I read a series of reports in my local paper chronicling the hand-wringing of the board of a local municipal agency about what it could do about credit card expenses that had been submitted by a previous CEO – two years since departed. The board was not happy about what it had discovered. The local exotic dancing venue seemed to have been a favourite venue for entertaining prospective businesses or partners…One can perhaps understand the board’s discomfort.
The paper reported that the current CEO explained that the agency’s current policy disallows improper use of the agency’s credit card and limits the type and amount of reimbursable expenses. However, the board wasn’t entirely satisfied with this response, looking for someone to blame – and ideally seeking some type of reckoning – for the agency incurring expenses in the past that were embarrassing in the present day.
Why, I wondered, did the board not recognize that it was looking in the wrong direction? If it was looking for someone to blame, it needed to turn inward. After all, the board is 100 percent accountable for everything that happens in the agency. “We didn’t know this was happening…” does not get a board off the hook.
If you are familiar with Policy Governance®, then you will recognize it is a board’s job to ensure that the organization accomplishes what it should and avoid what’s unacceptable. Ensuring this happens requires the board to specify the benefits to be produced, for whom, and the worth of producing those results and to also define what means would be unacceptable even if they worked to achieve the results. It records its decisions as policy. Then it assures itself that its policies are being implemented by requiring the CEO to provide evidence that the CEO is operating in compliance with its policies that set boundaries about acceptable means.
How might this board have proceeded to avoid its past problem and what might it do today to avoid a recurrence of something similar? If it were using Policy Governance, it would have a policy that states, at the most general level, that it is unacceptable for the CEO to allow actions that are unlawful, imprudent, or contrary to commonly accepted business ethics. More specifically, it would likely also have a policy stating it would be unacceptable for the CEO to endanger the organization’s image or credibility, or to make changes to his or her own compensation and benefits.
Having set those boundaries, the board could ask the CEO to provide an interpretation of these policies with respect to his or her expenses. Once the board assesses the CEO’s interpretations as reasonable, it would use them as the basis for directly examining records of the CEO’s expenses to assure the board the expenses were compliant with the CEO’s interpretations. It could inspect those expenses as frequently as it felt it was necessary; alternately, it could engage the external auditor to do so. If the board found evidence of actions that were unacceptable, it could immediately address the issue with the CEO.
Policy Governance offers a board an elegant system for assuring that it is not deliberating who to blame two years after the fact for a situation that it ought to have prevented.