- Posted by Richard Onley
- On May 7, 2019
- Board Role
In our last blog, we discussed the difference between best practices vs. principles and how this can impact on bringing clarity to the board – CEO relationship. We began to examine the Policy Governance® model and how it can bring role clarity and create excellent communication between the board and CEO.
Let’s discuss one of the principles.
Principle 1: Who are the Owners?
This may seem like a redundant question, but the critical issue of ownership, is not always clear. John and Miriam Carver best described ownership.
At the heart of the model is that the Board is accountable for the organization and its governance and exists on behalf of a larger group of people who, either legally or morally, own the organization. Owners of a for-profit corporation are relatively easy to identify since they will own shares in the company. In the case of not-for-profit organizations, owners, are not all stakeholders, but only those who stand in a position corresponding to shareholders in an equity corporation.1
Why is the concept of ownership important? By mistaking stakeholders for owners, a whole host of consumers, advocacy groups, funders, staff, unions, and other groupings are included as equal partners in owning the organization. These actions reduce the effectiveness of governance by splitting the Board’s attention away from the real owners. When the elusive ownership role is not well defined and made an explicit object of board attention, it is natural for these groups to acquire default ownership status.
If each board member has a different idea about ownership, the organizational focus is always changing depending on which group is most vocal. Each board member will have developed a different view on who has the highest ownership status. Without an understanding of who the owners are, we set up the CEO and the board for a collision course. Is it any wonder that CEOs must spend limited time managing the board?
The Board’s Critical Role: Strategic Thinker:
The board is the Strategic Thinker of the organization. What is strategic thinking? As Strategic Thinkers, the board, as representative of the owners, has the critical role of defining the purpose (called Ends) of the organization by clearly defining three elements:
- the results, changes, or benefits that should come about for
- specified recipients, beneficiaries, or other targeted groups, and
- at what cost or relative priority of benefits for specific beneficiaries (we cannot do all things for all people).
In the case of for-profit corporations, Ends may be as straightforward as requiring a guaranteed return on investment. This doesn’t mean that it’s an easier job belonging to a for-profit board, because the board member has the same responsibilities as a not-for-profit in ensuring accountability from the CEO to achieve the Ends.
Ends are written down as policy so that the CEO is clear on what is to be achieved. The board regularly reviews Ends and will change Ends as the environment evolves. The board defines Ends in written policy in enough detail that it is satisfied that the CEO will make a reasonable interpretation of what is to be achieved.
The CEO’s Critical role: Strategic Implementer:
The CEO is the Strategic Implementor. How is this different from strategic thinking?
As the Strategic Implementor, the CEO operationalizes the Ends. The board gives the CEO free reign to operationalize the Ends without interference.
What does that mean?
It means that the CEO does not seek approval for any budgets or strategic plans from the board. Any time the board approves a budget or strategic plan it becomes the board’s budget or strategic plan, not the CEO’s. The CEO is free to employ any means and methods necessary to achieve the Ends within specifically written boundaries determined by the board. These limitations are generally the avoidance of illegal or immoral acts or activities that would place the organization into financial or reputational jeopardy.
You may be thinking: this sounds like we are handing over the keys for the shop to the CEO and as a board member I have no control. When I first heard this, I asked the same question. My next question was: what is the amount of coverage on the director’s errors and omissions insurance policies?
There is one crucial additional element which alleviates those concerns. At every board meeting, the CEO provides monitoring reports to prove that the Ends are being achieved. The monitoring reports are predetermined reports that are based on objective data showing where the organization stands in terms achievement of Ends as well as avoidance of the unacceptable activities identified in the board’s policies.
How often have you been at a board meeting pouring over a set of financial statements and asking random questions? I have seen boards of major institutions do this without even recognizing that they were insolvent. How did they fall into this trap? They examined financial statements without any criteria against which to assess them.
Using Policy Governance, the monitoring reports first identify the measures that would show the achievement of the board’s policies. The monitoring report then justifies the use of those measures and provides actual data to prove whether the organization has achieved the measurement. If it is not achieved, then the CEO is expected to commit to the board to comply by a specific date.
This process is so transparent, it also serves as your CEO evaluation.
How do the Roles of Strategic Thinker and Strategic Implementor Impact the CEO and Board?
Both parties have clarity about:
- what the organization stands for,
- what the organization is to achieve,
- what their respective roles are,
- objective measurement of achievement.
At the end of each board meeting, you have the assurance of where the organization stands, and if action is required, you will know the course to be charted.
There is never ambiguity of roles or what is expected from both parties. Assessment of CEO performance is not subjective; it is based on data-driven results.
We have brought clarity to the organization, and in doing so, we have created the conditions for a clear connection between the board and CEO. The CEO does not have to spend time and energy in attempting to manage the board, because the roles are clear. The board is truly leading the organization.
A Final Thought
Policy Governance has brought role clarity and alignment. The relationship between board success and CEO success is clear.
Does your organization have the conditions for board and CEO success?
The Governance Coach™ has been helping organizations to transform for 25 years. We can do the same for you. Contact us for a no-obligation discussion.
Reference:  Carver, John and Carver, Miriam. Carver Policy Governance® Guide. San Francisco: Jossey-Bass, A Whiley Imprint, 2009, page 22