Last week, I examined the issue of the board’s contribution to CEO failure and discussed whether best practices could be the answer.
What about the principle-based approach?
Principles are based on a fundamental or general truth that provides people with guidelines to make better decisions in changing circumstances. Well-considered principles will impact a broad set of practices.
Various studies have shown that more productive and satisfied workers are those that have been given a task and can make the decisions on how to deliver results.
I had the opportunity to attend a weeklong Executive Leadership Program sponsored by Disney. Disney empowers their staff to make immediate decisions to ensure problems are addressed on the spot, and the customer experiences the Disney mission: to be the happiest place on earth. To back this up, every employee is called a cast member. What does this mean in practice?
Principles in action, my Disney experience:
Disney has an army of cleaners (Following in Walt’s example, every employee, including the President, will pick up litter that they see on the ground). You will have a hard time finding one piece of litter in the whole park. A cleaner/cast member saw a child drop an ice cream cone. Both the parent and the child were upset. What did the cast member do? He immediately went into the ice cream shop, stepped behind the counter, prepared a new ice cream cone and brought it out to the astonished child. As he handed the child the ice cream cone, he said, “Mickey Mouse saw you drop the ice cream cone; don’t worry, he would like you to have this one.”
Would this have happened in a rules-based organization? We all know the answer to that. What was the experience for the child and parent? How did the cast member feel about his job? How do you feel about reading about the cast member’s response? Did the response build a connection with Disney? This is the difference between a rules-based organization and a principles-based organization.
The same principle applies with the board – CEO interaction. When a board gathers best practices and creates a rulebook for the CEO to follow, you get the predictable behaviour.
Is there a model of board governance that is more than a collection of best practices?
Is there a principle-based model of board governance that works in most situations?
A principles-based model
One of the most influential models of good organizational governance is Dr. John Carver’s Policy Governance®. It is based on 10 principles that work together as a comprehensive system. The remarkable power of this model is that it applies to organizations of any size, both for-profit and not-for-profit organizations.
Clarity is at the heart of Policy Governance. How is clarity achieved? Let’s look at Carver’s definition of the board’s role. The board, as representative of the owners, creates a policy to reflect owner expectations and delegates to the CEO, who operationalizes these expectations. The board ensures accountability and achievement of owner expectations through regular monitoring of critical performance and risk management measures that provide evidence of achievement of Board expectations.
By representing the interests of the owners, the board forms a link in the chain of command between the owners and the CEO. The board functions as a commander, not an advisor. The board ensures what should get done, does get done, all within ethical and legal bounds. The following diagram illustrates the chain of command.
The 10 principles are relatively easy to remember and can equip both the CEO and board member with the tools that allow them each to make a clear and compelling contribution to their mutual success and the success of the organization. However, a word of caution: there is nothing as practical as good theory and principles, but if they are not correctly understood, they can be as harmful as rigid rules. I’ll have more to say in next week’s blog.