The board’s role in monitoring is not to provide evidence, but to assess evidence.  The CEO provides the evidence.  The board assesses two things:

1. whether or not the CEO’s interpretation was “reasonable,” and
2. whether there is sufficient evidence to determine compliance with that reasonable interpretation of the policy.

In the case of Executive Limitations, that means evidence that the CEO has not caused or allowed something that the board said should not occur; in the case of Ends it means that there is demonstrable evidence of achievement of a reasonable interpretation of the End.  This assessment should be done in advance of the board meeting as “homework” by each board member.  Board members should ask themselves, “Am I satisfied that a reasonable person could have made this interpretation?” and “Is there actual evidence provided to convince me that there has been compliance with the interpretation?” At the board meeting, the only reason for discussion would be if a majority of board members have concerns about either (1) or (2).  If the majority decision is that there is a concern, the board does not need to discuss how to “fix” it.  The board does need to make it clear if the situation is unacceptable, and when it expects compliance to be achieved.   In order to document the  board’s due care in assessing the monitoring reports, it is advisable to have a board motion, something like this:  “The board has read and assessed the monitoring report for policy X and found it provided evidence of compliance with a reasonable interpretation of the policy.”  Or,   “The board has read and assessed the monitoring report for policy X and found it provided evidence of compliance with a reasonable interpretation of the policy, except for item 3.  A follow-up report of compliance with that item is expected by [date].”  Remember that evaluation is not about “catching the CEO doing something wrong.”   While diligent assessment is part of fulfilling the board’s fiduciary responsibility, the most important purpose of monitoring is to make the future better, not to produce a report card.

Additional details about monitoring are available in the Policy Governance Toolkit: Meaningful Monitoring.  You can also learn more about monitoring in our interactive REALBoard Self-Directed Learning.  Module 7 addresses monitoring. Additional references available on this subject are included in PGIQ™  and Introduction to Policy Governance® workshop.  Our Advanced Seminar provides more in-depth coverage of how to write and assess monitoring reports.

The CEO needs to provide the board with (a) an explicit reasonable interpretation of each statement in the board’s policy, including rationale for what that interpretation is reasonable, and (b) evidence of compliance with the reasonable interpretation.  The interpretation is not the CEO’s plan for complying with the policy, but rather what the CEO understands the policy to mean.  A good interpretation should include the measures that will demonstrate compliance, and supporting rationale for why the board should consider this interpretation “reasonable.”

While developing this interpretation does take some time at the front end, interpreting the policy is an implicit part of determining how to fulfill it.  A simple example of an interpretation that provides a measurement or metric might be something like this:  Board policy says, “Do not allow untimely payment of debts.”  CEO’s interpretation might say, “Compliance will be demonstrated when a review of accounts payable confirms that all debts have been paid within 30 days or the vendor’s terms, whichever is greater, unless the amount is under dispute. This interpretation is reasonable because it is consistent with industry standards, and avoids interest charges on overdue amounts.”

After the interpretation, the CEO then provides evidence of compliance with the policy. This should be something that can be verified; if an external agent were to look for compliance, what might they look at?  Following the above example, evidence might be: “An internal review of the accounts payable report from our accounting software for the fiscal period xxx, conducted on [date] by [position of person doing the internal review] confirmed that there was only one payable outstanding beyond 30 days, and that the vendor’s terms for this amount were 60 days.”

Additional details about monitoring are available in the Policy Governance Toolkit: Meaningful Monitoring.  You can also learn more about monitoring in our interactive REALBoard Self-Directed Learning.  Module 7 addresses monitoring. Additional references available on this subject are included in PGIQ™  and Introduction to Policy Governance® workshop.  Our Advanced Seminar provides more in-depth coverage of how to write and assess monitoring reports.

Remember that the overall performance evaluation of the CEO is simply a summation of all of the monitoring done by the board throughout the year. The frequency of monitoring each individual policy is up to the board. How often does the board feel it is prudent to receive evidence of compliance with a particular policy? How much risk would be involved if there were non-compliance? What is necessary for due diligence? How often is it likely that monitoring information will change? All of these factors should be considered when determining the frequency of monitoring.

There is no “rule” in Policy Governance® about how often Ends and Executive Limitations policies need to be monitored, but as an example, virtually all boards do choose to monitor each of the policies at least annually. Many boards choose to monitor the Financial Condition policy quarterly.

Since preparing monitoring reports takes a considerable effort on the part of the CEO and staff to whom the CEO may delegate responsibilities, there is value to considering a routine monitoring calendar in which a few monitoring reports are provided for each meeting (or even between meetings) throughout the year. For some organizations, it makes sense to split up the monitoring of Ends. For others, it makes sense to do all the Ends reporting at once. If the board is doing a comprehensive review of the content of Ends policies in a specific timeframe, it can be valuable to have all of the Ends monitoring data at least relatively close to that date.

Since the CEO may be in the best position to determine at what times of year particular monitoring data is most readily available, once the board has determined the frequency of monitoring for each policy, it is often a good idea to ask the CEO to produce a draft schedule, consistent with the frequency, for the board’s consideration. Then expect the CEO to provide those reports as part of the board package in advance of the appropriate meeting.

Additional details about monitoring are available in the Policy Governance Toolkit: Meaningful Monitoring.  You can also learn more about monitoring in our interactive REALBoard Self-Directed Learning.  Module 7 addresses monitoring. Additional references available on this subject are included in PGIQ™  and Introduction to Policy Governance® workshop.  Our Advanced Seminar provides more in-depth coverage of how to write and assess monitoring reports.

Ends is a unique concept in Policy Governance^®. It is not the same as a typical “mission statement.” A mission statement usually looks something like this: “We are the xxx organization, we look like this . . . and we do the following things: xxx, yyy.” Ends are statements about the purpose of an organization, why it exists, rather than what it does, or how it does things. Ends statements are about one or more of these three things (and ONLY these three):

1. the benefit or results of an organization’s work,
2. who the beneficiaries are, and
3. what it’s worth to produce those benefits.

So, in contrast to a mission statement, an Ends statement might say, “Our organization exists so that xx people are able to do yyy for a cost zzz.” Here are a few examples of the highest level Ends statements for different kinds of organizations. These would of course be customized to identify the area, profession, industry, etc.

• Our college exists so that people in our region have opportunities to improve their lives and communities at a cost that can be justified by the results.
• Our school exists so that students become informed, contributing, fulfilled members of society at a cost that demonstrates responsible stewardship of resources.
• Our credit union exists so that members have the knowledge and ability to be in control of their financial lives at a competitive cost.
• Our voluntary agency exists so that individuals with disabilities in our service area will live secure, engaged, independent lives at a cost justified by the results.
• Our health organization exists so that there are optimal health outcomes for people in our service area at an efficiency better than the average of peer organizations.
• Our trade association exists so there will be conditions that promote member profitability in our industry for a justifiable investment of member resources.
• Our professional regulatory organization exists so there will be competent, ethical practice of our profession for the people of our province/state.

Once the board has established this largest “purpose” statement for the organization, it then will develop more detailed statements of results. However, those statements will still meet at least one of the three components of (1), (2) or (3) above. They will never be statements of what the organization “does” – its activities, or statements of how the results are to be achieved.

More information about Ends is available in our interactiveREALBoard Self-Directed Learning.  Module 3 addresses Ends. Additional references available on this subject include PGIQ™  and Introduction to Policy Governance® workshop.

If you are doing a good job of agenda planning, there should not be a need to add last-minute items to the agenda except in truly urgent situations.  To help keep your agendas focused, try to minimize last-minute additions.  They will tend to take you off track, as you may not take time to determine which agenda category they belong to.  At the same time, you do need a method for board members to bring to the board items that are appropriate.

Try using a simple set of questions that board members must answer in order to get an item on the agenda, and empower the Board Chair to do the screening.   This could even be submitted by email if the Board Chair is willing.  An approach of this nature will result in a large majority of agenda items being pre-screened, and will allow for collection of appropriate background information in advance of the meeting, thus making the meeting more effective than if an issue were added at the last minute.  Some screening questions that the Board Chair might use include:

• Is this an item that clearly belongs to the board to decide, or is it about something we’ve already delegated to the CEO?
• In which category of policy does it fit? (If Executive Limitations, is this about prudence or ethics?)
• To which specific policy does the issue relate? (Knowing this in advance will make the meeting more efficient, because you can check first on what you have already said.  Sometimes board members request agenda items because they are not familiar enough with their policies, and don’t realize the item has already been addressed!)

Additional details about board meeting agendas are available in the Policy Governance Toolkit Future Focused Agendas. You can also learn more about monitoring in our interactive REALBoard Self-Directed Learning.  Module 8 addresses board processes, including agendas. Additional references available on this subject are included in PGIQ™  and Introduction to Policy Governance® workshop.  Our Advanced Seminar provides more in-depth coverage of how to make your board agendas more “future-focused.”

There are many ways for a board to evaluate its own performance. Board self-monitoring (or self-evaluation) involves the board’s assessing its own behaviour in comparison to the policies it has written which describe the commitments it has made.  If you are using Policy Governance^Ò these policies are usually called Governance Process (GP), and Board-Management Delegation (BMD) (or Board-CEO Relationship). There is no one prescribed method for conducting a self-evaluation, but there are a number of methods that we have found to be effective.  We generally recommend that you consider two elements for self-evaluation:  (1) a brief self-evaluation at the end of each board meeting; and (2) a systematic approach to self-evaluation of the board’s compliance with each of its own policies in the two categories that describe the board’s commitments (GP and BMD). 

Here are some simple suggestions to get started:

1. Meeting self-evaluation:  Many boards use a meeting self-evaluation, but too often the content is focused on whether the board members enjoyed the meeting, or felt it was a good meeting, without comparing the meeting to some pre-stated criteria.  If you have a policy that describes what kind of a “style” your board is committed to, then comparing what happened at the meeting to the key elements of that style is a great way to begin.  For example, if your style policy says that the board will focus more on expected results than on administrative means, then your self-evaluation can reflect on how well the board maintained that focus.  If the policy commits the board to spending more time on a future focus to set direction than on present and past issues, how well did you do that?  This reflection can be done by the group as a whole or by an individual assigned the task at the beginning of the meeting, who then reports at the end of the meeting.  It can be done verbally, or in writing.  Several tools and templates are available from The Governance Coach™ to assist in this process.  An important step for continuous improvement is to agree on one thing that you will work on to improve in the next meeting.
2. A systematic approach to self-evaluation of the board’s compliance with each of the GP and BMD policies:  There is no one “right” way to do this kind of self-evaluation, but you might begin with a simple template that causes the board to reflect on its actual behaviour with respect to a specific policy  [See the section below for templates available from The Governance Coach™.] You might (a)  assign an individual board member to do a report on a particular GP policy, in advance.  The report would be part of the meeting package.  At the meeting, the board would focus on a few questions, identifying a specific area for improvement. (b) ask all board members to complete a worksheet on a particular policy and submit in advance; have the results tabulated for discussion (this is more work administratively than the first alternative) (c) use the template as a guide for a round table discussion on a particular policy during a meeting.  The first option tends to be most useful for most boards, as well as being efficient.

Additional details about and tools for board self-evaluation are available in the Policy Governance Toolkit: Board Self-Evaluation.  You can also learn more about board self-evaluation in our interactive REALBoard Self-Directed Learning.   Module 9 covers Board Evaluation and improvement. Templates for self-evaluation consistent with Policy Governance^®principles are available from The Governance Coach™.

It is a common misunderstanding that boards using the Policy Governance^® model should not have any committees.  In fact, there are times when board committees can be very helpful in the board’s work.  The key principle to keep in mind is that board committees should only help the BOARD do its own work.  Secondly, no board committee should be permitted to take over the board’s role in being accountable for all governance decisions. 

Therefore, committees that are made up of or include board members, appointed by the board, should never be created to “help” or advise the CEO in operational areas that the board has already delegated to the CEO.  If a board committee advises or directs the CEO regarding means to achieving the Ends, it is no longer possible to have a clear line of accountability from the Board as a whole directly to the CEO.  If the means advocated by the board committee isn’t effective, the CEO can’t be truly held accountable.  So a Finance Committee which advises the CEO on financial matters is inappropriate, while an Audit Committee to assist the board in its function of monitoring CEO performance against board-stated policy criteria is fine.

A Programs Committee would be inappropriate if its job is to assist or advise the CEO or staff at any level, because programs are means for which the CEO is accountable.  Appropriate board committees might assist the board with its job of connecting to owners, researching information for policy development at the board level, or creating an on-going development plan for the board itself.

An Executive Committee, while not inappropriate just because of its title, needs carefully stated authority to prevent it becoming the de facto board, with the rest of board members being simply rubber stamps to decisions the Executive Committee has already made.  No committee should interfere with the accountability of the board as a whole to govern.  In many boards, an Executive Committee is not needed at all.  Some boards operate under legislation that requires them to have an Executive Committee.   If this applies to you, severely restrict its powers, limiting it to making decisions on behalf of the board only in urgent situations when it is impossible to convene a quorum of the board.  With the use of technology that is available now, such situations should be extremely rare.  Another way to use this committee, if you are required to have it, is as a standing committee that is available for specific ad hoc tasks designated by the board.  The important principles here are not to allow the Executive Committee any authority other than that authorized by the board as a whole, not to let it have any kind of instructional power over the CEO, and not to let it interfere with the wholeness of board function.

Additional details about board committees are discussed in Introduction to Policy Governance^® workshop.  You can also learn more about committees in our interactive REALBoard Self-Directed Learning Modules.   Module 5 on Board Holism and Delegation addresses the use of committees.

[Please read first the answer to the question, “Should the board have committees” as background for understanding this answer.]  The most important principle to remember here is that for the board to be able to hold the CEO accountable for results, the CEO must be able to have complete control of operational committees.  The CEO must have authority to appoint the members of a committee, dismiss them, create or terminate the committee, and determine what the committee’s job is.

If the CEO has this authority (which the CEO may choose to delegate to someone reporting to the CEO), then having a board member on such a committee is acceptable.   Such a board member would be there as a volunteer, not as a board member.   The board member in this situation is there because the CEO has chosen to ask him or her to be there to lend specific expertise. The board member is not there representing the board’s perspective in any way, and it is not that board member’s role to “report back” to the board about this operational committee.

The board member has no more authority than any other member of the committee, and in fact, is accountable to the CEO in this situation.  The CEO should be cautious about using board members this way, because there must be complete clarity about accountability – the board member must be very clear what “hat” he or she is wearing.  Provided that clarity is in place, and is understood, not just by the board member, but by everyone else on the committee, there is no problem.  However, maintaining this clarity in practice is easier said than done, so it is wise to limit the use of board members on operational committees to times when the board members are truly the only or best people with the expertise needed.

Additional details about board committees are discussed in Introduction to Policy Governance^® workshop.  You can also learn more about committees in our interactive REALBoard Self-Directed Learning.   Module 5 on Board Holism and Delegation addresses the use of committees.

In a for-profit corporation, the owners are obviously shareholders. In not-for-profit organizations, there are no shareholders as such, so Policy Governance^® uses the term “owners” or “moral owners” to mean the equivalent of shareholders.  The owners are the people on whose behalf the board determines what benefits should be produced by the organization, who the beneficiaries are, and what it is worth to produce those benefits (this is called the “Ends” in Policy Governance^® terminology). This is the group to whom the board owes moral accountability.

The moral owners may or may not always be the legal owners of an organization.  And stakeholders are not necessarily owners.  Stakeholders include all individuals and groups who have an interest in the organization, including employees, customers or clients, vendors, donors and funders, and other organizations. Certainly the board has some responsibilities to each of these groups – for instance, to be sure that employees are treated fairly, that clients receive high quality service or products, that vendors are paid on time, and so on.  However, there is one major difference:  boards are not accountable to the stakeholders for deciding what benefits the organization is to produce.  For that most important decision boards are accountable only to the “owners” as a whole.   While the board may well wish to obtain the perspectives of various stakeholders as part of its overall knowledge before making Ends decisions, in the final analysis, the decisions must be made on behalf of the owners.  So, all owners are stakeholders, but not all stakeholders are owners.

Each board needs to carefully consider who its moral owners are.  Sometimes the owners are also clients or customers, such as in some membership organizations. That means the board will need to carefully sort out when it is hearing “owner” information, and when it is hearing “customer” information, which should be given to the CEO who is accountable to the board for operational matters such as customer or client service.

* Additional details about Ownership Linkage are available in our interactive REALBoard Self-Directed Learning.   Module 1 addresses Ownership Linkage.  Additional references available on this subject: Connect! A Guide to Ownership Linkage toolkit.

by Jannice Moore

Often when I have given a presentation about Policy Governance to a board, someone will say to me, “You really believe in this, don’t you?” While I always answer, “Yes, I wouldn’t be spending my life teaching it if I didn’t believe in it,” the question has made me ponder just why it is that I do believe in it—besides the fact that, if properly applied, it works … (As those of you with whom I have worked will know, I have a pragmatic streak!) I have come to the conclusion that I feel so strongly about Policy Governance because the model is founded on the concept that the Board is not there for its own benefit, but to make the best possible decisions on behalf of the “moral ownership.” Policy Governance is rooted in the idea that the board is the “servant-leader” of the owners. In fact, Carver goes so far as to say that “proper governance is a logical impossibility if it does not include the concept of servant-leadership.”

The term “servant-leadership” is widely attributed in this century to Robert Greenleaf, who pioneered the application of the concept to the business setting. However, the reason that the concept has such importance for me is that its origins go much farther back—it was Jesus Christ who said to His disciples, “Whoever wants to be great among you must be your servant.” Since I try (not always successfully) to live my life as a disciple of Christ (not Carver, as I’ve occasionally been accused of!), a model which is based on the idea of servant-leadership is congruent with my own deeply held values.

Integrity has been described as something you cannot see until it is not there. Servanthood is similar—it is neither dominance nor servility. “The ability to empower others makes great leadership a servanthood” (Bennett Sims). Let’s explore the concept of servant-leadership more fully—with liberal credit to Robert Greenleaf for enlarging the concept and John Carver for applying it in a practical way to boards. Carver suggests that Policy Governance might be considered a “technology of servant-leadership”—a carefully-designed method for boards that are committed to being servant-leaders. A review of Greenleaf’s writings has identified ten major characteristics of servant-leadership. We will examine just a few of them.

Stewardship

Servant-leader boards see themselves as stewards. This means pondering what has been entrusted to them, and what they will hand on. Many aboriginal North Americans apply the “seven generation” test to the decisions they make. Boards would do well to consider what the impact of their decisions will be, not just today or tomorrow, but on the next seven generations.

Conceptualization

One of the most important tasks of board servant-leadership is shaping the vision for an organization. The “leadership” is evidenced by the board’s ability to see beyond the present, to understand the “big picture.” Greenleaf says, “A mark of a leader, an attribute that puts him in a position to show the way for others, is that he is better than most at pointing the direction … the leader can articulate [the vision] for any who are unsure.” This vision is stated so that it excites the imagination and challenges people to work for it even if they do not yet know how to do it. Carver puts it slightly differently, suggesting that board members must be “capable of envisioning a world that isn’t, rather than being captured by a world that is.” Creating the vision cannot be done in isolation. The “servanthood” comes into play in inviting the ownership to help shape that vision.

Listening

The servant-leader has “an openness, an ability to listen, and an ability to speak in a way that engages people directly affected by the choices to be made” (John Rosenblum, dean of University of Virginia’s business school). From shared dialogue emerges a vision that is stronger and better. Building shared vision does not mean surrendering individual visions, but establishing harmony among diverse visions so that the group can move forward together.

Richard Smith of the Greenleaf Center suggests the concept of “holographic inquiry—the skill of seeing the issues from all sides and perspectives … accepting the perceptions of others as valid … Being open to viewing the world from another point of view tends to threaten us because we might have to admit that a view we have held for years is not right.”

Unfortunately, the approach many of us take is, “I don’t want to understand more about the problem. I only want to know what to do about it.” The next time a critical issue is discussed at your board meeting, try taping the exchange. Then analyze it and ask, “How much of the exchange was simply each member trying to convince the others that their opinion was right? How much effort was made to truly hear what others were saying? How many questions were asked to try to understand the point of view of others?”

Listening to understand also takes time. Ann McGee-Cooper suggests that most leaders are consumed with “hurry-sickness,” in which they cannot increase their awareness or broaden their perceptions because they have moved on too quickly to notice anything in depth about a situation. Reflect on a recent board meeting. Was so much time spent on making decisions that should really have been made by management, or hearing “reports” about “nice-to-know” (but not critical for governance) items, that the board did not have sufficient time to seriously grapple with understanding what was most important to the owners, or considering the future implications of an Ends decision?

Foresight

Servant-leader boards must be able to understand the lessons from the past, the realities of the present, and the likely consequences that their decisions will have on the future. Greenleaf proposes the interesting perspective that failure to foresee is an “ethical failure, because serious ethical compromises today (when the usual judgment on ethical inadequacy is made) are usually the result of a failure at an earlier date to foresee today’s events and take the right actions when there was freedom for initiative to act.”

Carver suggests that owners have the right to expect boards to know more about any given issue than the owners do, because the board has been put in a position of trust and leadership on their behalf. So, while the board must take into account the opinions of the ownership on any issue, they must also exercise leadership by making decisions which factor in additional information that the owners may not have. Leadership includes going ahead, not avoiding controversy. Servanthood may include being willing to be vilified for your position on a controversial matter.

A few suggestions from Greenleaf on “preparing to know the unknowable and foresee the unforeseeable”: Approach the problem in the spirit of a search for understanding. Ask, “what questions can I ask about it?” Acknowledge that you see the present in terms of partial truth only. If you are dogmatic about the present, you are likely to be dogmatic about the future—and wrong. The best knowledge is not certainty, but progressively sharper insights. He concludes by suggesting that one must always live at two levels-in the “real world,” and also “detached,” seeing today’s events in the long sweep of history and into the indefinite future.

Self-Discipline

Meeting the tall order imposed by the characteristics of servant-leadership demands that a board exercise considerable self-discipline. A number of boards I have worked with have expressed discomfort with the word “discipline” when developing a policy that talks about their own behaviour. They see discipline as a negative, punitive concept. In fact, the word comes from the Latin “discipulus,” which means “pupil”—also the root of the word “disciple.” So discipline in the context of board servant-leadership refers to the board “discipling” itself to follow a set of principles, to clearly articulate its values and then to “walk as it talks.”

The Test of Servant-Leadership

Greenleaf suggests that the best test of servant-leadership is “do those served grow as persons? Do they … become healthier, wiser, freer, more autonomous, more likely themselves to be servants? And, what is the effect on the least privileged in society; will he benefit, or, at least, will he not be further deprived?” Servant-leadership concentrates on building up others, not on the leader’s self-importance.

Senge says that the choice of servant-leadership is not something you do, but an expression of your being. Leadership must be obsessed with values, says Carver. We need a way of connecting who we are to what we can do. For Boards, this connection is not for their own benefit, but for the benefit of those they serve. “If the board fails to act powerfully, it cheats those for whom it is holding the organization in trust of a voice. If it acts self-servingly, it fails to act in their behalf. It must be powerful and deferential at the same time, for both timidity and high-handedness defraud the trust.”

You can’t learn to use a computer just by reading about it—you must docomputers. Servant-leadership is the same. You can’t learn about servant-leadership only by hearing about it. You must do servant-leadership. And “doing” servant leadership means “being” servant leaders. So, don’t just be a humandoing. Be a human being.

For more on the subject of Servant-Leadership see Further Reading.

This article may be reprinted without charge under the following conditions:

• The author retains full copyright.
• The byline is included with the article as it appears
• Credits include the following statement: “Policy Governance® is a registered service mark of Dr. John Carver. Used with permission.”
• The Governance Coach™ is advised of the reprint and a copy of the publication in which the article appears is provided to The Governance Coach™

by Jannice Moore

Will Policy Governance survive as the modus operandi of a board when board membership changes? That depends on the foresight of the Board. The Board has an obligation to ensure that accumulated “learning” about governance is not lost when new members are added to the Board. Boards would do well to give some advance thought to the issue of “governance succession.”

Desirable Qualifications for Board Members

If Board members are appointed directly by your organization, recruiting members with the desirable qualifications is relatively straightforward. However, even if members are elected, or appointed by another body, making available in advance to appointing authorities and to potential board candidates as much information as possible about what the board does, how it operates and the desirable attributes of board members can have a positive impact on board composition. Board members should:

• Be committed to the “owners” (e.g., the community, the membership, etc.) and prepared to invite them to help shape the vision.
• Be prepared to make decisions in the best interests of the entire ownership, not just a single constituency.
• Understand the “big picture”- be able to think in terms of systems and context.
• Be able to deal with values, vision and the long term.
• Be able and willing to participate actively in deliberation, and to abide by the intent of established policies.
• Be able to tolerate dealing with issues that cannot be settled quickly.
• Be prepared to support the board’s final choice even though they may disagree with it.
• Be willing to delegate and allow others to make decisions.
• Be able to measure each decision against the standard of what is right.

Developing a Board Manual

If your board does not already have a manual, you may want to develop one as part of the orientation package for new board members. Consider a binder format for easy updating, with the following sections:

• Legislation under which the Board operates
• Board Bylaws
• Board Policies (Governance Process, Executive Limitations, Board-CEO Relationship, Ends)
• Minutes of previous meetings (archive on a regular basis)
• Monitoring reports (cumulate for a year, then archive)
• Board Agenda Cycle (roughed out plan for a year)
• Governance Action Plan (the board’s own goals for itself – not for the organization)
• Optional General Information about the organization (be careful that this section does not become an “administration” document – remember this is a board manual.)
• “Working Information” section for background material related to future decisions. [You may prefer to keep such information separately, but I find it useful to keep such information handy until a decision is made.]

This article may be reprinted without charge under the following conditions:

• The author retains full copyright.
• The byline is included with the article as it appears
• Credits include the following statement: “Policy Governance® is a registered service mark of Dr. John Carver. Used with permission.”
• The Governance Coach™ is advised of the reprint and a copy of the publication in which the article appears is provided to The Governance Coach™

by Jannice Moore

I frequently hear “myths” about Policy Governance.

Myth # 1: “Carver says to get rid of most and preferably all committees.”

In fact, Carver spends a significant amount of time in his books explaining the appropriate use of committees. What he says is to “start with no committees and add them only when clearly needed.” That does not necessarily mean to get rid of them, although it will mean getting rid of “traditional” committees if they are not doing board work. A Board Committee may be very useful, and appropriate, IF it is doing board work, not work that has already been delegated to staff, and IF it operates so as to avoid interfering with the holism of the board. That means that a committee would be:

• doing “pre-board” work, not “sub-board” work, and
• identifying for the board a range of alternatives related to a specific board issue, and the implications of those alternatives. All board members can then consider and apply their values to the alternatives, rather than the committee members spending their efforts on applying only their values, and presenting a “recommendation.”

Myth # 2: “The Carver model is too rigid.”

The insistence that boards should never get involved in operations is perhaps the right course for large, well-established groups that have lots of expertise on staff. But a small grass-roots organization may well be best served by a working board.

While Carver certainly stresses that the most important work of the board is in determining Ends, and developing broad-based limitations, leaving development of means to the CEO within those limitations, the model is NOT “one-size-fits-all.” The beauty of the model is that it is based on a set of principles, which are internally consistent. Because of this, it is indeed possible to customize it to the circumstances of different boards, without contravening the principles. In the above case, two basic principles apply:

• “policies come in sizes,” and
• “when the Board stops speaking, the CEO may make any reasonable interpretation of the Board’s policy.”

The Board’s policies limiting the staff means should begin at the broadest level. For a large organization with lots of expertise on staff, ideally, those limitations would remain very broad. For a small organization with limited staff expertise, the Board may write more detailed limitations, as long as it remembers the principles of starting with the largest, moving inward only in sequence, and allowing the CEO to make any reasonable interpretation of the policies that it has developed.

This article may be reprinted without charge under the following conditions:

• The author retains full copyright.
• The byline is included with the article as it appears
• Credits include the following statement: “Policy Governance® is a registered service mark of Dr. John Carver. Used with permission.”
• The Governance Coach™ is advised of the reprint and a copy of the publication in which the article appears is provided to The Governance Coach™

by Jannice Moore

The headlines about the deficiencies of corporate governance show no sign of abating. Most of the solutions being proposed relate to structure, composition, and regulation. While these approaches may indeed treat the symptoms, they appear to have missed the diagnosis of the underlying root cause. Many governing boards today are suffering from “governance scurvy” – a deficiency in one or both of the governance “vitamins” of sincere motivation, and the ability to clearly conceptualize the purpose and method of governance. An effective remedy already exists.

We now know that the cause of scurvy is a deficiency in Vitamin C, found for example in citrus fruit. In 1601 an English sea captain named James Lancaster conducted an experiment. At that time, over half the men on a ship would die of scurvy on a long voyage. Lancaster had a fleet of four ships. On one ship, each man received a tablespoon of lemon juice daily. The men on this ship remained healthy. On the other three ships, 110 out of 278 died by the midpoint of the voyage. Did this great idea change the world of shipping and save thousands of sailors’ lives? Not for nearly 200 years! It took another 150 years before another officer, James Lind, replicated the experiment, and another 48 years after that before the British Navy began providing regular dietary supplements.

In the 1970’s, two brilliant thinkers independently developed complementary concepts that have the potential to change the future of governance. Robert Greenleaf addressed the issue of the motivation of those who sit in positions of power on governing boards. John Carver provided a conceptually complete model of governance, that, when adopted, allows boards to operate in a way that fulfills their accountability to those for whom they hold their organization or company in trust. Yet, more than a quarter of a century later, most organizations are still struggling with how to “fix” what has gone wrong with governance, and in most cases, paying little heed to the answers that have already been provided. Is modern governance, like 17^th century sailors, doomed to wait 200 years before taking advantage of these improvements?

The Motivation Vitamin: Servant-Leadership

First, the motivation vitamin: Greenleaf points out that the motivation for being on a board of directors ought to be grounded in the desire to serve: “The greatest leader . . . is seen as a servant first because that is what he is deep down inside. Leadership is bestowed on the person who is, by nature, a true servant.” (1995, p. 20) Servant-leader boards see themselves as stewards. The Toronto Stock Exchange Committee on Corporate Governance (1994, paragraph 4.3) had this to say about stewardship: “By stewardship we mean the responsibility of the board to oversee the conduct of the business and to supervise management which is responsible for the day-to-day conduct of the business. In addition [the board ensures] no issue affecting the business and affairs of the company ‘falls between the cracks.’”

Board members should seriously ponder their motivation. Are you on a board because you wish to wield personal power? Because the position is lucrative? (While this is unlikely to apply to most not-for-profit organizations, it may be a motivating factor for corporate board members.) Because it will look good on your résumé? Or are you there because you want, in some way, to make the world a better place, whether that is through the benefits your not-for-profit organization provides or the increase of shareholder value for your company? The New York Times has said that “Servant leadership deals with the reality of power in everyday life – its legitimacy, the ethical restraints upon it and the beneficial results that can be attained through the appropriate use of power” (Quoted in Spears and Lawrence, p. 4).

Greenleaf (1991a, p. 31) makes a very powerful statement about the potential of boards to create good in the world: ” . . . [trusteeship] is an important leadership opportunity. . . . no one step will more quickly raise the quality of the total society than a radical reconstruction of trustee bodies so that they are predominantly manned by able dedicated servant-leaders.”

He also acknowledges that when boards of directors are concerned enough to make a change, it will not necessarily be easy, but it will be worth it: “If directors want a more socially responsible company . . . they should start the process by becoming more responsible directors. This will require some adjustment from administrators who are accustomed to nominal (and, therefore, less responsible) directors. Directors should accept that when they move to their proper role they create a problem, and that they should deal with it as a problem. The heightened quality of the company that will result will be to everybody’s benefit, including the administrators who will be disturbed by the adjustment they must make” (Greenleaf, 1991, p. 4).

In The Institution as Servant, he suggests that boards of directors of companies should take a leading role in social matters, not only to follow the spirit of existing legal requirements, but to keep ahead of them. They should be aware of all new laws or regulations governing social performance, and develop policy to expect voluntary compliance. Further, they should devise a system for assessing the attitudes toward, and opinions about, social performance of the company by owners, be aware of trends and developments in other businesses and institutions, and start a regular flow of information to the directors.

He also notes “the interpretation of these data which the directors need for their policy decisions is different from what administrators need for their operating decisions. Therefore, the directors should begin to build their own independent source of advice to help them interpret the new data.” (Greenleaf, 1972, p. 4)

Finally, he makes a case that it must be clear who is in charge. Boards need to have foresight, the ability to see changing social conditions far enough in advance that institutions can adapt the business to the conditions before events ultimately force their hands. “Managers are not apt to develop those qualities [foresight]. These are not the qualities that bring a manager through a succession of steps to the top of an institution. These are qualities that are best developed . . . in people who are intensely interested in the institution, who basically control it, but who stand outside its day-to-day operation and have a perspective on it that active managers are very unlikely to have. . . .we’re suffering because this role has not been generally recognized or accepted by . . .chief executives of institutions of all kinds. Managers and executives . . evolve a strategy to manage their trustees rather than the other way round” (Greenleaf, 1996, p. 350, emphasis added). It rather sounds as if he were still around watching the recent events in corporate governance!

The Conceptual Integrity Vitamin: The Policy Governance® Model

Having examined the “motivation vitamin” we turn to John Carver’s contribution: a complete “operating system” for boards, built on the premise that the leadership provided by boards is for the purpose of representing the owners (a characteristic emphasized in servant-leadership, as we have already noted). Greenleaf talks about what is often missing in governance: motivation to be a servant-leader; clarity of governance and management roles; information specific to governance. Carver goes a step further and provides the vitamin in which many boards are deficient – a conceptually complete and internally consistent model (Policy Governance) that actually gives boards a practical method that can be used to transform governance.

Carver (2002) emphasizes that the source of board authority is the owners, a fact that appears to be ignored in many companies. The board’s role is to act as a link between owners and management, directing and controlling the company on the owners’ behalf. In serving the interests of the owners, the board is obligated to provide leadership and exercise authority. This does not mean that the board simply blesses with its approval plans and strategies produced by management. It means that the board takes initial authority by clearly specifying what the company or organization is “for” – what benefits it is to produce. It also means that the board takes initial authority by clearly specifying what means are unacceptable for the management to use – an authority that seems to have been woefully lacking in most of the recent corporate governance disasters. Exercising this initial authority in both cases requires the board to have foresight, a requirement noted by Greenleaf. Carver also emphasizes that the authority of the board is vested in the group, not any individual member, including the Board Chair.

Carver’s model also provides a rigorous method by which the board can hold the management accountable for what has been delegated – once again, a serious vitamin deficiency in many boards. Used as intended, Policy Governance can be the basis for a culture of accountability in any organization: the board fulfills its fiduciary role by being clearly accountable to the organization’s owners; the board maintains an open connection with the owners so that it is aware of their values about the organization; the board delegates operational authority to the management, but not before clearly specifying the Ends it expects (what benefits are to be provided, for whom, at what cost) and operational situations that are unacceptable; the board holds the management accountable to it by systematically and rigorously monitoring performance based on those stated expectations.

Policy Governance provides a very useful distinction among the kinds of information that boards need in order to govern. While Greenleaf points out that directors need their own information flow, Carver further explicates the concept by helping boards clearly distinguish the difference between information they need to make decisions, monitoring information, and incidental information. He also encourages boards to develop their own sources of information in addition to that provided by management.

Current governance “band aid solutions” include the requirement for boards to have a variety of committees. These solutions generally give the committees considerable amounts of the board’s power, detracting from the ability of the board to function as a unified whole, using their authority as a group most effectively. Carver’s clear principles that board committees should be reserved only to do work that rightly belongs to governance, not management, and that board committees should never be allowed to interfere with the unity of the board’s process, should be applied before creating any committee.

Finally, the Policy Governance principle that the board is accountable for its own performance, and should evaluate itself just as rigorously as it evaluates the management, appears sadly lacking in most of the structural and regulatory quick fixes being proposed for corporate governance.*

A Modern Parable

Over the past several years, there has been a flurry of activity in drafting legislation (e.g., The Sarbanes-Oxley Act in the USA, proposed amendments to the Criminal Code in Canada), changing the corporate governance listing requirements for the NYSE, Nasdaq and TSX, and controversy over the benefits of rules versus principles. Each of these initiatives, while not necessarily bad in themselves, fails to look at the bigger picture. They strike me as rather like the parable of the blind men and the elephant. Each looks at isolated parts of the “governance elephant,” without benefit of conceptual wholeness. Canadian scientist David Suzuki (1989) wrote “As long as scientists look at nature in isolated bits and pieces, they can never describe the whole.” We might paraphrase that to say, “as long as society looks at governance in isolated bits and pieces, it can never describe the whole” – or realize its full potential.

Greenleaf (1991a, p. 35) asked: “Who is the enemy? Who is holding back more rapid movement to the better society that is reasonable and possible with available resources? . . . .The real enemy is fuzzy thinking on the part of good, intelligent, vital people, and their failure to lead, and to follow servants as leaders. . .”

Will governing boards continue with their fuzzy thinking, like blind men feeling part of an elephant, ignoring solutions that have already been discovered? Or will they exercise true servant-leadership, and opt to apply a model that already exists, and that has great promise to cure the “scurvy” presently afflicting many boards?

*Note that for reasons of space all the principles in the Policy Governance model have not been described here, but because the model is conceptually a whole, it is intended that all, not just some, of the principles be used.

References:

Carver, John with Oliver, Caroline. 2002. Corporate Boards That Create Value: Governing Company Performance from the Boardroom. San Francisco: Jossey-Bass Publishers.

Greenleaf, Robert K. 1972. The Institution as Servant. Indianapolis: Greenleaf Center for Servant-Leadership.

Greenleaf, Robert. 1991. Advices to Servants. Indianapolis: The Robert K. Greenleaf Center.

[Originally published in 1975 by Robert K. Greenleaf.]

Greenleaf, Robert. 1991a. The Servant as Leader. Indianapolis: The Robert K. Greenleaf Center.

[Originally published in 1970 by Robert K. Greenleaf.]

Greenleaf, Robert. 1995. Life’s Choices and Markers. In Reflections on Leadership, edited by Larry C. Spears. New York: John Wiley & Sons, Inc.

Greenleaf, Robert. 1996. A Conversation with Robert K. Greenleaf. In On Becoming a Servant Leader, edited by Don M. Frick and Larry C. Spears. San Francisco: Jossey-Bass.

Spears, Larry, C., and Michele Lawrence, eds. Focus on Leadership. John Wiley & Sons, Inc., 2002.

Suzuki, David. Inventing the Future: Reflections on Science, Technology and Nature. 1989. Toronto: D.T. Stoddart Publishing, Ltd.

Referenced by Blake Harris in “The Forces of Change.” Available from World Wide Web: [cited 23 December 2003]This article may be reprinted without charge under the following conditions:

• • The author retains full copyright.

  • The byline is included with the article as it appears

  • Credits include the following statement: “Policy Governance® is a registered service mark of Dr. John Carver. Used with permission.”

  • The Governance Coach™ is advised of the reprint and a copy of the publication in which the article appears is provided to The Governance Coach™

When disagreement arises on wording of a policy, determine if the issue causing the problem is about values. (James Collins¹, in an article in Fortune, defined a value as something that you would continue to hold even if the world changed such that you were penalized for it.) If the issue is about values, take the time to resolve it. If it is about procedure or “word smithing,” and the choice of words does not reflect a value issue, move on.

Which of these descriptions best characterizes your Board meetings?

Discussion: from the same root word as percussion and concussion. Literally means, “to break apart.” According to Peter Senge, “Discussion involves heaving one’s views at another … a cacophony of voices battling it out to see who wins and who loses.”

Dialogue: from the Greek “dia-logos,” meaning “through the meaning or word.” It involves the “flow of meaning.” People in dialogue are unconcerned about who says what, about whose view prevails, or who saves face. They enter the domain of truly thinking together.

“[the chair] … has a deep understanding of the problem or issue under consideration and is able to articulate clearly and succinctly so that all will grasp it quickly.

“[the chair] … sets the model for listening in the hope that all will listen intently and seek to understand all points of view. Listening … gives a temperate quality to the discussion that is conducive to reaching consensus.”

” … be sensitive to assess the course of the discussion and decide when it is feasible to begin to search for consensus … In one way or another, the chair states a consensus idea tentatively, asking, “Is this a possible solution?”

“… chairing toward consensus calls for sustained inventiveness in searching for both language and concept that will make a consensus idea.”

How do we know when it’s appropriate to use a board committee?

• The task planned for the committee is a Board job, not something that has been delegated to the CEO.
• The anticipated value of the committee is greater than the fractionation of the Board that it will cause.

Committee Terms of Reference or Charter

• Clearly specify the result or product you want from the committee, not the activities of the committee.
• When is the committee’s input expected back for full board discussion?
• Specify any special requirements for how the committee’s input should be presented or formatted. Remember to ask for options and implications, not a recommendation.
• What are the limits on the committee’s authority?
• Will the Board select the committee Chair, or will the committee select its own chair?

Committee Deliberations

• What is the issue?
• What has the Board already stated about this issue? Which policies pertain to it?
• Given the Board’s existing priorities, what options are available for the Board to consider regarding this issue?
• For each option, what are the implications or possible implications? You may need to gather data or seek additional expertise from staff or outside experts.
• Will the Board as a whole need some additional education (reading, workshop, resource person) in order to make a fully informed choice among the options?
• Has the committee discovered anything as it gathers information that would lead it to suggest that the Board reconsider any of its existing policies? What would be the implications of such change(s)?

You are correct. Ends does have a specific meaning in Policy Governance. Think of it as shorthand for a grouping of three things: (1) what are the benefits or results your organization is to produce, (2) who are the benefits for, and (3) what is it worth to produce them? Anything that does not answer one of these questions is “means.” Here are a few tips:

• Ends do not describe the organization. They describe what will be different for someone outside the organization because of the organization. Remember that Ends are always stated in terms of results or benefits soneone external to the operational organization.
• Ends never refer to results for staff.
• Beware of verbs in Ends—if you use them, be sure they are referring to what the beneficiaries of an organization will be doing, not to an activity that the organization is doing (e.g., “students will demonstrate mastery of mathematics consistent with their grade level”, not “mathematics will be taught.”)
• If an Ends statement does not specify a cost, it is implied as “state of the art, within available resources, efficiently.”
• Other ways of specifying cost include relative priority, rank, percentage, dollars per capita, complete End A before beginning End B, etc.
• Don’t be concerned about how to measure the End until after you have first clearly defined the value that is important to you in terms of results. It’s the CEO’s job to find a way to demonstrate achievement.
• Be sure the End is defined enough for the CEO to make a reasonable interpretation.
• The CEO can interpret the End in any reasonable way, but cannot leave out what the Board has specified at any further level of detail.

When to monitor

• At least as frequently as the schedule you have set out in your policy
• At any other additional time the board feels it is necessary

What to include in monitoring reports

• An explicit reasonable interpretation of the policy, including measurable criteria that will be used to demonstrate compliance, and rationale for why the interpretation is reasonable
• Evidence of compliance with the reasonable interpretation

When to discuss a monitoring report

• The report does not contain adequate data to convince the board that a reasonable interpretation of policy has been made
• The report indicates that a policy has been violated
• The board questions the integrity of the information
• If, by the nature of the report, the board realized that it wrote an inappropriate policy

What to record about monitoring

• Record in the minutes a motion that the board has assessed the monitoring report, and found that it provided evidence of compliance with a reasonable interpretation of policy, or that the board found it did not provide evidence of compliance with a reasonable interpretation of policy. In the latter case, specify the board’s expectations regarding when compliance must be demonstrated.
• You might find it helpful to keep a summary of monitoring reports assessed and the board’s decisions regarding them, for use at the time of the annual evaluation of the CEO, if your board does one.

Sustaining Policy Governance^®

Would you invest in a new car, and then not bother to have regular oil changes and tune-ups? It might run well for a while, but in time, that investment would lose value.

It saddens me when Boards do that very thing—invest time, energy and money into implementing the Policy Governance model—and then neglect basic “preventive maintenance.”

Check your Board’s practices against this list. If you answer “yes” to any of these questions, consider a “tune-up” soon!

• New board members have joined us since we implemented Policy Governance and they did not receive a thorough orientation to the model within one or two months of taking office.
• We have revised our Ends, and some of the statements now describe what activities our organization does, rather than the results of what it does.
• We frequently have meetings in which a discussion of Ends does not appear on the agenda.
• We do not have a deliberately planned strategy, which we carry out, for finding out the needs of our “owners.”
• We have a policy which schedules the frequency with which we will monitor the CEO’s compliance with each Ends and Executive Limitation policy, but we often don’t follow it.
• A lot of time in our board meetings is spent discussing the means (methods) by which the staff do things.
• We’ve set up some new committees that are “helping” or “advising” the staff.
• Information we receive from the CEO is not usually clearly identified as “decision” information, “monitoring” information, or just “nice to know” information.
• We often find ourselves making motions that “approve” the CEO’s recommendations, or that “direct” the CEO to do something.
• We have a new CEO since we implemented Policy Governance and he or she did not receive a thorough orientation to the model.
• The board still discusses “approval” of budget items.
• We rarely get around to evaluating our own performance at the end of a meeting.
• We still try to find a “CEO Evaluation form” once a year.
• We still depend largely on the CEO to develop our agenda.

Don’t allow the neglect of basic maintenance to turn your shiny new governance model into a rusting “has-been” that isn’t operating on all cylinders! Practice preventive maintenance. If any of the above practices are slipping into your use of the model (or haven’t yet been eliminated from previous practices), a “refresher” may be a good investment for you.

• Have you rescinded old policies developed before Policy Governance, after verifying that you have included all values previously developed in old policies that you wish to retain?
• Have you reviewed your Bylaws and identified any areas that you may need to revise to assure consistency between your new policies and bylaws?
• Have you reviewed the legislation under which you operate to be sure your new policies are compliant with applicable laws?
• Are you monitoring Executive Limitations and Ends regularly, according to the schedule set out in your policy on monitoring?
• Have you revised your board agenda to reflect Policy Governance categories?
• Have you developed a planned agenda schedule, including ownership linkage, board learning needs, and regular work on Ends?
• Are you remembering to include self-evaluation of the board as a part of each board meeting?