Why shouldn’t a board approve the CEO’s plans?
- Posted by Rose Mercier
- On February 26, 2020
- Accountability, Any Reasonable Interpretation, Board Role
One of the changes a board experiences when it begins to use Policy Governance® is a move away from a more traditional decision-making process where the CEO requires the board’s approval before proceeding with any plan.
Instead, it delegates authority to the CEO to achieve its policies (reasonably interpreted, of course) using whatever plans the CEO determines are necessary.
First the board must determine the benefits to be produced, who is to benefit, and the worth of producing those results. These are the board’s Ends policies. Then, the board must specify its limitations about the means that the CEO can use to achieve those Ends. These are the board’s Executive Limitations policies. It writes both sets of policies to the level of detail where it is willing to accept any reasonable interpretation. And once it is satisfied that it has said everything it needs to say, it delegates to the CEO the achievement of its Ends within its predetermined limitations. The CEO develops plans based on his interpretations of those policies and proceeds to implement those plans. At the appropriate point, the CEO will produce evidence of achievement of the board’s policies which the board uses as the basis of CEO performance.
Seems pretty straightforward, doesn’t it?
But what if the board decides it wants to approve the CEO’s plans before they are implemented? After all, that’s what it used to do – before Policy Governance. The “Mother May I?” process of each plan being approved before being implemented is sometimes hard to leave behind.
Let’s consider the impact of this possibility: in essence, the board is saying it’s willing to accept any reasonable interpretation…as long as it’s the one the board agrees with. Now, let’s consider what happens if the board approves the CEO plans and they don’t work. The board must then face the fact that it cannot hold the CEO accountable for the results of implementing plans it approved. The end result: the board’s evaluation of the CEO’s performance is compromised.
Here’s another question for the board who wants to approve the CEO’s plans. Why would you hire and presumably reasonably compensate a CEO with experience, expertise and creativity if you are going to limit her ability to apply these abilities to their fullest extent?
A board needs to imprint this in their governing DNA: Any reasonable interpretation means just that. It means the CEO can use his judgment about the means to achieve the board’s policies. He can change his interpretations if conditions warrant change and adapt plans to fit those interpretations.
But that can’t happen if the board insists on approving the CEO’s plans and, in fact, the board is short changing the organization’s owners on two fronts.
- First it compromises its ability to evaluate the CEO’s performance.
- Second, it compromises the extent to which the organization can benefit from the CEO’s abilities, for which the board should be held accountable by the ownership.
I suggest every board that is tempted to approve a CEO plan keep the following quote in mind:
Extensive delegation is the board’s most potent tool for transforming owners’ wishes into organizational performance…Failing to delegate extensively constitutes board underachievement.1
1 John and Miriam Carver in “Semi delegating equals Semi-governing” (Board Leadership, Jul-Aug 2013, No.138)