to leave their hands up as you go on to the next step.

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b. Ask, “How many of you would be satisfied with twice per year?” A few more hands will go up, joining the first ones. All hands in the air should stay in the air as you go on to the next step. c. Ask the same question for quarterly, then for monthly, at each point making sure that hands that are up from an earlier query have stayed up. When this cumulative voting method reaches a criterion level (usually a simple majority), you have ascertained the monitoring frequency for the policy in question! As Ends policies are developed, use the same technique to define method and frequency of monitoring. Add these new determinations to your Monitoring CEO Performance policy. You may have noticed that our sample policy of that title shows a monitoring schedule that looks just like your flip chart version. For those policies monitored by internal reports, the provision of your Communication and Support to the Board policy ensures that the data will begin to flow to the board without your having to think about the matter after this point. For those policies monitored by either external report or direct inspection, the board will have to devise some scheme by which that will occur. If the board fails to do this, the CGO simply inherits the job, using any reasonable interpretation of whatever the board has said about the subject. Although a board would normally rely on scheduled monitoring, it must retain the option of monitoring any Ends or Executive Limitations policy at any time it chooses. The board might have reason to suspect a material policy violation long before scheduled monitoring is due. An external situation may have arisen that amplifies the jeopardy presented by certain violations were they to occur. Or a board could simply feel that it is prudent to have occasional out-of-sequence monitoring as a demonstration of an unusual level of oversight.

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Formal CEO Evaluation If a board has chosen to use a CEO (which we heartily recommend), monitoring organizational performance simultaneously evaluates the CEO. In addition to ongoing monitoring, however, many boards wish to do a periodic—often annual—summary evaluation of their CEO. We say “summary” because there is nothing left to evaluate after monitoring the Ends and Executive Limitations performance. The formal evaluation, then, considers the findings of all the monitoring reports received in the interim since the last formal evaluation. Taken all together, these findings add up to the CEO’s total performance. We see no problem in doing an annual summary, unless the board comes to see the summary as more important than the ongoing system. In fact, an ongoing monitoring system is far more likely to affect performance than an annual judgment, no matter how precise the annual version is. Monitoring performance does not exist primarily to produce a report card—though it does that. Its primary purpose is to affect performance. The primary purpose of an annual review is to provide a summarized version of how the board judges the CEO’s performance. At the same time, it gives the board the opportunity to discuss the ups and downs of performance as demonstrated throughout the year and, based on that summation, decide whether the current CEO remains acceptable. In an action apart from and after such a summary evaluation, the board might deal with compensation adjustments. There might even be bonus considerations, should a board choose that path. There are many good resources dealing with setting compensation and rewarding performance. We presume no special expertise in that arena, except to note that it would make sense to bonus on the basis of superior Ends performance, as opposed to performance on Executive Limitations. What we do strongly urge, however, is that in pursuing whatever CEO compensation system the board chooses,

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the judgments always tie with Policy Governance–consistent rigor to organizational performance as measured against a reasonable interpretation of Ends and Executive Limitations policies.

Next Chapter In Chapter Nine we discuss the board’s documents. The voice of governance is enhanced in Policy Governance inasmuch as board instructions, philosophy, and intentions are clearly the board’s own, not mere reflections of what a staff has put together. Consequently, those instruments that document what the board says take on a different look, a different size, and a new significance.

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9 The Board’s Documents Preserving the Board’s Decisions

Y

our board’s implementation of Policy Governance will cause a radical change in the way it defines and does its job. It should expect its documents to change, too. In this chapter, we examine with you the various documents that belong to the board or that describe or affect the board’s job. At the outset, let us emphasize a major board document difference between Policy Governance and governance as we have known it. We are accustomed to omnibus documents, ones that belong, more or less, to the entire organization. Policy Governance makes it possible to accurately describe certain documents as belonging specifically and solely to the board. Traditionally, we have become accustomed to seeing materials whose ownership is either unclear or feigned. We know these documents belong to the organization, but we do not know to which authority in the organization. To outsiders, this more specific knowledge is unimportant; it matters only that an action is taken by the organization. Were the clinic hours set by the board, the CEO, or the clinic director? To a patient, it doesn’t matter. Was the stop sign placed by the city council, city manager, or department of public works? To a driver, it doesn’t matter. In any event, the governing body is accountable. For proper interrelationships of the organization’s parts, however, it is crucial to know who is saying or deciding what. Yet we are used to plans that have been worked on by both board and staff. We 199

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see budgets and internal procedures put together by staff but not official until a board action has been taken. We see staff recommendations, upon board blessing, transformed into board policy. It is difficult if not impossible in the traditional system to identify just whose document anything actually is! It is even common for traditional boards to speak with pride of joint documents and board-staff teamwork, as if obscuring authorship and authority were what teamwork is about. Policy Governance boards know that some of the documents in their organizations are theirs, and some are not. They are not misled by the disempowering tenet that decisions aren’t official until the board says they are, a doctrine based on a weak notion of delegation. In this chapter, we examine three major document types that belong to the board alone. These documents are bylaws, minutes, and policies. (In some cases, bylaws belong to and are controlled by a general membership.) All other documents belong to the CEO or other staff (for which the board would hold the CEO accountable). First, we look at your organization’s bylaws, commenting on aspects of bylaws that affect and sometimes can impede good governance. Then we suggest some ways in which your board can make its minutes an efficient and useful record of its proceedings. Last, we discuss the manner in which the board can establish and maintain its policy manual so that governing policies are up-to-date and accessible. We do not look at the documents generated by the CEO under delegated authority, for properly authorized CEO decisions do not have to be reiterated by the board to be official. Hence staff materials are not board materials but are fully as official.

The Hierarchy of Documents We find it useful to view board documents as a hierarchy, each level in the hierarchy having its own purpose. At the topmost level in the hierarchy is one to which we will refer only briefly. This is the document that established the organization that your board gov-

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The Board’s Documents

erns. The Articles of Incorporation, Letters Patent, or legislation under which your organization was established created an “artificial person.” But the governmental authority created only an empty shell, an entity granted the right to exist and to be able to bank, borrow, employ, contract, and have a number of engagements with the world in which it is situated. The language of this founding document is usually general, for its purpose is simply to establish an organization that has legal status. We do not consider this document further here, since it is common for it to be written in such general language that the governance process is not affected. At any rate, this document belongs to neither the board nor the CEO but to the governmental authority that issued it. At the next level in the document hierarchy are the bylaws. Legislation-based organizations typically have no bylaws, whereas nonprofits consistently have them. The reason is that statutes often spell out the provisions that would have been contained in bylaws. If there are bylaws, they frequently belong to a “membership,” a group under nonprofit law comparable to stockholders in an equity corporation. In a true membership organization such as a trade or professional association, this legal membership is the same as the ownership concept in Policy Governance. In nonprofits that are not true membership associations (such as a local social service agency), the concept of membership is relatively meaningless. It frequently is nothing more than a public relations or fundraising mechanism, bearing no relation to the Policy Governance ownership concept at all. In order to comply with the legal requirement to name a membership and yet to avoid the sham of a meaningless membership, some nonprofits have simply constituted the board itself as the membership. The added benefit in some instances is that the board protects itself from the potential for membership factions to hijack the board. We find it regrettable when boards protect themselves from the diversity of their true ownerships, though we do sympathize with boards’ needs to protect their process from counterfeit ownerships. We note, however, that any board (even a very large

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and theoretically representative board) is itself a pseudo-ownership. This is why Policy Governance makes much of the need for boards to consult widely outside themselves. Bylaws exist merely to take the empty shell created by law and describe the manner in which it can take on life. Hence the bylaws serve to describe the membership of the new entity and to set out how that membership can elect or appoint the board, as well as how to change or remove board members. The rules about annual or membership meetings, notice, quorum, and board demographics serve this purpose. The bylaws also describe under what circumstances the board can be said to have spoken. Normally, bylaws establish that a board has spoken upon a majority vote at a properly announced meeting where a quorum is present. Thus the organization has moved from a paper entity to one in which real-life decisions can be made. It has not yet spoken but is now capable of speech. Minutes form the next level of board documents, and they exist to be a legal record of the board’s meetings and actions. The empty shell—the artificial person created by Articles of Incorporation, Letters Patent, or legislation—speaks, and its decisions are recorded in official form. The final level of the document hierarchy in Policy Governance is the board’s policies. (In traditional governance, the hierarchy at this point splits into approvals of staff documents, positions, and a variety of unconnected and scattergun pronouncements.) Board policies in Policy Governance constitute the complete registry of what the artificial person has declared. In Policy Governance boards, the only pronouncements of the board are policies formulated according to the model’s principles. If your board has been working through this book, it has probably completed its board and staff means policies and is working on its Ends policies. You are nearing completion (for the time being, for it is never really finished) of a complete set of board pronouncements. Before we embark on a discussion of the three types of documents that appear in our hierarchy below the initiating Articles,

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Letters Patent, or legislation, let us reiterate that once the bylaws have established the organization’s governing structure, the only pronouncements made by the board are the policies. This has major implications for your governance transition. It means that any documents the board viewed as wholly or partially its own before implementing Policy Governance cease to be board documents and may cease to exist altogether. Hence, the budget, strategic plan, long-term goals, pre–Policy Governance policy manual, or any other pre–Policy Governance documents should be handed over to the CEO. The CEO is likely to find many of these documents helpful, so they are not wasted. Conversely, the CEO may abandon or change any of them, since that officer has the right, as you will remember from policy BMD #3c, to make all further decisions and policies that follow from board pronouncements about Ends and Executive Limitations. It is understandable that you might feel “stripped bare” by the thought of relinquishing your hold on these familiar documents. Consider, though, that the need to control them directly no longer exists if your board’s own policies are complete and your monitoring is in effect. Consider also that the board’s previous attempted control of staff actions through document approvals was either overcontrol (of details and prescribed means) or undercontrol (of Ends and limits on means), an illusory control at best. Moreover, such board involvement in these traditional documents necessarily drew the board into staff material. We sympathize with any discomfort you might have when declaring, in effect, that budgets, long-range plans, personnel policies, and other traditional documents are not governance documents at all but management documents—but the effort is necessary to disentangle governance and management.

Three Steps in Governance Documentation In this section, we are going to examine in detail bylaws, minutes, and the policy manual. Since these are legitimately governance rather than management documents, it is important that your board

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maintain direct control over them, that the documents themselves be model-consistent, and that they be kept current. The Bylaws Some organizations have both a constitution and a set of bylaws. We are not aware of any purpose served by this duality. They are indistinguishable in their purpose, and for brevity we refer to bylaws as a generic term embracing all the components that might appear in both. As we have noted, bylaws are the documents that spell out the arrangements and conditions under which an artificial person can speak. Your bylaws should contain a description of the manner in which people can join or have standing in your organization (other than at the staff level). This may be a description of the organization’s ownership, or it may be the identification of a smaller group than the total ownership. It may identify the group commonly known as the membership. There should also be a description of how often and under what conditions of notice the persons with standing may elect or appoint a board to speak on behalf of the total group. One of the features of Policy Governance is its insistence that documents and decisions belong to somebody (or some body, like the board). We have made that point in discarding the familiar omnibus documents created by staff and approved, blessed, and embraced by the board (such as budgets and program plans). We replace such documents with policy documents specific to the board, complemented by separate documents and decisions that clearly belong to the CEO and staff. Now let us extend the same reasoning to the bylaws, a consideration that seems to have escaped traditional governance. A set of bylaws is a document. A document is merely a set of decisions about some identifiable topic. Whose decisions are they, and who has the right to change them? In many cases, the bylaws belong to the board because the board is tantamount to the broader membership. But in true membership associations, the bylaws should belong to the

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membership, which has the right to use the bylaws to control the board that operates in its service. Either the board owns the bylaws or the membership does. In other words, bylaws should not belong to the membership and the board, with each putting in its chosen list of provisions. We realize that a membership, when large, has a hard time truly making any decisions that are its own. Boards and other mechanisms steer the membership to a large degree. But we would argue that whether or not the membership makes its decisions seriously and assertively, its prerogatives are still its prerogatives. So we treat the bylaws in membership organizations as truly a document of the members. In city government, the parallel document is often called a city charter, which is passed by voters in a referendum and is, therefore, a document of the owners, not of the city council. So where are we going with this analysis? Simply to this: if there is a real membership, it owns the bylaws and must establish them to control and empower the board that will represent it. Just as between board and staff, the membership should not dictate the means of the board, and the board should not assume prerogatives rightly belonging to the members. When a membership declares that it gives its official voice to a majority (criterion vote) of a certain group (the board) when a certain number of that group is present (quorum requirement), it is establishing what voice will officially be its voice in the governing setting. But to go further and tell that board, for example, what committees to have or how to have checks signed is to prescribe that board’s means. Why saddle the board with prescribed methods when the membership can more effectively charge the board with a required product? Of course when there is no separate membership, the board is on its own and must own the bylaws itself. As we describe features of the bylaws that affect the practice of governance, we refer to both situations. We do not address all possible aspects of bylaws (such as type of notice or whether telephone meetings can be held) but only those with a substantive impact on the quality of governance.

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Board size: There is no one right number for board size, but try to keep the board small! The bigger the board, the less likely it is to be businesslike and disciplined. Have a good reason if you want to make it bigger than seven. If you are an eight-county board, you probably have a good reason. If you want to be representative, remember that you cannot be big enough to duplicate the diversity of the ownership unless, of course, the ownership is very small. Strategies of obtaining outside input to an effective board can ensure that large numbers of people have a voice more surely than expanding the board to an inefficient size. Attendance: We commonly see bylaws that state that a board member who “without excuse” misses a criterion number of meetings “may” be asked to resign. Such an attendance provision is ineffective. All absences tend to qualify as “excused” when board members phone to say they will be unable to attend. Hence the normal attendance provision has been effective in eliciting courtesy, not attendance. Further, the words “may be asked to resign” are permissive. They require that the board take a definite action to remove someone. This is socially awkward to do, and therefore is seldom done. We recommend wording such as, “A member who fails to attend 75 percent of all board meetings in a year [or three meetings in a row, or four meetings in any consecutive twelve-month period] will be deemed to have resigned.” This can be softened somewhat by adding that such a member may request reinstatement and receive it, but only once in a term. If yours is an appointed board, change the words to indicate that the appointing authority will be asked to replace a delinquent board member. Our recommendation is not intended to be punitive. There is nothing morally bad about being too busy to serve on a board. We simply recommend that boards not hinder their own performance by allowing seats to be taken up by nonattenders. The board has a job to do. No one would think of applying for a job for which they were too busy to show up. We are completely unmoved by appeals for leniency on the grounds that board members are volunteers. The

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paid or unpaid status of board members is irrelevant to the importance of the job. Moreover, the persons most hurt by nonattendance are other volunteers, the ones who go to the trouble to attend regularly. Quorum: We have seen bylaws that set out quorum requirements that are laughably low, sometimes as low as one-third or even onefourth, serving only to indicate that attendance doesn’t matter. Quorum requirements that are below 50 percent make it possible that from one meeting to the next, the organization can be governed by partially, or even entirely different groups of people! This hardly protects continuity and board wholeness. We suggest that you establish quorum at no less than 60 percent and, further, that you discuss why it should not be closer to 100 percent. Passing vote: Your bylaws should be clear about what constitutes a passing vote. It is usual to see that a simple majority is the standard, but some boards differ from this. If your board is planning to operate in a consensus mode, define the word consensus! We have seen the word mean that every board member must agree with a proposition before it is accepted by the board. We have also seen it mean that the board will strive to ensure that no one is silenced and that all may speak, or that the manner of deliberating will be pleasant and aimed at arriving at compromise. We point out to our clients that even if they are using the strictest definition of consensus (that all must agree), this is still voting. The number of votes required to defeat a proposition is just one. Officers: Your bylaws should identify the officers required by law. Because minimalism will serve you well, don’t have more than the legal minimum unless there is truly an officer job crying out for attention. We rarely find that to be the case. In many jurisdictions, boards are required only to have a chair and a secretary. Settle for these two until experience dictates that more are needed. Be careful not to describe these positions in a way that complicates or invalidates your delegation to the CEO. We often see bylaws that state that the chair is the CEO. This may be stated

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directly, or it may be indirect. Wording such as “the chair shall have general supervision of the affairs of the organization” or “the executive director shall report to the board through the chair” are indirect statements that the chair, not the executive director, is the CEO. Avoid such words unless you really intend the chief governance officer to be personally accountable to the board for organizational performance. Remember that if you want your chief staff officer to play that crucial CEO role for you, the CGO will not have accountability for, or authority over, organizational performance. That burden falls to the CEO, who is accountable to the board rather than to the CGO. The only reason for the position of CGO to exist is that the board needs a “first among equals” to help it maintain the discipline of its own job. The CGO is the board’s servant and leader in one, but only with respect to the board’s job, not with respect to the CEO’s. Bylaws wording should reflect this role. Describe the secretary as accountable for the accuracy of board documents. This is probably all that needs to be said about this position. Being secretary may have nothing to do with taking minutes, but it will have a lot to do with certifying the integrity of minutes and other board documents. Given that in Policy Governance the board has its own documents, the role of secretary becomes more important than is customary. In the policy form we show later, notice that the secretary attests to the board’s adoption of each policy. If you have a CEO, you do not need a treasurer, especially since the accountability of this position tends to directly overlap with the accountability of the CEO. Holding a treasurer responsible for books of accounts, disbursements, and receipts cannot be legitimate while holding the CEO accountable for the same things. Having a board treasurer in organizations with a CEO is a mindless holdover from smaller, non-CEO organizations. Have a treasurer only if law demands it. Even then, describe the job to minimize or eliminate conflict with the board’s delegation to the CEO.

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Committees: There is no need for any committees to be established in the bylaws, unless they are committees of the membership in those cases wherein the membership and ownership are synonymous and, therefore, where the membership owns the bylaws. If that is the case, the membership’s dictating what committees the board will have is an example of prescribing means to a subordinate body and should be avoided. Of course, if the bylaws belong to the board, then the board has a right to establish its committees there. But we recommend against it. Board committees, when they are necessary, can better be established by the board in policy. When your board creates committees, it will have more control over its own governance by avoiding bylaws-based committees. Because bylaws are a less changeable document than policies, describing board committees there creates a less fluid arrangement. Of course at this stage in our text, it may go without saying that staff committees would not be established by the board at all and, therefore, would not appear in bylaws. Still another common committee phenomenon is unique to membership organizations and local governments. Sometimes boards create committees of members in order to get them involved in organizational work, to take advantage of a free source of labor, to co-opt membership decisions (by involving a few members to begin with), or to provide a venue to observe potential leaders. While there would be nothing dysfunctional about such groups if they were employed by the board only to help with governance tasks, they are commonly and unfortunately engaged in staff work. While there would be nothing dysfunctional about their being involved in staff work if the staff were controlling the process, these committees by definition are foisted on the staff by the board. This practice can be as complicated as it is dysfunctional. Such committees often become power bases for certain members, who are then reluctant to give up the role, even if the board or staff think the job is no longer needed. These committees are very difficult to

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“uncreate,” due to the political fallout. In city government, the council might establish a number of citizen boards and commissions (for example, parks and recreation). In this case, is the commission to advise or govern staff about that topic, or is it to advise the council about citizen needs for parks and recreation? These questions are almost never answered clearly, leaving a tangle of organizational design that is quite difficult to undo. Unfortunately, the political tides are often just as strong in membership associations as in the real political arena. Be cognizant of this phenomenon as you deliberate the adoption of Policy Governance, for its adoption will almost certainly cause you to discontinue some committees. Although different circumstances call for different strategies, the strategy we most often suggest is for the board to tackle the changes all at once. While everyone is geared up for change, multiple changes are often easier. Stringing the changes out in order to soften the blow can be like getting into the pool one toe at a time. At any rate, avoid leaving these problems as your legacy for your successor boards! The aim of governance is not to see how many moving parts you can design. Some of those unnecessary parts take on a life of their own! It is hard to drive efficiently to your destination if a large part of your organizational effort is consumed by unendingly tending to dysfunctional parts. CEO: Describe your CEO’s job and the delegation you will make to that officer in your policies, not in the bylaws. Naturally the bylaws would not deal with insurance, borrowing, check signing, purchasing, investing, and other staff means issues. The exception is if the membership wishes to restrict the range of board latitude (and hence the range that the board can delegate to the CEO) on such matters. Whatever the board has the right to control is best done in its policies. As you can see, we recommend keeping bylaws very lean. Put nothing in them except what really needs to be there. So when your board reviews its bylaws, it should

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• Remember that bylaws are often harder to change than policies. It increases your flexibility to keep as much as possible in policies, not in bylaws. • Acknowledge the importance of the board’s job by requiring regular attendance. • Set quorum as high as possible, certainly more than 50 percent. • Establish at least majority vote to qualify as a board decision. • Remove any language that appears to assign staff jobs to officers. Make sure that the CGO is not described directly or indirectly as the CEO, unless you really mean the CGO to have this role and accountability. • If you have a CEO, eliminate the treasurer position or make the position only advisory to the board and not in conflict with CEO authority. • Remove all language about committees except, where applicable, for committees established by the membership for its own use. • Remove provisions that deal with the CEO’s job. • Remove provisions that deal with staff means. Minutes Board minutes are simply a legal record of the board’s meetings, actions, and decisions. In Policy Governance, a board’s actions, or words, are a group product. Individual statements, actions, points of view, and preferences, while they may be important preliminaries to a board decision, are not official board matters and thus do not need to be recorded as part of the board’s proceedings. Hence,

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narrative minutes of the “he said, she said” variety are unnecessary and usually a wasteful expense. We do not need to tell you how time-consuming and frustrating it can be to both write and read narrative minutes. Boards that use them are sometimes in danger of spending much of this month’s meeting arguing over the accuracy of the narrative about last month’s meeting. Usually the disputed words do not matter. In fact most of the narration does not matter, as only the formal actions of the board as a whole are officially board business. Of course, a board member may wish to make a statement for the record and should not be prevented from doing so, but this is not the major purpose of minutes. We recommend that you use your minutes for the following steps: 1. Record the meeting’s date, time, and attendance, and the secretary’s signature. 2. Record official actions of the board. Other than actions such as approving minutes of the previous meeting, these actions in Policy Governance will be the making or amending of policies. 3. Record affirming receipt of monitoring data, rendering appropriate responses to that data, collecting information and consideration of options for decisions, educational and ownership input, and other events that demonstrate diligence. 4. Upon request by individual board members, record statements for the record. This use of minutes will ensure that they are brief and to the point. If there are errors, they will be easy to find, since you will have so much less extraneous material to wade through. It will also be easy to discern if the board is spending its time engaged in nongoverning busy-ness. Meetings that yield nothing for the minutes

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will quickly be noticed, and this will be an invaluable aid to maintaining the rigor that Policy Governance imposes on your board. The Policy Manual Your board policy manual should be where everything that the board has said, in its most recent form, can be found. It is therefore important that it be kept up-to-date and that every board member, as well as the CEO, has a copy. After the implementation of Policy Governance and completion of Ends policies, virtually any decision a board makes is a decision that further defines or amends a policy that is already in existence. Not all board decisions will be recorded in policy, but we suggest that the omissions be only those upon which no subsequent behavior is to be based. Examples are decisions to adjourn, approval of consent agenda items, acceptance of monitoring reports, and recognition of someone for meritorious service. These actions would be recorded in minutes with no commensurate effect on board policies. Because there will always be temptation to overuse this exclusion so that policies grow increasingly out of date, we urge a very conservative interpretation of this rule. Recording board decisions in their appropriate places in the policy manual has two beneficial effects. First, it keeps the board focused on its policies so that they stay alive and familiar to board members. Second, it prevents the accumulation over time of board decisions growing scattered and untraceable. It would also prevent a massive buildup of policy material if it were not that Policy Governance boards make relatively few, but very important, decisions. So even though a Policy Governance board makes fewer and weightier decisions than a traditional board, the manual is still subject to ongoing change. We suggest therefore that the manual be kept in a loose-leaf format. Ensure that policy decisions made by the board at its meetings get transferred to the manual by some timely and accurate mechanism. It is quite acceptable to expect the CEO to be responsible for this transfer. If you choose the CEO to assure

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the ongoing policy manual accuracy, express this expectation in policy EL #2h, Communication and Support to the Board. Conversely, your board could decide that maintenance of the policy manual is a responsibility of the board secretary. If it does, it should make a Governance Process policy dealing with the secretary in order to explicitly state this expectation, since it exceeds the bylaws requirement that the secretary ensure the accuracy of documents. Before further commentary about the policy manual, however, let’s take a last look at the graphic presentation we have used thus far as an instructional tool. We can depict the policies demonstrated in Chapters Three through Seven by returning to that circle diagram. If your board had chosen to duplicate our pattern of policies, the resulting total of board policies would look like Figure 9.1. It would be a good idea for your board to collect all the policy work covered in preceding chapters, compiling those policies into a manual by category (Executive Limitations, Governance Process, Board-Management Delegation, and Ends). Organize the policies by topic within the categories (shown in Resource A), not by level, as we did in the policy development exercises. As an example, take all of the Treatment of Consumers policies (EL #2a plus EL #3a) in Executive Limitations and arrange them on a single page so that all that the board has said at various levels on that topic area is shown together. This will enable you to be sure about the amount of detail you included in each topic area with a minimum of searching. Try to design a format for your policies that will accord them the status and the clarity they deserve as your governing pronouncements. These are the most important board documents and should look official rather than just like any number of other papers churned out by an organization. Make sure that it is apparent which policy category is being shown and what the policy topic is. Make sure that there is room for your secretary to attest to the accuracy of the content. There are many formats that will suffice, and we offer one in Figure 9.2 by way of example. We have seen a number of creative approaches to organizing and customizing policy manuals. In one approach we liked, the board

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Figure 9.1. Board Policies Completed in All Four Categories.

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CGO’s Governance Decisions

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Note: Notice how the policies form a watertight enclosure to control and embrace all further decisions of all types within both board and staff. The board retains the right to change either the content or the depth of these policies at any time.

had each policy category produced on different-colored paper. Another useful technique a board used employed a small inset on each policy page, a graphic showing where on the circle diagram the particular policy showed up. Choose the method that suits you best. We are more concerned that you get the best possible use from your manual than how you do so. Making your work attractive and clear is important, since you will find that a well-laid-out and continually updated manual will

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Figure 9.2. Header Section of a Board Policy Form. Policy of the Board Title:

Category:

Policy Serial No.

Board secretary’s affirmation of official board action adopting this policy.

Date of Adoption:

Secretary

Note: The header section of a board policy form should look very official.

be a useful tool in the maintenance of your governance system. We believe that board policies, as the only visible evidence of the voice of governance, should look the part. A further benefit of ensuring a complete and up-to-date policy manual is its utility in the orientation of new board members. It is much more important to orient new board members to their own job rather than to staff jobs. Happily, the job of the board and the obligations of board members are clearly stated in policies found in the manual. What a contrast with traditional methods! Too often, new directors are unsure of the methods used by the board to govern. They find it hard to get an overview of the board’s values and of what the board has said or not said. New members of your board, by contrast, will find that they can become familiar with the board’s governance system and its current policies rapidly. Your vigilance about the board’s manual not only will help today’s board members maximize their contributions but will also ensure that new members speedily become contributors also. Having set up the four sections in your manual for your policies, you might consider using the same loose-leaf notebook to add a further section into which monitoring reports can be placed when they are submitted to you. This will enable you to keep track of monitoring data over several months and will make it easier for you to be aware of developing trends in CEO performance.

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Similarly, you may wish to keep bylaws and minutes in two additional sections of the notebook. Our advice earlier in this chapter about keeping your bylaws and minutes short could well stand you in good stead if you decide to do this! The advantage of keeping bylaws, monitoring reports, and minutes in the same binder as policies is that all the board’s documents are in one handy place. Consider adding the Articles, Letters Patent, or founding legislation in the same way. Just be sure that the additions do not so burden the notebook that it falls out of regular use. The growing access to Internet resources will make it increasingly possible for maintenance of a board’s records and even much of the management of its process to be carried out online. Not only can well-designed systems be teaching tools for new board members, their programmed rules can also impose much of the discipline necessary for Policy Governance to work. It is important, however, that any such computerized application be rigorously model-consistent, lest the bells and whistles detract from rather than add to the integrity of governance.

Next Chapter In Chapter Ten, we describe the process of implementation, some safeguards and tips that might make the process more successful, and some ways to maintain the system. Except for the discussion of Ends in Chapter Seven, everything thus far has been preparing the governance vehicle to operate well. Now your challenge is to keep the governance system able to fulfill its purpose: to see to it on behalf of the ownership that the organization achieves what it should and avoids unacceptable situations and conduct. Having gotten to this point is admirable, but the real work of governance has only just begun!

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10 Implementation and Beyond Concrete Steps Mirror Conceptual Integrity

I

n this final chapter, we discuss some of the steps that we recommend using to support the full implementation of the Policy Governance model in your organization. Then we offer some advice regarding the ways in which your board can ensure that you do not jeopardize your initial investment of effort and time—ways to prevent the new system from deteriorating.

Implementation If your board has been working through this book, preparing its policies according to the principles of the model, it will have a very complete set of means policies and a very incomplete set of Ends policies. Your board is virtually ready to implement the model at this point. Some steps are needed first, but contrary to what many of our clients guess, you do not need to complete all your Ends policies. As we noted in an earlier chapter, deciding Ends policies is the most time-consuming and highest-leverage work that your board will undertake. Fortunately, you do not have to wait until you have completed your Ends policies to begin governing in the new way. Indeed, if you did wait, you would be in the absurd position of having spent time to prepare a large number of policies, and then not using them! For there is a sense in which we could say that Ends policies are never finished. 219

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Here are the steps that we suggest: 1. Adopt a global or tentative holding policy in Ends. In the Ends category of policies, your board should have either a single Level One Ends policy or a temporary policy whose purpose is to ensure that no major Ends changes will be made by the CEO while the board does further Ends work. The tentative Ends policy we have used to temporarily plug the gap is worded like this: Whatever Ends the board has stated or implied in previous decisions or approvals will stay unchanged, pending formal adoption of Ends policies. 2. Assess previous policies and decisions for inclusion. After you have developed Executive Limitations, Governance Process, and Board-Management Delegation policies, you should make sure that matters your board wanted to control in the past are adequately controlled in the new system. Do this by checking or having your CEO check previously adopted board documents. Be careful while doing this. You will almost certainly find that documents in an old format controlled CEO decisions at an unnecessary level of detail. Consequently, you cannot import them wholesale into your new policies and remain consistent with Policy Governance. Your new Executive Limitations policies have limited the CEO’s choices to the point that you can accept any reasonable interpretation, so there should be little if anything in your old documents that you wish to add to the new ones. Do not allow this to be the opportunity for the dissenter on the board to undo your policy development work! The most common previous policies that our clients have wanted to preserve in some form have been those dealing with investments and conflict of interest. It is rare that they can be brought over into Policy Governance as written, but their broader aspects can be assimilated into the applicable new policies. 3. Conduct a legal check. For some boards, it may be wise to have your attorney do a legal check to make sure that the implementation of Policy Governance is not leaving a legal requirement unfulfilled. Make sure that your attorney understands Policy Gov-

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Implementation and Beyond

ernance in general and the new use of the consent agenda in particular. We have never encountered organizations that have failed such a legal check, but doing one is prudent nonetheless. Conversely, our clients almost always find that their new policies have violated some aspects of their bylaws. If you find that this is the case, change your bylaws. 4. Make a starter set of agendas. Have some agendas ready for your meetings after implementation. You will already have broadly outlined your agenda plans in the applicable Governance Process policy. This should give all board members an indication of how the meeting time will be spent. If you are anxious about the meeting format, however, it may be useful to further define these initial meetings. You might be worried, for example, about how to have a board meeting where there is no staff material on the agenda. Planning will eliminate this worry and boost confidence. 5. Prepare your stakeholders. Make sure that the people who watch your board know what it is doing. Some boards are more scrutinized than others. City councils and school boards are closely watched by the press, interest groups, unions, and a number of other interested parties. Boards that are less public may be less scrutinized, but they should still be aware that their new governance style may appear odd or even irresponsible to staff, unions, members, and other groups that may still be uninformed about Policy Governance. So invest in some PR! Let your publics know that you are planning to govern in a manner that will make you meaningfully accountable for the organization on behalf of those who own it. So radical a change as a new governance model is best shouted from the rooftops rather than slipped in while no one is watching. Shout it out! 6. Move in one fell swoop. Set a date on which the model comes into effect, and pass a motion stating that as of that date, all previous board policies and other decisions are set aside, and your new policies are in effect. You may feel that this is a sudden and perhaps precipitous way to proceed. We would answer that implementing Policy Governance involves a change of such magnitude

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that it can be likened to jumping from one trapeze to another. It is important to take as much time as is necessary in setting up the second trapeze, testing it, and getting ready to jump. But jumping has to happen quickly and at once. Incremental change within a paradigm can be done in phases; phasing in a shift from one paradigm to another can be like trying to change from playing baseball to playing football gradually! 7. Gain confidence through data. Expect to receive monitoring data on the schedule you have already determined just as soon as implementation begins. Be forewarned that the system may not work as well right away as it will later. After all, the staff have a lot of changes to make in their data gathering and analysis.

Maintaining the System When your board starts to use Policy Governance, that is, when it implements the policies it has worked so hard on, board life will change beyond recognition. You will find that you will have the chance to talk about and decide issues of great importance. You will be in control of an organization without maintaining the fiction that afterthe-fact decision making is really leading. You will be, if we may use a nautical analogy, on the bridge looking at the horizon rather than in the engine room checking oil levels. For most board members, this is a change that is welcomed and enjoyed. But there are challenges too. The way in which you and your board have reacted to situations and input will have to change in order to maintain the governance you have chosen. Turnover of board members, organizational crises, and consumer complaints will challenge your resolve to remain consistent. In short, a high level of board discipline is required by Policy Governance. Your board will find numerous reasons to be undisciplined and to act in a manner inconsistent with your resolve. The cost of such lack of discipline is high. First, the ownership of the organization is cheated by a board that fails to perform the job of governance. Second, your CEO and staff will learn that your board remains unpredictable,

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capricious, and untrustworthy. When staff members perceive a board as not consistently following a sound practice, they will spend time and resources neutralizing the risk its unpredictability poses to them. Third, your ability to recruit and retain board members who wish to make a difference will be impaired if the board acts erratically. Here are some techniques, mentioned during this book, that we reiterate in discussing your challenge to maintain your governance system. 1. Board member recruitment. If your board has control over its recruitment, it should be sure to let candidates know before they come onto the board that the system used is Policy Governance. Let your prospective new members know how your board sees the job of governance. They can then make an informed choice about their willingness to serve. If your board does not control but can influence the selection of board members, it should tell those who do make the selections the characteristics required in new members. 2. Board member orientation. Do this before the new board members’ first meeting if at all possible. Orient the members to the board job, since this is the one they need to know about. Explaining staff jobs will be interesting but incidental information. Use your board policy manual as a resource. It contains all the current governing values and will help your new colleagues to quickly understand what the board has said about its role and its expectations of the organization. Some boards use buddy systems, pairing a new board member with an experienced one. This can be very helpful, as it compels the experienced board member to be as knowledgeable as possible in order to accurately teach the new one. 3. Board self-evaluation. Your board decided some aspects of selfevaluation when it developed its Governance Process policies. We have already noted that we recommend frequent self-evaluation and prefer to see boards self-evaluate at each meeting. We do not mean to imply that boards should allow such evaluation to take a major amount of time. It can be accomplished rather speedily. Remember that monitoring is always against criteria and that the Governance

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Process and Board-Management Delegation policies are your criteria. Hence board self-evaluation is the comparison of how the board conducted itself to how it said it would conduct itself. Take a different one of your Governance Process policies at each meeting, and have someone critique the board according to the criteria in the policy. 4. Education. Your board should have access to materials or conferences that will support and enhance its understanding of governance. Note that most available board literature is not written from a Policy Governance perspective but from a traditional perspective. Take great care in learning from these materials. They do contain a great deal of wisdom that can be helpful, but you have to read them with your Policy Governance screen well in place. There is little reason to learn from someone’s wisdom about personnel committees, for example, when you know boards should never have such committees. On the other hand, there may be much to learn about recruiting techniques, as long as you remember to use board member qualifications that are consistent with the Policy Governance job to be done. For example, do not recruit people because they are accountants and lawyers; recruit them for their ability to express appropriate board leadership. Also be a discerning reader of materials that claim to be about Policy Governance; be sure they were prepared by someone who knows the model! 5. Practice! Individuals must practice to make perfect, but teams must do so even more. No orchestra, football team, army, or theater cast would consider trying to fulfill its task without an enormous amount of rehearsal. Boards typically have not learned this lesson. We recommend regular what-if sessions built into board meetings so the board can be continually prepared to use its policy system for any unforeseen problem. With the Policy Governance system, the solution to all governance problems is either to be found in the existing policies or pointed to by those policies. A set of structured exercises for the maintenance of board skill can be found in The Board Member’s Playbook by Miriam Carver and Bill Charney (Jossey-Bass, 2004).

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When the Going Gets Tough, the Tough Go Back to Basics Not uncommonly, a board that is using Policy Governance confidently may find that it is sorely tempted to revert to more traditional methods when a crisis or apparent crisis arises. Obviously, a board uses Policy Governance because it is convinced that it enables governing responsibly and diligently. That being the case, to not use it during a crisis flies in the face of reason, equivalent to a pilot who forsakes the instruments just when they are needed the most. A board that has regularly engaged in the kind of rehearsal we just discussed will be far more capable of staying the course because it will have rehearsed doing so many times. Nonetheless, there will be events that test you and can entice you back toward more familiar ground. We’ve seen boards making great headway in governance improvement that absolutely lost it when some problem or threat arose, the CEO failed, or some other unfortunate event occurred. They failed to understand that when things get rough is precisely when you need the best model you can get. Here are some examples. 1. Your policies are realistic, and your monitoring report shows an out-of-compliance financial situation. If your board wants to discuss how the problem should be fixed or wants to fix it itself, it will never know if it has a CEO who can handle this and other situations. The appropriate response to this problem is to agree with the CEO on a realistic time frame for the CEO to fix the problem and keep it fixed. Of course, if the financial situation is sufficiently dire, the board’s best judgment may be to replace the CEO forthwith. 2. Your funding is cut. If your board has addressed the cost component of Ends policies in percentage terms, it may not need to do anything about this situation. If it used amounts of expenditure in its Ends policies, it may need to restate them. Your board should not be involved in decisions about which programs or staff to cut. These

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are means issues, and you have told the CEO to make these decisions within the constraints of your Executive Limitations policies. 3. A board member or even the whole board has been approached by a consumer who has a complaint. It will be tempting to try to solve the problem as presented, but remember that a complaint is an allegation and there may not be a problem. There will always be dissatisfied consumers. The board in its Treatment of Consumers policy has spelled out what forms of treatment it will not tolerate. The board should inform the CEO and then go through the following decision process. First, the board should ask itself whether any of its policies would have been violated if the allegation were true. Second, if no policies would have been violated, there is nothing for the board to do unless it feels existing policy is inadequate. If so, then the board considers expanding its policy. Third, if a policy may have been violated, the board should acquire information that would monitor the policy in question, sticking with its rules for monitoring already established in its Monitoring CEO Performance policy. The board has the freedom, of course, to decide that the situation does not warrant such an extra monitoring but that it can wait for the regular monitoring as scheduled. Fourth, when monitoring occurs, the board should respond to the data by assessing whether or not the organization is in compliance with a reasonable interpretation of its policy. 4. The board is worried about its responsibility to raise funds. The board’s primary responsibility is to govern. It may or may not have a responsibility to raise funds. The need to raise funds comes about when the board demands Ends that cannot be attained without fundraising. Fundraising, therefore, while obviously a means issue, is Ends-driven. The board may decide to add the acquisition of funds to its own job list, its values-added, as listed in its Board Job Description policy. If it does not choose to do so, the CEO is left with total accountability for producing whatever is needed to attain the Ends, including the necessary funds. Of course, the board can limit some of the CEO’s fundraising options by enacting an Executive Limitations policy that does so. If a board decides that it will

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take on only a part of the responsibility for acquiring funds, such as producing names of prospective donors, it will add that aspect to its job list. (The board then holds itself and not the CEO accountable for that part of the job.) The effect of this action is that all other aspects of fundraising are therefore part of the CEO’s job. Knowing exactly which parts of the total fundraising job the board officially commits itself to will prevent the familiar scenario of the fundraising staff and board members becoming confused and frustrated about respective roles. Policy Governance as a system of decision making and leadership is designed, like a good knife, to get better with use. You will have no problem with the model deteriorating if you follow all the principles we have outlined. You will have deterioration, and that very soon, if you fudge on the principles or fail to follow the necessary board discipline. For example, if something occurs among the staff that upsets a majority of board members, yet that something is not a violation of board policy, what should the board do? If in doubt, reread the section about the board response to a consumer complaint. The same principle applies. Such an occasion should be seen as an opportunity not to set the “something” right but to adjust the system if necessary to make it even stronger. The board does not accost its CEO, nor does the board move into staff means to fix the problem or even direct how it will be fixed. The board admits that its own policy is insufficient, if this is the case, and then debates how to change it. The CEO has been fairly treated, the CEO trusts that the board will keep its word, the board policy is better than before, and the board’s confidence is stronger. In the end, maintaining Policy Governance is a serious board responsibility. It is not the staff ’s. And due to the design of the model, maintaining Policy Governance simply means using it consistently and boldly. Now that you have come this far with us, we are going to have to disappoint you. Policy Governance itself is not an Ends issue. No organization exists in order to use Policy Governance. It is a

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means—a board means, to be sure, not a staff means, but a means nonetheless. As such, it is a tool provided for the better expression of board leadership—an advanced kind of leadership capable of leading leaders. That means that with Policy Governance in place, your board work is not over. It is merely beginning. For having the best tools in the world builds no bridges and crosses no oceans. Now the real work begins. We can predict that from now on your workload as a board will be almost entirely in three areas: 1. Education. You may spend more than half your time learning— not about staff jobs but about issues that will enable you to make informed, visionary, creative decisions largely about Ends. This learning will come from various sources that you will select. Some will be from the ownership—those who morally own your organization, those whom you represent as board members. It will take carefully developed strategies to get to these people and to be sure you are getting a fair representation of their views rather than the views only of the louder constituents. Remember not to confuse owner input with the input of disgruntled customers. Some of the learning will come from invited experts or other outsiders who have special knowledge or experience. How long has it been since you had a futurist address the particular interest of your organization? Some of the learning will come from your CEO and staff. They are a rich source of ideas and passion. 2. Ends debate. The previous focus is almost entirely intended to prepare you for the Ends struggle. Entertain diverse points of view, see that they are argued vehemently, study the long-term effects of various Ends choices. Most of your board year should be involved in addressing various portions of the Ends question. Do not confine this work to an annual retreat, even though a retreat setting can well serve as a component of your year-long sequence of Ends reexamination. This is the heart of board work, so do not fear

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being absolutely and unapologetically obsessive about it. A board meeting that does not deal with at least one substantive Ends issue is a board meeting that didn’t quite make it. 3. Keeping the faith. Board discipline will require conscious attention. Don’t expect discipline to be something you have rather than something you continually pursue. That is, discipline is an explicit issue for board discussion at every meeting. When we suggested that you do self-evaluation no less than once per meeting, this is part of what we meant. But go beyond self-evaluation; discuss how you can get better, how you can stray less, how you can waste less time. Boards we have known have tried naming and, we hope, rotating board members as “governance cops” in a humorous but effective way to spotlight sticking to the rules. This may sound awkward, but we suppose a pilot’s going through that crucial checklist on every flight sometimes feels excessive. So we leave you with your challenge. We salute your commitment, your effort, and your dreams. We hope you have fun and grow as people while answering responsibly to your considerable accountability. Never forget that your job is not so much to review last month, keep up with your staff’s unending supply of activities, or be managers at arm’s length. Your job is to lead, to be spokespersons for meaningful values, to model bigness of spirit, to be powerful representatives of your ownership (and sometimes its gadfly conscience!), and ultimately to see that tomorrow is created in a better image. We live in this world, too. We are in your debt.

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Resources

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Resource A A Sample Board Policy Manual

I

n Resource A, we present a group of policies that might well comprise all those needed in the means policies—the categories we call Executive Limitations, Board-Management Delegation, and Governance Process. Certainly a given board might have need of more than these, but there is no way to illustrate all the possible policies a board might choose to have. The possibilities are endless. We are fortunate, however, that the nature of means policies enables us to illustrate a number of fairly common, relatively complete policy samples. Boards are surprisingly similar in what they choose to say in these areas. In the case of board means, the similarity is inevitable because they are so guided by the principles of the model. Conversely, staff means are guided by the board’s values of prudence and ethics, also a phenomenon quite alike from one board to another. Ends will be different, so we have elected to display them differently. These will be shown in Resource B. We chose in Chapters Four through Seven to take you with us through policymaking by looking at one level after another—first, second, third, and a few times, fourth or even fifth. We used this level-by-level approach across all topics. In assembling a policy manual for everyday use, however, you will find it far more helpful to have your policies grouped by topic. Such an arrangement shows the various levels within that topic all together. This is the format we will employ in the coming pages. 233


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Please keep in mind that we are not proposing that the specific wording of these samples is necessarily correct for your board. Indeed, if you circumvent the admittedly painstaking process of developing your own policies, even though they may turn out to be much like ours, you will miss the main point here. Whatever the language used, these must be your policies. We can guarantee that the policies displayed are (1) model-consistent, (2) very like those actually developed by our clients with our guidance, and (3) a quite workable starter set. Here is a registry of the policies shown: EXECUTIVE LIMITATIONS Global Executive Constraint Treatment of Consumers Treatment of Staff Financial Planning/Budgeting Financial Condition and Activities Emergency CEO Succession Asset Protection Compensation and Benefits Communication and Support to the Board GOVERNANCE PROCESS Global Governance Process Policy Governing Style Board Job Description Agenda Planning Chief Governance Officer’s Role Board Secretary’s Role Board Members’ Code of Conduct


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Resource A

Board Committee Principles Cost of Governance BOARD-MANAGEMENT DELEGATION

Global Board-Management Delegation Unity of Control Accountability of the CEO Delegation to the CEO Monitoring CEO Performance

POLICY TYPE:

EXECUTIVE LIMITATIONS

POLICY TITLE:

GLOBAL EXECUTIVE CONSTRAINT

The CEO shall not cause or allow any organizational practice, activity, decision, or circumstance that is either unlawful, imprudent, or in violation of commonly accepted business and professional ethics and practices. POLICY TYPE:


POLICY TITLE:

TREATMENT OF CONSUMERS

With respect to interactions with consumers or those applying to be consumers, the CEO shall not cause or allow conditions, procedures, or decisions that are unsafe, untimely, undignified, or unnecessarily intrusive. The CEO will not 1. Elicit information for which there is no clear necessity. 2. Use methods of collecting, reviewing, transmitting, or storing client information that fail to protect against improper access to the material. 3. Fail to operate facilities with appropriate accessibility and privacy.

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4. Fail to establish with consumers a clear understanding of what may be expected and what may not be expected from the service offered. 5. Fail to inform consumers of this policy, or to provide a way to be heard for persons who believe they have not been accorded a reasonable interpretation of their protections under this policy. POLICY TYPE:


POLICY TITLE:

TREATMENT OF STAFF

With respect to the treatment of paid and volunteer staff, the CEO shall not cause or allow conditions that are unfair, undignified, disorganized, or unclear. The CEO will not 1. Operate without written personnel rules that (a) clarify rules for staff, (b) provide for effective handling of grievances, and (c) protect against wrongful conditions, such as nepotism and grossly preferential treatment for personal reasons. 2. Retaliate against any staff member for nondisruptive expression of dissent. 3. Fail to acquaint staff with the CEO’s interpretation of their protections under this policy. 4. Allow staff to be unprepared to deal with emergency situations.


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Resource A

POLICY TYPE:


POLICY TITLE:

FINANCIAL PLANNING/BUDGETING

The CEO shall not cause or allow financial planning for any fiscal year or the remaining part of any fiscal year to deviate materially from the board’s Ends priorities, risk financial jeopardy, or fail to be derived from a multiyear plan. The CEO will not allow budgeting to 1. Risk incurring those situations or conditions described as unacceptable in the board policy “Financial Condition and Activities.” 2. Omit credible projection of revenues and expenses, separation of capital and operational items, cash flow, and disclosure of planning assumptions. 3. Provide less for board prerogatives during the year than is set forth in the Cost of Governance policy. POLICY TYPE:


POLICY TITLE: FINANCIAL CONDITION AND ACTIVITIES With respect to the actual, ongoing financial condition and activities, the CEO shall not cause or allow the development of financial jeopardy or material deviation of actual expenditures from board priorities established in Ends policies. The CEO will not 1. Expend more funds than have been received in the fiscal year to date unless the board’s debt guideline (below) is met. 2. Incur debt in an amount greater than can be repaid by certain and otherwise unencumbered revenues within sixty days. 3. Use any-long term reserves.

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4. Conduct interfund shifting in amounts greater than can be restored to a condition of discrete fund balances by certain and otherwise unencumbered revenues within thirty days. 5. Fail to settle payroll and debts in a timely manner. 6. Allow tax payments or other government ordered payments or filings to be overdue or inaccurately filed. 7. Make a single purchase or commitment of greater than $_____. Splitting orders to avoid this limit is not acceptable. 8. Acquire, encumber, or dispose of real estate. 9. Fail to aggressively pursue receivables after a reasonable grace period. POLICY TYPE:


POLICY TITLE:

EMERGENCY CEO SUCCESSION

In order to protect the board from sudden loss of CEO services, the CEO shall not permit there to be fewer than two other executives sufficiently familiar with board and CEO issues and processes to enable either to take over with reasonable proficiency as an interim successor. POLICY TYPE:


POLICY TITLE:

ASSET PROTECTION

The CEO shall not cause or allow corporate assets to be unprotected, inadequately maintained, or unnecessarily risked. The CEO will not 1. Fail to insure adequately against theft and casualty and against liability losses to board members, staff, and the organization itself. 2. Allow unbonded personnel access to material amounts of funds.


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Resource A

3. Subject facilities and equipment to improper wear and tear or insufficient maintenance. 4. Unnecessarily expose the organization, its board, or staff to claims of liability. 5. Make any purchase: (a) wherein normally prudent protection has not been given against conflict of interest; (b) of more than $_______ without having obtained comparative prices and quality; (c) of more than $_______ without a stringent method of assuring the balance of long-term quality and cost. Orders shall not be split to avoid these criteria. 6. Fail to protect intellectual property, information, and files from loss or significant damage. 7. Receive, process, or disburse funds under controls that are insufficient to meet the board-appointed auditor’s standards. 8. Compromise the independence of the board’s audit or other external monitoring or advice, such as by engaging parties already chosen by the board as consultants or advisers. 9. Invest or hold operating capital in insecure instruments, including uninsured checking accounts and bonds of less than AA rating at any time, or in non-interest-bearing accounts except where necessary to facilitate ease in operational transactions. 10. Endanger the organization’s public image, credibility, or its ability to accomplish Ends. 11. Change the organization’s name or substantially alter its identity in the community. 12. Create or purchase any subsidiary corporation unless: (a) more than 80 percent is owned by this organization; (b) initial capitalization by this organization is less than $_________ or ____ percent of the reserve fund; (c) no staff member has an ownership interest; and (d) there is no reasonable chance of resultant damage to the reputation of this organization.

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POLICY TYPE:


POLICY TITLE:

COMPENSATION AND BENEFITS

With respect to employment, compensation, and benefits to employees, consultants, contract workers, and volunteers, the CEO shall not cause or allow jeopardy to financial integrity or to public image. The CEO will not 1. Change the CEO’s own compensation and benefits, except as those benefits are consistent with a package for all other employees. 2. Promise or imply permanent or guaranteed employment. 3. Establish current compensation and benefits that deviate materially from the geographic or professional market for the skills employed. 4. Create obligations over a longer term than revenues can be safely projected, in no event longer than one year and in all events subject to losses in revenue. 5. Establish or change pension benefits so as to cause unpredictable or inequitable situations, including those that: a. Incur unfunded liabilities. b. Provide less than some basic level of benefits to all fulltime employees, though differential benefits to encourage longevity are not prohibited. c. Allow any employee to lose benefits already accrued from any foregoing plan. d. Treat the CEO differently from other key employees.


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Resource A

POLICY TYPE:


POLICY TITLE:

COMMUNICATION AND SUPPORT TO THE BOARD

The CEO shall not cause or allow the board to be uninformed or unsupported in its work. The CEO will not 1. Neglect to submit monitoring data required by the board in Board-Management Delegation policy “Monitoring CEO Performance” in a timely, accurate, and understandable fashion, directly addressing provisions of board policies being monitored, and including CEO interpretations consistent with Board-Management Delegation policy “Delegation to the CEO,” as well as relevant data. 2. Allow the board to be unaware of any actual or anticipated noncompliance with any Ends or Executive Limitations policy of the board regardless of the board’s monitoring schedule. 3. Allow the board to be without decision information required periodically by the board or let the board be unaware of relevant trends. 4. Let the board be unaware of any significant incidental information it requires including anticipated media coverage, threatened or pending lawsuits, and material internal and external changes. 5. Allow the board to be unaware that, in the CEO’s opinion, the board is not in compliance with its own policies on Governance Process and Board-Management Delegation, particularly in the case of board behavior that is detrimental to the work relationship between the board and the CEO. 6. Present information in unnecessarily complex or lengthy form or in a form that fails to differentiate among information of three types: monitoring, decision preparation, and other.

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7. Allow the board to be without a workable mechanism for official board, officer, or committee communications. 8. Deal with the board in a way that favors or privileges certain board members over others, except when (a) fulfilling individual requests for information or (b) responding to officers or committees duly charged by the board. 9. Fail to submit to the board a consent agenda containing items delegated to the CEO yet required by law, regulation, or contract to be board-approved, along with applicable monitoring information. POLICY TYPE:

GOVERNANCE PROCESS

POLICY TITLE:

GLOBAL GOVERNANCE PROCESS

The purpose of the board, on behalf of [identify the ownership here], is to see to it that [name of organization] (a) achieves appropriate results for appropriate persons at an appropriate cost (as specified in board Ends policies), and (b) avoids unacceptable actions and situations (as prohibited in board Executive Limitations policies). POLICY TYPE:

GOVERNANCE PROCESS

POLICY TITLE:

GOVERNING STYLE

The board will govern lawfully, observing the principles of the Policy Governance model, with an emphasis on (a) outward vision rather than an internal preoccupation, (b) encouragement of diversity in viewpoints, (c) strategic leadership more than administrative detail, (d) clear distinction of board and chief executive roles, (e) collective rather than individual decisions, (f) future rather than past or present, and (g) proactivity rather than reactivity. Accordingly,


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Resource A

1. The board will cultivate a sense of group responsibility. The board, not the staff, will be responsible for excellence in governing. The board will be the initiator of policy, not merely a reactor to staff initiatives. The board will not use the expertise of individual members to substitute for the judgment of the board, although the expertise of individual members may be used to enhance the understanding of the board as a body. 2. The board will direct, control, and inspire the organization through the careful establishment of broad written policies reflecting the board’s values and perspectives. The board’s major policy focus will be on the intended long-term impacts outside the staff organization, not on the administrative or programmatic means of attaining those effects. 3. The board will enforce upon itself whatever discipline is needed to govern with excellence. Discipline will apply to matters such as attendance, preparation for meetings, policymaking principles, respect of roles, and ensuring the continuance of governance capability. Although the board can change its governance process policies at any time, it will scrupulously observe those currently in force. 4. Continual board development will include orientation of new board members in the board’s governance process and periodic board discussion of process improvement. 5. The board will allow no officer, individual, or committee of the board to hinder or be an excuse for not fulfilling group obligations. 6. The board will monitor and discuss the board’s process and performance at each meeting. Self-monitoring will include comparison of board activity and discipline to policies in the Governance Process and Board-Management Delegation categories.

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POLICY TYPE:

GOVERNANCE PROCESS

POLICY TITLE:

BOARD JOB DESCRIPTION

Specific job outputs of the board, as an informed agent of the ownership, are those that ensure appropriate organizational performance. Accordingly, the board will provide 1. Authoritative linkage between the ownership and the operational organization. 2. Written governing policies that realistically address the broadest levels of all organizational decisions and situations. a. Ends: Organizational impacts, benefits, outcomes; recipients, beneficiaries, impacted groups; and their relative worth in cost or priority. b. Executive Limitations: Constraints on executive authority that establish the prudence and ethics boundaries within which all executive activity and decisions must take place. c. Governance Process: Specification of how the board conceives, carries out, and monitors its own task. d. Board-Management Delegation: How power is delegated and its proper use monitored; the CEO role, authority, and accountability. 3. Assurance of successful organizational performance on Ends and Executive Limitations.


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Resource A

POLICY TYPE:

GOVERNANCE PROCESS

POLICY TITLE:

AGENDA PLANNING

To accomplish its job products with a governance style consistent with board policies, the board will follow an annual agenda that (a) completes a reexploration of Ends policies annually and (b) continually improves board performance through board education and enriched input and deliberation. 1. The cycle will conclude each year on the last day of September so that administrative planning and budgeting can be based on accomplishing a one-year segment of the board’s most recent statement of long-term Ends. 2. The cycle will start with the board’s development of its agenda for the next year. a. Consultations with selected groups in the ownership, or other methods of gaining ownership input, will be determined and arranged in the first quarter, to be held during the balance of the year. b. Governance education and education related to Ends determination (presentations by futurists, demographers, advocacy groups, staff, and so on) will be arranged in the first quarter, to be held during the balance of the year. c. A board member may recommend or request an item for board discussion by submitting the item to the CGO no later than five days before the board meeting. 3. Throughout the year, the board will attend to consent agenda items as expeditiously as possible. 4. CEO monitoring will be on the agenda if reports have been received since the previous meeting, if plans must be made for direct inspection monitoring, or if arrangements for thirdparty monitoring must be prepared. 5. CEO remuneration will be decided during the month of February after a review of monitoring reports received in the last year.

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POLICY TYPE:

GOVERNANCE PROCESS

POLICY TITLE:

CHIEF GOVERNANCE OFFICER’S ROLE

The chief governance officer (CGO), a specially empowered member of the board, assures the integrity of the board’s process and, secondarily, occasionally represents the board to outside parties. 1. The assigned result of the CGO’s job is that the board behaves consistently with its own rules and those legitimately imposed upon it from outside the organization. a. Meeting discussion content will be only those issues which, according to board policy, clearly belong to the board to decide or to monitor. b. Information that is for neither monitoring performance nor board decisions will be avoided or minimized and always noted as such. c. Deliberation will be fair, open, and thorough, but also timely, orderly, and kept to the point. 2. The authority of the CGO consists in making decisions that fall within topics covered by board policies on Governance Process and Board-Management Delegation, with the exception of (a) employment or termination of a CEO and (b) where the board specifically delegates portions of this authority to others. The CGO is authorized to use any reasonable interpretation of the provisions in these policies. a. The CGO is empowered to chair board meetings with all the commonly accepted power of that position, such as ruling and recognizing. b. The CGO has no authority to make decisions about policies created by the board within Ends and Executive Limitations policy areas. Therefore, the CGO has no authority to supervise or direct the CEO.


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c. The CGO may represent the board to outside parties in announcing board-stated positions and in stating CGO decisions and interpretations within the area delegated to that role. d. The CGO may delegate this authority, but remains accountable for its use. POLICY TYPE:

GOVERNANCE PROCESS

POLICY TITLE:

BOARD SECRETARY’S ROLE

The board secretary is an officer of the board whose purpose is to ensure the integrity of the board’s documents. 1. The assigned result of the secretary’s job is to see to it that all board documents and filings are accurate and timely. a. Policies will be current in their reflection of board decisions. Decisions upon which no subsequent decisions are to be based, such as consent agenda decisions, motions to adjourn, and staff or board member recognitions need not be placed in policy. b. Policies will rigorously follow Policy Governance principles. c. Bylaws elements necessary for legal compliance and for consistency with the principles of Policy Governance will be known to the board. d. Requirements for format, brevity, and accuracy of board minutes will be known to the CEO. 2. The authority of the secretary is access to and control over board documents, and the use of staff time not to exceed X hours per year.

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POLICY TYPE:

GOVERNANCE PROCESS

POLICY TITLE:

BOARD MEMBERS’ CODE OF CONDUCT

The board commits itself and its members to ethical, businesslike, and lawful conduct, including proper use of authority and appropriate decorum when acting as board members. 1. Members must have loyalty to the ownership, unconflicted by loyalties to staff, other organizations, and any personal interest as a consumer. 2. Members must avoid conflict of interest with respect to their fiduciary responsibility. a. There will be no self-dealing or business by a member with the organization. Members will annually disclose their involvements with other organizations, with vendors, or any associations that might be or might reasonably be seen as being a conflict. b. When the board is to decide upon an issue about which a member has an unavoidable conflict of interest, that member shall withdraw without comment not only from the vote but also from the deliberation. c. Board members will not use their board position to obtain employment in the organization for themselves, family members, or close associates. A board member who applies for employment must first resign from the board. 3. Board members may not attempt to exercise individual authority over the organization. a. Members’ interaction with the CEO or with staff must recognize the lack of authority vested in individuals except when explicitly board authorized. b. Members’ interaction with public, press, or other entities must recognize the same limitation and the inability of any board member to speak for the board except to repeat explicitly stated board decisions.


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c. Except for participation in board deliberation about whether the CEO has achieved any reasonable interpretation of board policy, members will not express individual judgments of performance of employees or the CEO. 4. Members will respect the confidentiality appropriate to issues of a sensitive nature. 5. Members will be properly prepared for board deliberation. 6. Members will support the legitimacy and authority of the final determination of the board on any matter, irrespective of the member’s personal position on the issue. 7. Members will contribute [no less than $xxxx][no fewer than 100 hours as operational volunteers as directed by staff] each year. POLICY TYPE:

GOVERNANCE PROCESS

POLICY TITLE:

BOARD COMMITTEE PRINCIPLES

Board committees, when used, will be assigned so as to reinforce the wholeness of the board’s job and so as never to interfere with delegation from board to CEO. 1. Board committees are to help the board do its job, not to help or advise the staff. Committees ordinarily will assist the board by preparing policy alternatives and implications for board deliberation. In keeping with the board’s broader focus, board committees will normally not have direct dealings with current staff operations. 2. Board committees may not speak or act for the board except when formally given such authority for specific and timelimited purposes. Expectations and authority will be carefully stated in order not to conflict with authority delegated to the CEO.

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3. Board committees cannot exercise authority over staff. The CEO works for the full board, and will therefore not be required to obtain approval of a board committee before an executive action. 4. Board committees are to avoid overidentification with organizational parts rather than the whole. Therefore, a board committee that has helped the board create policy on some topic will not be used to monitor organizational performance on that same subject. 5. Committees will be used sparingly and ordinarily in an ad hoc capacity. 6. This policy applies to any group that is formed by board action, whether or not it is called a committee and regardless of whether the group includes board members. It does not apply to committees formed under the authority of the CEO. POLICY TYPE:

GOVERNANCE PROCESS

POLICY TITLE:

COST OF GOVERNANCE

Because poor governance costs more than learning to govern well, the board will invest in its governance capacity. 1. Board skills, methods, and supports will be sufficient to ensure governing with excellence. a. Training and retraining will be used liberally to orient new members and candidates for membership, as well as to maintain and increase existing members’ skills and understandings. b. Outside monitoring assistance will be arranged so that the board can exercise confident control over organizational performance. This includes, but is not limited to, financial audit.


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c. Outreach mechanisms will be used as needed to ensure the board’s ability to listen to owner viewpoints and values. 2. Costs will be prudently incurred, though not at the expense of endangering the development and maintenance of superior capability. a. Up to $____________ in fiscal year ___________ for training, including attendance at conferences and workshops. b. Up to $____________ in fiscal year ___________ for audit and other third-party monitoring of organizational performance. c. Up to $____________ in fiscal year ___________ for surveys, focus groups, opinion analyses, and meeting costs. 3. The board will establish its cost of governance budget for the next fiscal year during the month of October.

POLICY TYPE:

BOARD-MANAGEMENT DELEGATION

POLICY TITLE:

GLOBAL BOARD-MANAGEMENT DELEGATION

The board’s sole official connection to the operational organization, its achievements and conduct will be through a chief executive officer, titled [specific job title].

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POLICY TYPE:


POLICY TITLE:

UNITY OF CONTROL

Only officially passed motions of the board are binding on the CEO. 1. Decisions or instructions of individual board members, officers, or committees are not binding on the CEO except in rare instances when the board has specifically authorized such exercise of authority. 2. In the case of board members or committees requesting information or assistance without board authorization, the CEO can refuse such requests that require, in the CEO’s opinion, a material amount of staff time or funds, or are disruptive. POLICY TYPE:


POLICY TITLE:

ACCOUNTABILITY OF THE CEO

The CEO is the board’s only link to operational achievement and conduct, so that all authority and accountability of staff, as far as the board is concerned, is considered the authority and accountability of the CEO. 1. The board will never give instructions to persons who report directly or indirectly to the CEO. 2. The board will not evaluate, either formally or informally, any staff other than the CEO. 3. The board will view CEO performance as identical to organizational performance, so that organizational accomplishment of board-stated Ends and avoidance of board-proscribed means will be viewed as successful CEO performance.


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POLICY TYPE:


POLICY TITLE:

DELEGATION TO THE CEO

The board will instruct the CEO through written policies that prescribe the organizational Ends to be achieved, and proscribe organizational situations and actions to be avoided, allowing the CEO to use any reasonable interpretation of these policies. 1. The board will develop policies instructing the CEO to achieve specified results, for specified recipients, at a specified cost. These policies will be developed systematically from the broadest, most general level to more defined levels, and will be called Ends policies. All issues that are not ends issues as defined here are means issues. 2. The board will develop policies that limit the latitude the CEO may exercise in choosing the organizational means. These limiting policies will describe those practices, activities, decisions, and circumstances that would be unacceptable to the board even if they were to be effective. Policies will be developed systematically from the broadest, most general level to more defined levels, and they will be called Executive Limitations policies. The board will never prescribe organizational means delegated to the CEO. 3. Below the global level, a single limitation at any given level does not limit the scope of any foregoing level. 4. Below the global level, the aggregate of limitations on any given level may embrace the scope of the foregoing level, but only if justified by the CEO to the board’s satisfaction. 5. As long as the CEO uses any reasonable interpretation of the board’s Ends and Executive Limitations policies, the CEO is authorized to establish all further policies, make all decisions, take all actions, establish all practices, and develop all activities. Such decisions of the CEO shall have full force and authority as if decided by the board.

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6. The board may change its Ends and Executive Limitations policies, thereby shifting the boundary between board and CEO domains. By doing so, the board changes the latitude of choice given to the CEO. But as long as any particular delegation is in place, the board will respect and support the CEO’s choices. POLICY TYPE:


POLICY TITLE:

MONITORING CEO PERFORMANCE

Systematic and rigorous monitoring of CEO job performance will be solely against the only expected CEO job outputs: organizational accomplishment of board policies on Ends and organizational operation within the boundaries established in board policies on Executive Limitations. 1. Monitoring is simply to determine the degree to which board policies are being met. Information that does not do this will not be considered to be monitoring information. 2. The board will acquire monitoring information by one or more of three methods: a. By internal report, in which the CEO discloses interpretations and compliance information to the board. b. By external report, in which an external, disinterested third party selected by the board assesses compliance with board policies. c. By direct board inspection, in which a designated member or members of the board assess compliance with the appropriate policy criteria. 3. In every case, the board will judge (a) the reasonableness of the CEO’s interpretation and (b) whether data demonstrate accomplishment of the interpretation.


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4. The standard for compliance shall be any reasonable CEO interpretation of the board policy being monitored. The board is final arbiter of reasonableness, but will always judge with a “reasonable person” test rather than with interpretations favored by board members or by the board as a whole. 5. All policies that instruct the CEO will be monitored at a frequency and by a method chosen by the board. The board can monitor any policy at any time by any method, but will ordinarily depend on a routine schedule.

Policy

Method

Frequency

Month

Ends

Internal

Annually

Feb.

Global Executive

Internal

Annually

Mar.

Treatment of Consumers Internal

Annually

May

Treatment of Staff

Internal

Annually

May

Financial Condition and Internal

Quarterly

Jan., Apr.,

Constraint

Activities Financial Planning/

July, Oct. External

Annually

Sept.

Internal

Quarterly

Feb., May,

Budgeting Emergency CEO

Aug., Nov. Internal

Annually

Oct.

Asset Protection

Internal

Annually

Nov.

Compensation and

Internal

Annually

Nov.

External

Bi-annually

Sept. odd-

Succession

Benefits

numbered years Communication and Support

Direct Inspection

Annually

July

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Resource B Sample Ends Policies

I

n Resource A, we presented a sample policy manual composed of policies in three of the four categories of board policy. Those policy samples are consistent with each other, as they would be in an actual governance setting. We explained why those three categories of policies seem very similar across all organization types. But as we also explained, Ends are not like that. They differ widely from one organization to another. Consequently, in order to show some sample Ends policies, we will display policies that are not consistent with each other. Obviously, by the nature of various purposes, the Ends of hospitals, city governments, social service agencies, trade associations, and others will differ markedly. Hence we separate sample Ends policies from the others and present them to you in this section, not as a group that would ever appear together but as they might be found individually in various settings. We do not present these policies as examples of how much detail a board should pursue or as examples of content that we support. They are samples of format and model-consistent statements. For example, the policy dealing with cancer research goes into much greater detail than we would conceive a board ever going into. In the case of all policies shown, there is no indication whether a given board would choose to go into even further detail, thereby reducing the allowable range of the CEO’s subsequent interpretation. 257


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Policy Governance requires board policies to be in a form consistent with the underlying governance theory. It is that consistency we are concerned about in this text. But our focus on the mechanics of implementation is not to detract from boards’ attending to the ambition, doability, and visionary characteristics of the Ends policies they create. It is in the establishment of Ends policy that a school board pushes to new frontiers in what is expected in educational achievement, a community college board establishes greater relevance to preparation needed for postsecondary life, a trade association calls for more payoff for its members, and city councils revolutionize the effects of municipal government on society. Visionary aspirations with which boards can impel old organizations into a better world, though important to us in our personal lives, are not the point of this text. But it is only with well-maintained tools of governance that boards can use those tools to create their world in a new image. In the samples that follow, you will also notice that different organizations, even while remaining consistent with the model, take different approaches to how they organize their Ends. Some keep their global Ends policy on a separate policy page from subparts of that global statement; some do not. Some address the “at what cost” element one way, some another. These are permissible differences within the model. The major relevant aspect is whether Policy Governance principles are carefully observed in the origination and construction of the policies. Of course, we do not present these sample Ends policies to recommend any specific content, numbering system, belief system, or level of ambition.

Trade Association Conditions sufficiently conducive to member success to justify dues comparable to similar associations. 1. The public views members as ethical and effective, worth no less than 65 percent of resources.


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a. Priority publics are those whose decisions are most likely to affect member success. (1) The highest priorities are legislators and zoning boards. 2. Members’ skills improve continually throughout their careers: a. Management skills, to include financial, personnel, and technology b. Marketing skills, to include advertising and public relations c. Members exchange information and skills

Downtown Cultural Association The effect of our Association is a culturally vibrant downtown, at a cost comparable to other downtown cultural associations. 1. The downtown area is broadly conceived and extends to the area expected to be commonly called downtown in twenty years. 2. Comparable associations are only those that produce a similar effect in a similar downtown area. 3. Vibrancy includes frequent and well-publicized cultural events. a. Events with visible street presence are the highest priority. b. The community has strong cultural tourism.

Symphony Orchestra The purpose of the Municipal Symphony Orchestra is that our heritage of classical music is relevant to all aspects of our personal and community lives, to a degree that justifies the expenditure of $2,700,000.

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1. The highest-priority result will be broad acquaintance and involvement with symphonic music throughout community affairs. a. In civic events b. In sporting venues c. In entertainment 2. Second-highest priority will be that public school students experience and understand symphonic performances.

Community Hospital The purpose of Hannahburg Hospital is a healthy community that makes healthy life choices, worth the use of $185,000,000. 1. Major focus is that people with acute conditions experience recovery. a. All general med-surg conditions including emergencies. b. Recovery from acute psychiatric conditions by no later than 2012. 2. Capability shall be sufficient for 80 percent of consumer needs in the metro area. a. The 20 percent of needs that do not have to be met include burn and neonatal. b. For any acute health care needs not met, there will be appropriate linkage between the patient and another provider. 3. Diagnostic knowledge for other providers will be comprehensive and accurate. a. Diagnostic information available from cardiac testing and oncology will be the most timely and reliable in the tristate area by no later than 2012. b. Diagnostic information available from imaging will be the most timely and reliable in the tristate area by no later than 2016.


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Resource B

4. Geographical concentration will be on the Hannahburg metropolitan area. 5. Subsidy for health outcomes shall be no greater than 5 percent of gross revenues. a. First priority for subsidy will be given to life-threatening emergency conditions. b. Other subsidy may be extended to Medicaid-Medicare patients. 6. Community members are knowledgeable about the lifestyle choices least likely to lead to health problems.

Mental Health and Developmental Disabilities Organization Individuals and families with developmental disabilities, mental illness, and emotional problems will live independent and rewarding lives to the greatest extent possible for available resources. Accordingly, in descending order of priority, 1. Consumers with profound developmental disabilities will have the skills to be engaged in enjoyable interaction with those around them. a. Consumers dealing with moderate developmental disabilities will have the skills to become independent in at least one aspect of their lives. b. Consumers with major mental illness will be able to resume their usual activities on a timely basis after a relapse or episode. 2. Consumers will have the knowledge and behavior required to minimize the occurrence of relapses. 3. Persons with emotional difficulties related to family or work problems will be able to resolve these difficulties without major life interruption.

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Professional Society Highly competent members enjoying extensive demand for their services, justifying individual dues of not more than $350 per annum. 1. Accurate and timely information and business tools for the conduct of members’ businesses 2. Positive public image of members as a group a. Image among referral sources is the highest priority 3. A favorable legislative environment 4. An identifiable symbol of competence for members’ use a. Symbol seen as honest reflection of high standards b. Symbol protected by law and civil enforcement from misuse

Medical Research Organization Erin Medical Research Institute exists for as much new knowledge to reduce human suffering and death caused by cancer as can reasonably be produced for $350,000,000 annually. 1. The highest-priority result will be basic knowledge of the chemical, molecular, and cellular microbiology of cancer. a. Understanding of why normal cells become cancerous (1) Understanding cellular responsiveness to normal regulatory factors Response to receptors Response to signal transductions Response to second messengers (2) Understanding molecular responsiveness to normal regulatory factors Mutations of the gene itself Factors that act upon the gene


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Resource B

b. Understanding the causes of growth and spread of cancer c. Identification of factors that increase the risk of cancer d. Discovery of genes that can prevent cancer 2. The second-highest priority result will be empirical methods by which laboratory findings can be made clinically applicable to the treatment and prevention of cancer. a. Effective clinical protocols for chemotherapy b. Effective clinical protocols for radiation c. Effective clinical protocols for hyperthermia 3. Delivery technology capable of mitigating the psychological, social, spiritual, and economic effects of cancer on patients and their families.

Interest Club The purpose of the County Cycling Club is a dynamic and pervasive culture of cycling in the county at state-of-the-art efficiency for member dues of $150 per year. Accordingly, with equal priority, 1. Widespread participation in fair and safe cycling activities for all ages, genders, and skill levels. a. A broad range of types of cycling (1) Individual recreational, unorganized cycling (2) Group event cycling (3) Above national average home-to-work cycling b. A broad range of participants (1) Equal gender opportunities (2) Emphasis on youth and seniors 2. Widespread public image of cycling as safe, fun, and healthful 3. Wide understanding of cycling information

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Women’s Advocacy Organization For no more than $140,000 per year, women in our county will enjoy a status in public and business life significantly greater each year than the year before. 1. Worth no less than 40 percent of resources, women will seek and achieve public office in numbers at least as great as men by 2010. 2. Worth no less than 30 percent of resources, the economic status of women is at least 70 percent of that of men by 2010 and 90 percent by 2020. 3. Top management positions in major companies will be filled by women in no less than 15 percent of cases by 2007, no less than 30 percent by 2015, and no less than 45 percent by 2020. 4. There are no vestiges of unequal treatment in county government by 2006.

Municipal Government The mission of the City of Jefferson is a community of extraordinary health, safety, and welfare worth a tax rate comparable to other Class II cities in the state. 1. People can move into, out of, and within Jefferson quickly and efficiently. 2. Citizens have recreational opportunities and open space to enjoy as individuals and as groups. 3. Residents enjoy a safe and secure environment. a. Low loss of property, high peace of mind, and safety from crime


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b. Low loss due to fire c. Physical environment unlikely to cause trauma or disease even in city emergencies d. Property safe from flood 4. Accessible broad-based repository of information and knowledge. 5. Stable and moderately growing economic conditions. a. Diverse employment base b. Dynamic, positive business climate

Private School Students are able to succeed in subsequent stages in their lives, worth fees that are in the top quartile for private schools in the province. 1. Students are proficient at grade level in reading, writing, mathematics, and basic sciences; first priority. 2. Students have knowledge and understanding of people, events, and movements in history and the cultures of other peoples and places; second priority. 3. Students understand literature and the arts and their influence on their own beliefs and values. 4. Students can utilize available resources to locate, analyze, and evaluate information. 5. Students can listen actively, think critically, and solve problems logically. 6. Students can apply principles of economics to government, their own finances, and to earth resources. 7. Students understand their responsibility for personal choices in ethics, work choices, social participation, and family affairs.

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Homeowners’ Association The Nirvana neighborhood will be quiet and visually pleasing, worth dues of $350 per household per year. 1. All residents will know and follow the neighborhood rules. a. Acceptable noise levels, allowable exterior paint, and guidelines for landscaping will be known. b. Residents will be aware of and respect areas in which parking is restricted. c. Lists of board officers to whom complaints or questions should be directed will always be in updated form in homeowners’ possession. 2. Homeowners in violation of rules will return their property or behavior to compliance within the shortest practical time. 3. Common areas will be clean and attractively landscaped.

Credit Union The Amazon Credit Union exists for the financial self-sufficiency of its members. 1. Beneficiaries of ACU operations are a voluntary, cooperative community of members: a. Active or retired employees of Amazon Company and their family members b. After January 1, 2008, active or retired employees of any Amazon subsidiary 2. Credit access with greater ease and lower cost than commercially available: a. Credit in a broad range of member needs: (1) Small, uncollateralized loans


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Resource B

(2) Revolving credit (3) Realty mortgages Personal residences excluding rental property Adjustable rates only except where necessary to meet market (4) Business loans For going businesses with demonstrated repayment probability For less than $10,000 in the case of start-up businesses b. Creditors who can reasonably be expected to honor their loan commitments sufficient for financial safety of the credit union 3. Ease and access of members’ control over their own funds and accounts: a. Geographic access to in-person banking will be no less than the median of local commercial banks b. Access on a 24/7 basis c. Free checking and above-market yield savings accounts d. Members able to make knowledgeable, secure investments (1) Mutual funds (2) Certificates of deposit

Community College Elizabeth College exists for community members to have the skills and knowledge for successful employment or achievement in higher education in sufficient quantity to be at least the state-of-the-art productivity for community college effectiveness. 1. Students will be persons of any age who have a high school diploma or who, as adults, desire to attain high school diploma equivalence.

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2. Students prepared for advanced academic success will have the ability and the prerequisite academic experience sufficient for entry into a four-year college or university. This result with these students will be a substantial though not dominant priority. 3. Students prepared for employment success will have the knowledge of occupational choices, skills, work habits, and job leads necessary for economic self-sufficiency. This result with these students will be the dominant priority.


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Resource C Sample Monitoring Reports

W

e discussed monitoring in Chapter Eight. In this Resource, we will demonstrate three monitoring reports of the internal report type, that is, ones submitted to the board by the CEO. Monitoring reports in Policy Governance are rather straightforward documents, for they have a very straightforward task: merely to present data concerning prestated criteria in order to show board members that a reasonable interpretation of those criteria has been achieved (in the case of Ends) or avoided (in the case of Executive Limitations). This means that the board must make a judgment regarding organizational compliance with its policies based on the monitoring report. So monitoring reports must disclose to the board the CEO’s interpretation of the policy being monitored, along with a justification for the reasonableness of the interpretation, and they must also contain data that describe the organization’s compliance (or its lack of compliance) with the CEO’s interpretation. Let us emphasize these points. Drifting away from them will substantially reduce the ability of a monitoring system to perform its critical function. • Monitoring must always be based on a reasonable interpretation of the board’s policies about Ends and Executive Limitations. The board does not have to be concerned about the measurability of its policies, since the CEO’s 269


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interpretations provide the criteria for later measurement. In other words, the interpretations must be measurable. • The data presented are only those that address the interpretations of the board’s policies—not a compendium of other data the CEO would like the board to know. This is very important in keeping the report lean, so that board members never get lost in a flurry of information that does not constitute monitoring. Whatever the CEO would like the board to know (or, indeed, whatever incidental information the board has asked to see) must be kept completely separate from the monitoring mechanism. • Data means data. The monitoring report presents data that address the criteria, not just a statement by the CEO that criteria have been met. • Because the monitoring report is always based on the words of board policy, we encourage the repetition of those words right in the report just to increase the ease for board members. Thus the board’s words, the CEO’s interpretations, and the data are presented side by side. • It is important for board peace of mind that the CEO attest by signing that the data submitted throughout the report are true. This is also useful to focus the CEO’s attention on the gravity of the reports. • The CEO should not submit under the guise of monitoring a “report” that does not relate precisely to a board policy. Balance sheets and income statements are examples of reports that are not based on policy. On receipt of a monitoring report, each board member must read the report carefully and answer two questions: first “Can I tell that the board’s policy has been reasonably interpreted?” and if so, sec-


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Resource C

ond, “Do these data demonstrate the accomplishment of the interpretation?” If a criterion number (usually a majority) of board members answer these two questions affirmatively, the board will have found the report acceptable. The first internal monitoring report we present addresses the Executive Limitations policy Treatment of Staff. The second and third examples are Ends monitoring reports. All three examples demonstrate the method we discussed in Chapter Eight, in which the CEO’s interpretations start at the narrowest provisions of the policy and work up toward the broadest statements in the policy. In some instances, we show that policy statements within a given level are divided into parts for clarity of reporting. These examples contain illustrations of interpretations; they are not the only reasonable interpretations that could have been made, and so should not be taken as demonstrations of the correct interpretation of a policy; indeed, if they were to be understood in this way, the permission given to the CEO to use any interpretation that can be shown to be reasonable would be meaningless. In order to illustrate monitoring reports, we have necessarily had to choose a format, though there are undoubtedly a number of formats that would satisfy the requirements of good monitoring reports. The important aspects, regardless of format, are that (1) the words of the applicable board policy are stated largely for convenience but also to focus board attention on the sequential elements of its policy, (2) the policy words themselves are treated as the base criteria and the CEO’s interpretations of them are measurably presented and defended as to their reasonableness, and (3) the CEO presents data that describe the accomplishment of the interpretation. We make no argument that we are presenting the most perfect monitoring reports possible. Targeted monitoring of the type we describe is a new skill to most organizations’ CEOs, and we are confident that over time, you will see increasingly competent and clear reporting styles. However, we hope that we have demonstrated that the two key components of monitoring—the interpretation of board policy and the data showing performance on the interpretation—

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can be shown in a way that is separable, justifiable, and clear. We hope our examples serve to demonstrate these points.

Example Policies for Which Reports Are Shown For purposes of this Resource, the policies being monitored are Treatment of Staff, an Executive Limitations policy from the hypothetical Nonprofit School System, along with global Ends policies of the equally hypothetical Provincial Psychological Association (a professional society) and National Council of Car Care Companies (a trade association). This section will display the policies themselves, and the next one will display the monitoring reports. Nonprofit School System Executive Limitations Policy 2.2 “Treatment of Staff” With respect to the treatment of staff, the CEO may not cause or allow conditions that are unsafe, undignified, or unclear. 2.2.1 The CEO shall not operate without personnel rules that (a) clarify rules for staff, (b) provide for effective handling of grievances, and (c) protect against wrongful conditions such as nepotism and preferential treatment for personal reasons. 2.2.2 The CEO shall not retaliate against any staff member for nondisruptive expression of dissent. 2.2.3 The CEO shall not prevent staff from grieving to the board when (a) internal grievance procedures have been exhausted and (b) the employee alleges that board policy has been violated to his or her detriment. 2.2.4 The CEO shall not fail to acquaint staff with his or her interpretation of their protections under this policy. Provincial Psychological Association Ends Policy 1.0 “Member Benefits” The purpose of the Provincial Psychological Association is that members enjoy circumstances necessary for successful practice at a level that jus-


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tifies dues comparable to similar member associations. Accordingly, in descending order of priority: 1.1 Members will have the skills and information necessary for profitable and ethical office operation. 1.2 Legislators will have reasonable acquaintance with members’ issues with respect to impending legislation. 1.3 Members will know the status of legislative issues, with particular priority given to issues of substantial import to the profession. 1.4 The public will view the profession as ethical, effective, and accessible.

National Council of Car Care Companies Ends Policy 1.0 “Global Purpose” The National Council of Car Care Companies exists for this purpose: Conditions conducive to member success for dues no greater than in comparable associations. 1.1 Regulatory conditions will be favorable for member success for approximately one-third of resources. 1.1.a Regulations imposed on members will be no more constraining than is necessary to produce their environmental protection goals. 1.2 Public image of car care companies will be favorable for approximately one-third of resources. 1.2.a The driving public considers car care companies to be more trustworthy and competent than alternatives. 1.3 Members will have adequate skills for successful competition for approximately one-third of resources. 1.3.a Members new to the business and willing to pay the full cost of skill upgrading will have adequate basic business skills for market survival and profitability. 1.3.b All members willing to pay the full cost of skill upgrading will have advanced technology skills and knowledge about materials and equipment.

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1.4 Comparable associations will be trade groups operating at a national level without significant deviation from our members’ average revenues and comprised of approximately the same size membership base.

Monitoring Reports These are the reports that correspond to the policies just presented. Note the order of comments, reversed from the policy, so as to begin at the level of greatest detail. NONPROFIT SCHOOL SYSTEM To the Board from the Chief Executive Officer: Annual Monitoring Report on Executive Limitations Policy 2.2 “Treatment of Staff,” December 31, 20XX This is my monitoring report on your Executive Limitations policy Treatment of Staff, presented in accordance with your monitoring schedule. I certify that the information contained in this report is true. ________________(signed) CEO This report will monitor the above-referenced policy, starting at its more detailed provisions and ending with the global provision. POLICY WORDING 2.2.1: The Superintendent shall not operate without personnel rules that (a) clarify rules for staff, (b) provide for effective handling of grievances, and (c) protect against wrongful conditions such as nepotism and preferential treatment for personal reasons. CEO’S INTERPRETATION (personnel rules that [a] clarify rules for staff):


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95% of staff in any category should report that they have an employee handbook or copy of the collective agreement, where applicable, or can easily find one. 95% is a minimum requirement based on information obtained from [here the CEO names the credible source used as a reference] regarding the frequency at which people will claim ignorance of a fact even after being informed of it on numerous occasions and in numerous ways. Rules that must be clear include those regarding hours in the working day; overtime and overtime pay; reimbursement of expenses; staff treatment of students, parents, and community; procedures to follow if unable to work due to sickness; procedures to follow in the case of emergencies, including snow days; statements to the media. These are the normal requirements of employee handbooks according to legal counsel and [here the CEO names the credible source used as a reference]. DATA 1. We conducted an anonymous test using a stratified random sample of 10 percent of employees in each of the following categories: management, teaching, maintenance, clerical, IT, transportation. The total number of staff surveyed was XX. Each participant was asked if he or she owned or could easily find an employee manual or collective agreement. The overall positive response rate was 96 percent. I report COMPLIANCE. 2. Legal counsel has reviewed the employee handbook and collective agreement to ascertain if these documents contain the minimum requirements as noted in the interpretation. Legal counsel has confirmed that these documents are complete as defined. I report COMPLIANCE. POLICY WORDING 2.2.1: The Superintendent shall not operate without personnel rules that (a) clarify rules for staff, (b) provide for effective handling of grievances, and (c) protect against wrongful conditions, such as nepotism and preferential treatment for personal reasons.

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CEO’S INTERPRETATION (personnel rules that [b] provide for effective handling of grievances): Rules that provide for the effective handling of grievances must include those that describe grievable circumstances, the method for initiating a grievance, the options for representation, the stages of the grievance, all applicable deadlines, and the privacy rights of all parties to the grievance. Legal counsel, employee associations (where applicable), and the National Association of [here the CEO names the credible source used as a reference] describe these as essential elements in the handling of grievances. Effectiveness is defined not as the resolution of the grievance in favor of the griever but as the completion of the process in a timely, private, and courteous manner. In addition, effectiveness will mean that grievers report feeling respectfully heard. A minimum of 90% of the parties should experience the process as one in which their point of view was heard and considered. 90% is a benchmark that takes into account the inevitability that if someone loses a grievance, there may be a tendency to criticize not only the outcome but also the process. DATA Guidelines as defined above for the effective handling of grievances exist in our handbook and collective agreement, according to volunteers from CU Law School who reviewed them as a class project. I REPORT COMPLIANCE. There were nine grievances since the last monitoring report. In each case, one month after the conclusion of the process, the parties involved were asked if they experienced the process as timely (100% responded positively), private (95% responded positively), and courteous (100% responded positively), and if they felt that their point of view was heard and considered (90% responded positively). I report COMPLIANCE.


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POLICY WORDING 2.2.1: The Superintendent shall not operate without personnel rules that (a) clarify rules for staff, (b) provide for effective handling of grievances, and (c) protect against wrongful conditions such as nepotism and preferential treatment for personal reasons. CEO’S INTERPRETATION (personnel rules that [c] protect against wrongful conditions such as nepotism and preferential treatment for personal reasons): Staff will be considered protected against wrongful conditions if two conditions are met: First, there are clear guidelines explaining their options if they feel they are a victim of sexual harassment; given unfavorable job assignments or job hours due to the personal preferences of their supervisor; given an unjustifiably poor performance appraisal or job reference; or disadvantaged in comparison with others who may be related by blood or marriage to supervisory staff. Legal counsel and HR specialists at [here the CEO names the credible source used as a reference] agree that the conditions noted are reasonable interpretations of “wrongful.” 90% of staff should report awareness of these guidelines. Second, staff must report confidence that the guidelines as noted are followed and are effective in ensuring fairness. If 90% of staff are confident that corrective action will be taken in the event that wrongful conditions have been shown to have occurred, this is considered by our consultants at [here the CEO names the credible source used as a reference] to be well within acceptable limits. DATA A stratified random sample (see above) was asked if they knew or could easily find out what options they would have in the event that they felt they were exposed to the wrongful conditions interpreted above. 97% reported that they knew the steps to be taken. I report COMPLIANCE.

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Persons in the sample were further asked to rate their confidence level regarding administration taking corrective action. On a scale from 1 (not confident at all) to 5 (very confident), 90% rated their confidence level at 3 or above. I report COMPLIANCE. POLICY WORDING 2.2.2: The CEO shall not retaliate against any staff member for nondisruptive expression of dissent. CEO’S INTERPRETATION: Expression of dissent is any statement by an employee that indicates disagreement with a decision made by management. Such expression is nondisruptive when there is no refusal to perform work, when there is no encouragement of others not to perform work, when it is made in a courteous and private manner, and when it is not made publicly including to the media. Employees who disagree nondisruptively (as defined above) with management decisions may not experience retaliation from the CEO or any other member of management such as firing, reassignment to less desirable jobs or job hours, or initiation of a formal discipline procedure. 95% of staff should be able to report that no such retaliation occurs. This percentage is chosen because HR research at [here the CEO names the credible source used as a reference] indicates that 5% of staff will always complain that management has erred or will err, regardless of the facts. DATA Responders to an anonymous stratified random sample (see above) were asked to report on retaliation as defined. 100% of respondents said that they were aware of no occasion in which a staff member was fired for disagreeing with management as defined. 97% reported no experience of job reassignment, and 96% reported no knowledge of formal discipline proceedings. I report COMPLIANCE. POLICY WORDING 2.2.3: The CEO shall not prevent staff from grieving to the board when (a) internal grievance procedures have been


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exhausted and (b) the employee alleges that board policy has been violated to his or her detriment. CEO’S INTERPRETATION: Internal grievance procedures have been exhausted when all stages up to and including a matter going to outside arbitration have occurred (for classified staff), or when the issue has been decided by the CEO after all previous stages have been completed (for nonclassified staff). A staff member who has reached either of these points and has not received satisfaction as he or she defines it must be provided with a notice outlining the manner in which the matter can be presented to the board. In addition, the notice given to staff must specify that any grievance to the board must be related to an alleged violation of board policy. Not receiving such a notice would constitute “prevention” of a staff member going to the board, as would threats of reprisals. There must be no instances of such prevention. DATA Since the last monitoring of this policy, five staff members have exhausted the internal grievance procedures without receiving the resolution they sought. Each of them confirmed when asked by the system’s legal counsel that they were aware of the possibility of taking the matter to the board, and knew how to initiate such a step. None reported worrying about adverse consequences if they were to do so. None, however, wished to do so. I report COMPLIANCE. POLICY WORDING 2.2.4: The CEO shall not fail to acquaint staff with his or her interpretation of their protections under this policy. CEO’S INTERPRETATION: Staff having been acquainted with their protections is accomplished in part by compliance with 2.2.1(a) above. Further, any new or altered management policies must be widely known and understood by 95% of staff within one week of their introduction. As noted in 2.2.1(a) 1 above, 95% of staff is a reasonable interpretation.

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DATA A stratified random sample of staff was asked five days after the recent revision of the rules regarding sick leave if they were aware of these revisions. Only 65 percent reported awareness. I report a POLICY VIOLATION that I expect the system to have successfully addressed within ten days of the date of this report. GLOBAL POLICY WORDING 2.2: With respect to the treatment of staff, the CEO may not cause or allow conditions that are unsafe, undignified, or unclear. CEO’S INTERPRETATION (conditions that are unsafe): This part of the global policy has been substantially further defined in the board’s subsequent policies 2.2.1 through 2.2.4. However, there remain as yet undefined aspects to the conditions described by the board as unacceptable. Conditions can be described as unsafe when Applicable workplace safety laws are unenforced. Security measures designed to prevent the introduction of weapons into the system are not in place and not demonstrated to be effective. There is no enforced code of behavior regarding the expected treatment of staff by students and parents. There is no up-to-date procedure regarding dealing with emergencies. These interpretations of “unsafe” were derived from input by legal counsel and the various professional associations of which staff are members. DATA 1. A review by legal counsel of the workplace safety laws that apply to our system revealed that all laws are posted, but that the


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laws regarding XX are only partially understood or followed. This situation will be corrected in three months. I report a POLICY VIOLATION. 2. Electronic security screening in all schools has prevented a number of prohibited articles from being introduced. There have been no instances of weapons missed by this screening being found in a school. I report COMPLIANCE. 3. All students, parents, and guardians are informed of the various ways they can bring their concerns to staff’s attention. They are informed that abusive or discourteous language or behavior will not be tolerated. Three instances have occurred in which police were called to escort parents from the premises, and five instances of a student being temporarily suspended from school. I report COMPLIANCE. 4. The emergency plan that would be put into effect in the case of fire, attack, or extreme weather is rehearsed annually. The most recent rehearsal was last month. This rehearsal demonstrated that staff are reassured by the existence of a planned response to threats to their safety, as well as to the safety of the students. It also demonstrated that they are aware of the steps they must take in an emergency. I report COMPLIANCE. GLOBAL POLICY WORDING 2.2: With respect to the treatment of staff, the CEO may not cause or allow conditions that are unsafe, undignified, or unclear. CEO’S INTERPRETATION (conditions that are undignified): This part of the global policy has been substantially further defined in the board’s subsequent policies 2.2.1 through 2.2.4. However, there remain as yet undefined aspects to the conditions described by the board as unacceptable. Conditions can be described as undignified when

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More than 10% of staff report that there is inappropriate privacy for staff to relax, change clothes, and eat. More than 10% of affected staff report that any discipline or rebuke of staff by management is delivered in a manner or location that is not private. More than 10% of staff report that management does not model courteous behavior. These interpretations of “undignified” were derived from a staff survey, asking staff’s perception of the most important components of dignified treatment. DATA A stratified random sample of staff were asked if changing, eating, and resting facilities protected their dignity. 7% reported dissatisfaction. I report COMPLIANCE. In the same survey, staff were asked if they had been disciplined or rebuked by their supervisor. If they answered positively, they were asked if this action had taken place privately. Of affected staff, 15% reported that their experience had not been private. I report a POLICY VIOLATION. Staff were also asked if they could count on courteous behavior to be modeled by management, and 91% reported such confidence. I report COMPLIANCE. GLOBAL POLICY WORDING 2.2: With respect to the treatment of staff, the CEO may not cause or allow conditions that are unsafe, undignified, or unclear. CEO’S INTERPRETATION (conditions that are unclear): This part of the global policy has been substantially further defined in the board’s subsequent policies 2.2.1 through 2.2.4. However,


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there remain as yet undefined aspects to the conditions described by the board as unacceptable. Conditions can be described as unclear when Rules and all changes made to them are not explained to staff. Any staff members do not know to whom they report. Any staff members do not know the expected output of their jobs and the limitations on the authority of their positions. These interpretations of “unclear” were derived from consultations with [here the CEO names the credible source used as a reference] and with legal counsel. DATA HR reviewed all rule change notifications to check if explanations were offered for the changes. In all cases, explanations were provided. I report COMPLIANCE. The stratified random sample of staff studied for part of this report was asked if they were completely clear about to whom they report. With the exception of those who are in contact with board members, staff report that they are very clear about lines of reporting. Staff who receive instructions from board members report much less clarity, though they state that they have a written job description defining their formal lines of reporting. I report COMPLIANCE. Staff were asked if they clearly understood what they were to accomplish in their jobs as well as the authority that had been delegated to them. All reported that these job expectations were clear. I report COMPLIANCE. PROVINCIAL PSYCHOLOGICAL ASSOCIATION To the Board from the Chief Executive Officer: Annual Monitoring Report on Ends Policy 1.0 “Member Benefits,” July 31, 20XX

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This is my monitoring report on your Ends policy “Member Benefits,” presented in accordance with your monitoring schedule. I certify that the information contained in this report is true. _____________________________________(signed) Chief Executive Officer This report will monitor the above-referenced policy starting at its most detailed provisions and ending with the global provision. POLICY PROVISION 1.1: Members will have the skills and information necessary for profitable and ethical office operation. CEO’S INTERPRETATION: “Skills and information necessary for profitable and ethical office operation” are interpreted to be basic abilities for small office financial record-keeping, personnel management, and billing practices, plus an at-hand, up-to-date handbook of “industry averages” for psychology practices and standards of professional conduct. These particular skills and information are selected because, from an exhaustive list of skill areas, these areas taken together received 90% of the vote from a random sample of 10% of members. Members will be considered to have those skills and information if more than 80% (a high, but realistic bar) in a randomly chosen group of fifty members contacted by phone respond that each is either reasonably in their reach or already achieved. Additional skills and information were required by a number of members, but were not chosen because the cost of providing them would have been too high. This output has the highest priority and has been assigned 45% of available resources. This resource allocation is necessary to ensure that the most important skill areas identified by members are addressed in this interpretation. DATA: Between March 15 and April 1, a randomly chosen group of fifty members was interviewed by telephone. The following percentages of members queried answered affirmatively in the follow-


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ing areas: financial record keeping, 80%; personnel management, 90%; billing practices, 60%; standards of conduct, 100%. While the rating for billing practices is low (and is being addressed now), the average percentage is such that I submit that overall, acceptable performance is a reasonable interpretation of the policy requirement. I report COMPLIANCE. POLICY PROVISION 1.2: Legislators will have reasonable acquaintance with members’ issues with respect to impending legislation. CEO’S INTERPRETATION: Members’ issues are interpreted to be the three to five issues chosen as most relevant by a panel of five current and previous CGOs of the Association. Currently, this panel has targeted that the Association must show relevant legislator awareness of psychologists’ positions regarding proposed legislation about (a) third-party reimbursement, (b) rights to prescribe medication, and (c) involuntary detainment of psychologically ill persons. This provision will be accomplished when: All legislators on health committees will have an awareness of all targeted issues in formally proposed legislation that impact on the practice of psychology. A majority of a random sample of legislators who are not on health committees will have an awareness of two thirds of the target issues. These outcomes are possible with an allocation of 25% of available resources, this being the second highest priority of the board. DATA: Direct questioning via phone has taken place with each health committee legislator and ten randomly chosen legislators not on those committees. All Health Committee legislators had an awareness of all the issues. Six of the ten other legislators were aware of at least two of the three. I report COMPLIANCE.

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POLICY PROVISION 1.3: Members will know the status of legislative issues, with particular priority given to issues of substantial import to the profession. CEO’S INTERPRETATION: “Issues of substantial import” are interpreted to be those apt to have a striking effect on quality of care of patients, financial opportunities and burdens for practitioners, or dilution of the licensing law. At least 55% of a random sample of the membership (except those who have been members for less than six months) will know which important issues are addressed in a bill and the opportunities to address such issues. The 55% criterion is derived from findings of ASAAA that trade associations considered by peers to be legislatively effective have memberships whose awareness of this kind ranges between 40% and 65%. This outcome is possible using 20% of available resources, consistent with the board’s priorities. DATA: Twenty-five randomly sampled persons who have been members over six months were called and asked if they were aware of the general status of the only two current bills that met my interpretation of “substantial import.” Of those twenty-five, fourteen (56%) were aware that the bills contained issues of import to them. They were also aware of the opportunities to testify or to influence legislators. I report COMPLIANCE. POLICY PROVISION 1.4: The public will view the profession as ethical, effective, and accessible. CEO’S INTERPRETATION: My interpretation of the public is those persons who are the ordinary referral sources for psychologists, for example, school guidance personnel, public health personnel, health practitioners, and clergy. These persons should see psychologists as trustworthy with confidences and in billing matters, capable of dealing successfully with moderate and severe emotional disorders


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and problems as well as problems with relationships (excluding situations requiring medication), as well as easy to find (Yellow Pages, for example) and personally approachable (not intimidating). The policy will be considered met if a statistically valid sample reports at or above 3 on the 5-point scale of the “Professional Perceptions” questionnaire developed by the Department of Statistical Analysis at Clynie University. Rank 3 is chosen because C.U. has found that general medical practitioners, lawyers, accountants, psychiatric social workers, and clergy attain an overall rank of 2.7 on these measures. This narrow definition of “public” is reasonable given that the outcome is the lowest of the board’s priorities and receives 10% of available resources. DATA: One hundred persons completed the questionnaire. These persons were from the four most common referral sources. The average ranking was 3.4. I report COMPLIANCE. GLOBAL POLICY 1.0: The purpose of the Provincial Psychological Association is that members enjoy circumstances necessary for successful practice at a level that justifies dues comparable to similar member associations. CEO’S INTERPRETATION: The board has already provided further interpretations of “circumstances necessary for successful practice,” but has not required them to be exhaustive. 1. A survey of members in April revealed that, in the opinion of 82% of those responding, one additional output of the Association would complete the justification of their membership dues. The output identified was a personal and virtual forum for the exchange of information among members. This output should be provided in order to comply with this section of the policy. 2. The members’ dues should be plus or minus 10% of the dues charged by the provincial Social Work and Pastoral Care Associations. These associations are comparable in size and type to this association.

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DATA: 1. The output identified as an outstanding need of the membership is not expected to be attained until late September, so must be reported as not in compliance. Therefore, as to this segment of Ends accomplishment, I report a POLICY VIOLATION. 2. Dues for this year are comparable as defined inasmuch as annual dues in our association are $500, while dues in both the provincial Social Work Association and the provincial Pastoral Care Association are $475. I report COMPLIANCE. NATIONAL COUNCIL OF CAR CARE COMPANIES To the Board from the Chief Executive Officer: Annual Monitoring Report on Ends Policy 1.0 “Purpose,” March 15, 20XX This is my monitoring report on your Ends policy 1.0 presented in accordance with your monitoring schedule. I certify that the information contained in this report is true. _____________________________________(signed) Chief Executive Officer This report will monitor the above-referenced policy starting at its more detailed provisions and ending with the global provision. POLICY WORDING 1.1.a: Regulations imposed on members will be no more constraining than is necessary to produce their environmental protection goals. CEO’S INTERPRETATION: “Regulations” is interpreted to mean those for which the purpose is environmental protection, not those imposed for other purposes, such as employee safety, fire prevention, and nonenvironmental zoning provisions. Because previously existing regulations have not been thought by members to be unnecessarily burdensome, my interpretation is that “regulations” means only new regulations or those under revision. “No more constrain-


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ing than is necessary” is interpreted to mean the minimum level of constraint thought by a panel of experts drawn from our members to ensure the level of protection set forth in such regulations or in their authorizing legislation. This can be accomplished with 60% of the resources allocated by the board to all of policy section 1.1. On a five-point scale from “absolutely no unnecessary constraint” (1) to “absolutely unacceptable level of unnecessary constraint” (5), the averaged judgment of such a panel should score no higher than 2. DATA: During this reporting period only one regulation fits the interpretation, and that due to a revision process undertaken by the EPA. The panel was assembled in May and reached an average judgment of 1.8. I report COMPLIANCE. POLICY WORDING 1.1: Regulatory conditions will be favorable for member success for approximately one-third of resources. CEO’S INTERPRETATION: Although regulations for environmental protection are addressed by 1.1.a, there is one other category of regulations that strongly impinges on member success. This other category will receive the balance (40%) of the one-third of resources allocated by the board to all of 1.1. “Regulatory conditions” (in addition to environmental) are interpreted to be those affecting conditions of work because regulations regarding employee work conditions can impose crippling costs on our members. A membership discussion group in April found that two specific regulations raise the only substantial regulatory issues of this sort. Based on that membership opinion, I argue that a reasonable interpretation of this policy will be met when 1. Pending federal legislation requiring hot showers and rest facilities for all hourly rated employees is amended to delete these requirements, and 2. Pending federal legislation requiring employer-funded massages to be provided weekly is amended to delete this requirement.

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DATA: 1. Voting has not occurred in Congress to date. Although we have been assured by a majority of members of applicable Congressional committees that they will support the deletion of the problematic requirements, the deletion has not yet occurred. I must report a POLICY VIOLATION. 2. This requirement was deleted in early March. I report COMPLIANCE. POLICY WORDING 1.2.a: The driving public considers car care companies to be more trustworthy and competent than alternatives. CEO’S INTERPRETATION: I interpret the opinion of the “driving public” to be represented by an unbiased nationwide sample of 5000 adult drivers responding to a ten-point questionnaire while they refuel their vehicles at a variety of gasoline stations. This requirement will be met when drivers’ satisfaction with car care companies is higher than with the general competition (consisting of charity car washes, do-it-yourself stalls, and gas station garages) on no fewer than three of the four following indices: honoring of estimates, suggesting or performing unnecessary work, correcting mistakes at no charge, and on-time completion. Ratings will be considered higher if they exceed the most recent data published by the National Automobile Association on general car-owner satisfaction with the industry. This can be achieved with 60% of the total resources allocated by the board to all of policy 1.2. DATA: A survey was conducted in May with the following results (shown as car care companies/general competition): honoring of estimates (55/45), suggesting or performing unnecessary work (40/45), correcting mistakes at no charge (72/65), and on-time completion (53/52). With three of the four comparisons showing greater public confidence in car care companies, I report COMPLIANCE.


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POLICY WORDING 1.2: Public image of car care companies will be favorable for approximately one-third of resources. CEO’S INTERPRETATION: This provision has been significantly defined in 1.2.a. However, there are further features of public image not articulated in board policy that can be combined in a generic favorable image: A favorable image of car care companies exists when potential customers think first of a car care company when the applicable occasion arises. Therefore, this policy will be considered accomplished when 75% of a random nationwide survey of drivers reports that a car care company is the first alternative considered when facing automobile work. This outcome is to be achieved with the remaining 40% of total resources allocated by the board to all of policy 1.2. DATA: Such a survey was conducted among 5000 drivers as a subset of the study cited above. Only 50% reported that a car care company would be the first consideration, though I anticipate that this interpretation can be achieved within the next six months. However, at this time I must report POLICY VIOLATION. POLICY WORDING 1.3.a: Members new to the business and willing to pay the full cost of skill upgrading will have adequate basic business skills for market survival and profitability. CEO’S INTERPRETATION: “Members new to the business” will be those self-identified as car care companies for less than two years. “Adequate basic business skills” will be payroll skills, cash planning skills, marketing skills, risk management, and tax skills. These were the skills determined in a survey of all members (not just new) to be those that comprise 80% of the skills thought to be required for market survival and profitability. “Full cost” will be the actual cost of skill attainment, including direct cost of notification, registration, course instruction, and indirect costs of overhead using a standard

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allocation method. This policy will be considered accomplished when 70% of those who choose to enroll in and pay the full cost of training report that they have improved their (a) payroll system, (b) cash flow planning, (c) marketing, (d) risk management, and (e) tax compliance. Since member skill acquisition is to be achieved in this area on a cost-recoverable basis, no resources from the dues revenues are assigned to this outcome. DATA: Tuition for training has been set to include all direct and indirect costs. The most recent tabulation (in April this year) of 100% of graduates is that 92% report improvement in the cited areas. I report COMPLIANCE. POLICY WORDING 1.3.b: All members willing to pay the full cost of skill upgrading will have advanced technology skills and knowledge about materials and equipment. CEO’S INTERPRETATION: “Advanced skills and knowledge” are interpreted to be those that have emerged during the most recent two-year period. Our members have reported that during this period new equipment and new materials, particularly plastics, have changed the car care business. This policy will be said to have been accomplished when 75% of those attending training, bearing full cost (as defined in 1.3.a above) and surveyed at graduation, (a) describe an understanding of new hydraulic equipment, (b) are confident about their ability to use new plastics. Since member skill acquisition is to be achieved in this area on a cost-recoverable basis, no resources from the dues revenues are assigned to this outcome. DATA: The most recent tabulation (in April this year) is that 82% demonstrate understanding new hydraulic equipment and 93% report confidence in using new plastics. I report COMPLIANCE. POLICY WORDING 1.3: Members will have adequate skills for successful competition for approximately one-third of resources.


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CEO’S INTERPRETATION: This provision has been substantially further defined by 1.3.a and 1.3.b. However, there remain as yet undefined components to “adequate skills for successful competition.” A survey of our members has informed us that members’ pricing strategies and ancillary services may become increasingly important within the next decade. Accordingly, this policy will be deemed to have been accomplished when, in addition to 1.3.a and 1.3.b, 50% of members in this year are aware of (a) pricing techniques designed to encourage customer loyalty and (b) new services they can offer their customers as well as the basic business economics of their introduction. These two outputs receive the one-third of resources assigned by the board. 50% of members in this year is a reasonable interpretation of the extent of skill acquisition given this resource allocation due to the extensive start-up costs to the Council of producing this outcome. My interpretation is that this percentage should reach 100% after three years. DATA: Phone interviews conducted with a randomly selected group of 30% of members found that awareness level (a) for pricing techniques was 54% and (b) for new services was 51%. I report COMPLIANCE. POLICY WORDING 1.4: Comparable associations will be trade groups operating at a national level without significant deviation from our members’ average revenues and comprised of approximately the same size membership base. CEO’S INTERPRETATION: I interpret this policy to be any national trade association whose members’ average revenues are plus or minus 15% compared to our members’ average revenues, and with a membership from 80% to 120% of ours. The margins given reflect the fluidity of trade association memberships. These interpretations as well as margins are based on input from ASAAA.

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DATA: There are 275 national trade associations that are acceptable comparators. GLOBAL POLICY WORDING 1.0: Conditions conducive to member success for dues no greater than in comparable associations. CEO’S INTERPRETATION: This global provision has been substantially further defined in the rest of this policy, with 100% of the Association’s resources allocated by the board to the three level 2 ends policies. However, there remains one as yet uninterpreted aspect of this policy. Dues may be no greater than in comparable associations. There are 275 comparable associations (see above). Dues in these organizations are calculated according to a variety of formulae. However, there is a pattern in these comparator organizations in which larger members pay higher dues than smaller members and the highest dues range from $10,000 to $25,000 per year, while the lowest dues range from $3000 to $7000 per year. I interpret that to mean that as long as our dues are within the ranges shown to be the norm, I am in compliance with the policy. DATA: Our dues range from $5000 to $20,000 per year, depending on size of the member organization. I report COMPLIANCE.


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Resource D Selected Readings

B

ecause Policy Governance is a new technology of governance— a departure from the long-standing conventional wisdom—the number of authoritative resources about it have until recently been few. Policy Governance is a whole new game, so reading even current literature about an old game will not help you much. Consequently, for some years there was a paucity of governance guidance with the model integrity that Policy Governance calls for. While this was unfortunate, it is the normal course of nature when new paradigms are first spread. In reading literature that is not model-consistent, you must be extremely careful to extract the wisdom you find there in such a way that your governance integrity is not damaged. This can be done in some cases, but requires acute attention to what does and does not damage the model’s conceptual coherence. The following resources are all model-consistent with Policy Governance. A complete list of publications is available from the authors on their Web site, http://carvergovernance.com. Moreover, the third edition of Boards That Make a Difference has an extensive system of references cited according to topic of interest. Books or articles by either or both of us are authoritative sources, and many of the works of Policy Governance Academy-trained writers also represent the Policy Governance model accurately.

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REINVENTING YOUR BOARD Carver, J. Boards That Make a Difference: A New Design for Leadership in Nonprofit and Public Organizations, 3rd ed. San Francisco: Jossey-Bass, 2006. Carver, J. Empowering Boards for Leadership: Redefining Excellence in Governance. Audiocassette program. San Francisco: Jossey-Bass, 1992. Carver, J. John Carver on Board Governance. Videocassette program. San Francisco: Jossey-Bass, 1993. Carver, J., and Carver, M. A New Vision of Board Leadership: Governing the Community College. Washington, D.C.: Association of Community College Trustees, 1994. Carver, J., and Carver, M. (eds.). Board Leadership: Policy Governance in Action (Successor to Board Leadership: A Bimonthly Workshop with John Carver, 1992–1998). Bimonthly. San Francisco: Jossey-Bass, 1998–2006. Carver, M., and Charney, B. The Board Member’s Playbook: Using Policy Governance to Solve Problems, Make Decisions, and Build a Stronger Board. San Francisco: Jossey-Bass, 2004. Carver, J., with Oliver, C. Corporate Boards That Create Value: Governing Company Performance from the Boardroom. San Francisco: Jossey-Bass, 2002. Moore, J. Governance for Health System Trustees. Ottawa: Canadian Healthcare Association Press, 2004. Oliver, C., and others. The Policy Governance Fieldbook: Practical Lessons, Tips, and Tools from the Experiences of Real-World Boards. San Francisco: JosseyBass, 1999. Royer, G. School Board Leadership 2000: The Things Staff Didn’t Tell You at Orientation. Houston: Brockton, 1996.

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Index

A Accountability: board control and, 43–44; of board Policy Governance decisions, 39–40; Board-Management Delegation policy establishing organizational, 149; of CEOs, 32, 57, 97, 137–138, 143; of CGOs, 33; governing board, 17–18; role played by monitoring in, 180–182 Agendas: making a starter set of, 221; recommendations for board meeting, 51, 52–53 “Approval syndrome,” 37 Articles of Incorporation, 201, 202 Asset protection, 80–81, 92–94 Authority: CEO interpretation, 29, 41; CEO and nature of their, 181; CGOs (chief governance officers), 29, 57, 58, 105–106; Executive committee, 59–60. See also Executive Limitations policies B Benefits and compensation policies, 81, 94–96 BMD#1 level: described, 134–136; topics covered by, 141. See also Board-Management Delegation policy BMD#2 level: a: unity of control, 137, 141–142; b: accountability of the

CEO, 137–138, 143; c: delegation to the CEO, 138–139, 144; d: monitoring CEO performance, 139–140, 145–146; topics covered by, 136–137, 141. See also Board-Management Delegation policy BMD#3 level: a: unity of control, 142; b: accountability of the CEO, 143; c: delegation to the CEO, 144–145; d: monitoring CEO performance, 146–148. See also BoardManagement Delegation policy BMD#4 level: c: delegation to the CEO, 144–145; d: monitoring CEO performance, 146–148. See also BoardManagement Delegation policy Board attendance, 206–207 Board committee principles: GP#2 level on, 112, 125–126; GP#3 level on, 126–128 Board committees: board expectations of, 19–20; bylaws on, 209–210; executive, 59–60; Policy Governance and role of, 60–61; responsibilities of the, 32–33 Board documents: Articles of Incorporation, Letters Patent, 201, 202–203; board’s policies (or Policy Manual), 202, 213–217; bylaws, 201–202, 204–211, 217, 221; hierarchy of, 200–203; integrity of,

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Index 122; minutes, 202, 211–213, 217; Policy Governance versus traditional, 199–200; using Internet resources for maintenance of, 217 Board education, 224, 228 Board meetings: agendas for, 51, 52–53, 221; Policy Governance model on conducting, 50–53 Board members: bylaws regarding, 206–211; code of conduct for, 111–112, 123–125; discipline of, 57–58; orientation of, 58, 223; recruitment and appointment of, 54–57, 223; role in maintaining new governance system, 223–224 The Board Member’s Playbook (Carver and Charney), 224 Board officers: bylaws identification of, 207–208; secretary, 111, 122–123, 208; treasurer, 208. See also CGOs (chief governance officers) Board Policy Form (header section), 214, 216 Board quorum, 207 Board secretary: bylaws regarding, 208; GP#2 level on role of, 111, 122; GP#3 level on role of, 122–123 Board size, 206 Board-Management Delegation policy: completed quadrant of, 148–149; components of accountable organization established by, 149; Policy Manual completed for, 214–215; quadrant of, 133, 134. See also BMD#1 level; BMD#2 level; BMD#3 level; BMD#4 level; Delegation Boards of directors: accountability of, 17–18, 43–44; board expectations of all parties by, 17–20; bylaws regarding, 206–211; categories of Policy Governance decisions by, 39–40; CEO communication and support of, 81–82, 96–98; continuing education of, 224, 228; defining expectations of all parties by, 18–20; delegation to CEO from,

22–23, 45–46, 138–139, 144–145; discipline issues of, 57–58; officer positions of, 59–61; policy circle used by, 28; policy to monitoring cycle domain of, 188; receipt of monitoring reports by, 187–189; regarding Executive Limitations and Ends policies, 29–30, 55; responsibilities of the, 32; role in monitoring not fixing CEO, 191–192; securing externally required approval role of, 48–50; self-evaluation by, 223–224; separating nonboard from board responsible issues, 41–42; tailoring of Policy Governance by, 38–39; traditional operations of, 37–38; trust issue and, 44–45 Boards of directors jobs: governance process quadrant on, 103–104; GP#2 level defining, 109–110, 117; GP#3 level defining, 117– 118; GP#4 level defining, 118; GP#5 level defining, 119–120; process of defining, 33–36, 50–51 Budgeting policies, 76–77, 89–90 Bylaws: on board attendance, 206–207; on board committees, 209–210; on board officers, 207–208; on board size, 206; changing to accommodate new policies, 221; described, 201–202, 204–205; keeping copies in Policy Manual, 217; on passing vote, 207; on quorum requirements, 207; recommendations for board review of, 210–211 C Carver, M., 224 CEO interpretations: benefits of monitoring of, 181–182; empowered by board to make, 29, 41; included in monitoring report, 193; reasonable, 29, 41, 181–189; sequencing of, 185–186; timing of, 186–187; transforming policies into operations, 182–183; unuseful and useful


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Index examples of, 183–185. See also Monitoring CEOs (chief executive officers): accountability of, 32, 57, 97, 137– 138, 143; attractiveness of Policy Governance mode to, 5; board delegation to, 22–23, 45–46, 138–139, 144–145; board expectations of, 19; board trust of, 45; board use of the, 45–46; communication to the board by, 81–82, 96–98; emergency succession of, 79–80, 92; Ends policies addressed to, 65–66, 184–185; formal evaluation following monitoring of, 197–198; limiting authority of, 66–68; nature of authority given to, 181; organizations with no, 47; securing externally required approval role of, 49. See also Executive Limitations policies CGOs (chief governance officers): accountability of, 33; board discipline responsibility of, 57, 58; board meeting agenda prepared by, 51; bylaws identifying role of, 208; delegation to, 26; empowered to interpret board policy, 29, 105–106; GP#2 level on role of, 110–111, 120; GP#3 and GP#4 levels on role of, 120–122; issues properly delegated to, 42. See also Board officers Chair: board expectations of, 19; responsibilities of the, 32 Charney, B., 224 City Government Ends statement, 16 Code of conduct (Board): GP#2 level on, 111–112, 123; GP#3 and GP#4 levels on, 123–125 Committees. See Board committees Compensation and benefits policies, 81, 94–96 Consumer treatment policies, 74–75, 86–87 Contracting policies, 82–83, 98–100 Cost of governance: GP#2 level on,

112–113, 128; GP#3 and GP#4 levels on, 128–129 D Delegation: to the CEO from board, 22–23, 45–46, 138–139, 144–145; policies regarding, 22–23; Staff Means Quadrant on, 65, 66. See also Board-Management Delegation policy Documents. See Board documents Don’t-do-it list, 22 E E#1 level: comparing E#2 level to, 169–173; example of brainstorming issues to include in, 159–166; rational and practical grounding used in, 158–159; statement of fact examples for, 166–169. See also Ends policies E#2 level: a: independent living, 171; b: public policy, 171; c: work and family, 171; d: school readiness, 171; E#1 level compared to, 169– 173; E#3 level compared to, 174. See also Ends policies E#3 level: a: independent living, 173–175; comparing E#2 level and, 174. See also Ends policies Education (governance), 224, 228 EL#1 level: global nature of, 71, 73, 85; organization of topics, 71–72; statement of policy, 68–71. See also Executive Limitations policies EL#2 level: a: treatment of consumers, 74–75, 86–87; b: treatment of staff, 75–76, 88–89; c: financial planning and budgeting, 76–77, 89–90; d: financial condition and activities, 77–79, 90–92; e: emergency CEO succession, 79–80, 92; f: asset protection, 80–81, 92–94; g: compensation and benefits, 81, 94–96; h: CEO communication and support to the board, 81–82, 96; i: ends

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Index focus of grants or contracts, 82–83, 98–100; language narrowed down in, 73, 86; looking at effects of, 83–85; organization of topics, 71, 72–74. See also Executive Limitations policies EL#3 level: asset protection details in, 92–94; CEO communication and support to the board, 96–98; compensation and benefits details in, 94–96; described, 85–86; emergency CEO succession details in, 92; ends focus of grants or contracts details in, 98–100; financial condition and activities details in, 90–92; financial planning and budgeting details in, 89–90; treatment of consumers details in, 86–88; treatment of staff details in, 88–89. See also Executive Limitations policies Emergency CEO succession, 79–80, 92 Employees. See Staff Ends policies: adopting global or tentative holding policy as part of, 220; board decisions regarding, 29–30, 55; CEOs addressed in, 65–66, 184–185; compared to other types of policies, 153–155; concepts included in, 151–152; described, 20; establishing ambitious but realistic goals for, 48; issues included in quadrant of, 152–153; nature of completed, 174–175; as package of means, 152; perspectives used to approach creation of, 155–158; Policy Governance model framework on, 20–21; Policy Manual completed for, 214–215; statements of value in, 23–25. See also E#1 level; E#2 level; E#3 level Ends policy perspectives: 1: don’t assume mission statement is Ends policy, 155; 2: expect it to be difficult, 155; 3: be rigorous about Ends attributes, 155–156; 4: never assume strategic plan to be Ends pol-

icy, 156; 5: develop Ends policies with long-term perspective, 156; 6: make sure Ends are doable, 156– 157; 7: ignore current organizational divisions or departments, 157; 8: never allow problem of measurement in Ends policy decisions, 157; 9: expect to find that needed information is missing, 157–158 Executive committee authority, 59–60 Executive Limitations policies: benefits of completed, 100–101; board decisions regarding, 29–30; cautions regarding, 42–43; CEOs addressed in, 65–68, 183; issues to consider in completing, 100–101; Monitoring Policy prior to set, 7–8; recommendations on setting, 6; staff means prescribed through, 41. See also Authority; CEOs (chief executive officers); EL#1 level; EL#2 level; EL#3 level Externally required approvals,48–50 F Financial policies: asset protection, 80–81; compensation and benefits, 81; on cost of governance, 112–113, 128–129; on financial condition and activities, 77–79, 90–92; pension plans, 95; on planning and budgeting, 76–77, 89–90 G “Governance cops,” 229 Governance documentation. See Board documents Governance education, 224, 228 Governance Process policy: additional issues of, 130; Policy Manual completed for, 214–215; quadrant of, 103–104; quadrant representing completed, 131, 132. See also GP#1 level; GP#2 level; GP#3 level; PG#4 Governance structure: designing, 31–33; GP#2 level on costs of,


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Index 112–113; Policy Governance tools of the, 33–36; Staff Means Quadrant on issues of, 65–66 Governing style: GP#2 level on, 109, 114–115; GP#3 level on, 115–117 GP#1 level: broad nature of, 113, 114; statement of fact, 105–107. See also Governance Process policy GP#2 level: a: governing style, 109, 114–115; b: board job description, 109–110; c: CGO (chief governance officer) role, 110–111, 120; d: board secretary’s role, 111, 122; e: board member’s code of conduct, 111–112, 123; f: board committee principles, 112, 125–126; g: cost of governance, 112–113, 128; h: charge to the Medical Staff, 130– 131; narrowing nature of, 113, 114; topic areas of, 107–108. See also Governance Process policy GP#3 level: a: governing style, 115–117; b: board job description, 117–118; c: CGO (chief governance officer) role, 120–122; d: board secretary’s role, 122–123; e: board member’s code of conduct, 123–125; f: board committee principles, 126–128; g: cost of governance, 128–129; h: charge to the Medical Staff, 130–131; increasing detail of, 113–114. See also Governance Process policy GP#4 level: b: board job description, 118; c: CGO (chief governance officer) role, 120–122; e: board member’s code of conduct, 123–125; g: cost of governance, 128–129; h: charge to the Medical Staff, 130–131. See also Governance Process policy GP#5 level, b: board job description, 119–120. See also Governance Process policy Grant making policies, 82–83, 98–100. See also Governance Process policy

H Hospital/Health Care System Ends statement, 168 I Implementation: step 1: adopt global or tentative holding policy on Ends, 220; step 2: assess previous policies and decisions for inclusion, 220; step 3: conduct a legal check, 220–221; step 4: make a starter set of agendas, 221; step 5: prepare your stakeholders, 221; step 6: move in one fell swoop, 221–222; step 7: gain confidence through data, 222 Implementation challenges: example 1: monitoring report shows out-ofcompliance financial situation, 225; example 2: your funding is cut, 225–226; example 3: board members have been approached by consumer with complaint, 226; example 4: board is worried about responsibility to raise funds, 226–227 Implementation maintenance: challenges involved in, 222–223; step 1: board member recruitment, 223; step 2: board member orientation, 223; step 3: board self-evaluation, 223–224; step 4: education, 224; step 5: practice to make perfect, 224 Implementation workload: task 1: education of board, 228; task 2: continuing Ends debate and reexamination, 228–229; task 3: keeping the faith, 229 Independent Living Ends policy, 171 Internet resources, 217 L Legal checks, 220–221 Letters Patent, 201, 203 Lewin, K., 17 Liability coverage, 94

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Index M Management: differences between governance and, 192; policy to monitoring cycle domain of, 188 Means policies: described, 21; Policy Governance model framework on, 21–26; statements of value in, 25–26 Medical Staff, 130–131 Meetings: agendas for, 51, 52–53, 221; Policy Governance model on conducting, 50–53 Milton, J., 17 Minutes: described, 202, 211–212; keeping copies in Policy Manual, 217; recommendations for use of, 212–213 Mission statement, 155 Monitoring: “any reasonable interpretation” meaning in, 190–191; as appropriate for all policies, 194; of criteria as passive process versus setting of criteria, 190; cycle from policy to monitoring, 187, 188; formal CEO evaluation following, 197–198; gaining confidence through data from, 222; nature in Policy Governance, 179–180; policies as criteria for, 189–190; policy violation in context of, 191; relevant question must be answered by, 192–193; role of board in CEO, 191–192; setting schedule for, 194– 196; two components of, 180–182. See also CEO interpretations; Reasonable interpretation Monitoring Policy: BMD#2 level on, 139–140, 145–146; BMD#3 level and BMD#4 level on, 146–148; EL#3 level on, 96–98; function and purpose of, 30–31; when to use, 7–8 Monitoring reports: appropriate information included in, 193–194; board members’ receipt of, 187–189; CEO’s interpretation and relevant data included in, 193; Monitoring Report Format, 183

N Negative policies, 42–43 O Organizations: with no CEO or staff, 47; policy establishing accountability of, 149; with small staff, 47–48. See also Staff P Passing vote, 207 Pension plans, 95 Policies: assessing previous policies for inclusion in new, 220; avoiding negative, 42–43; as criteria for monitoring, 189–190; cycle to monitoring from, 187, 188; documents (or Policy Manual) on board, 202, 213–217; don’t-do-it list of, 22; monitoring as appropriate for all, 194; monitoring and context of violating, 191; Policy Governance model framework on Ends, 20–21; Policy Governance model framework on Means, 21–26; reflecting statements of value, 23–26; regarding delegation, 22–23; See also specific policies Policy circles: diagrams of, 27, 28; establishing control using, 25–26; finding your way on the, 26–30 Policy Governance model: accountability principle of, 17–18; board education on, 224; board meetings conducted under, 50–53; common questions about, 3–16; comparing traditional board documents to those in, 199–200; externally required approvals in, 48–50; framework of, 20–26; governance tools provided by, 33–36; as “hands-off” model, 44; implementation of, 219–229; key points of theory on, 35–36; maintaining the system, 222–224; nature of monitoring in, 179–180; partial versus total implementation of, 38–39; resisting


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Index temptation to revert to traditional methods from, 225–228; three categories of organizational decisions under, 39–40 Policy Governance model framework: described, 20; enabling both control and flexibility, 22; on organizational issues: ends policies, 20–21 Policy Governance model questions: are there other models?, 4; on avoiding borrowing another organization’s policies, 15; on current policies and what to do with them, 11–12; on decision-making conflicts, 13–14; on decision and policy making during transition, 8; on distinction between policy and procedure, 11; how does one implement the model?, 3–4; on how to begin moving toward new model, 6; on how to develop new policies, 7–8; on leadership during transition, 9–10; on making final decision to use new model, 13; on moving from old governance system, 5–6; on one-size-fits-all model benefits, 14–15; on “reasonable interpretations” decision making, 15–16; on recording policy changes, 10–11; on retreat for decision making, 12–13; on role of CEOs during transition, 10; when is it appropriate to apply?, 4–5; on whether to hire a consultant to help, 9; why is it attractive to CEOs?, 5; on wisdom of using only one governance model, 14 Policy Manual: completed in all four categories, 214–215; described, 202, 213; header section of Board Policy Form, 214, 216; keeping bylaws and minutes in, 217; recommendations on organization of, 214–216; recording ongoing board decisions in, 213–214 Professional Association Ends statement, 168 Public Policy Ends policy, 171

Q Quorum, 207 R Reasonable interpretation: CEO (chief executive officer), 29, 41, 181–189; CGOs empowered to make, 29, 105–106; in context of monitoring, 190–191; criteria used for measuring, 31; Policy Governance model questions on, 15–16. See also Monitoring Research Institution Ends statement, 169 S School Readiness Ends policy, 171 Staff: organizations with CEO or, 47; organizations with small, 47–48. See also Organizations Staff Means policies: compensation and benefits, 81, 94–96; Executive Limitations on CEO treatment of, 183–184; Executive Limitations prescription for, 41; Governance Policy regarding Medical, 130–131; pension plans for, 95; quadrant on, 65–66; treatment of, 75–76, 88–89 Stakeholder preparation, 221 T Treasurers: bylaws identifying role of, 208; responsibilities of the, 32 Treatment of consumers, 74–75, 86–87 Treatment of staff, 75–76, 88–89 Trust issue, 44–45 U Unity of control: BMD#1 level on, 137, 141–142; BMD#2 level on, 142 V Values-policies relationship, 23–26 W Work and Family Ends policy, 171

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