There are two categories of policies in Policy Governance
® that provide direction to the CEO: (1) Ends, and (2) Executive Limitations. The Ends describe, to whatever level of detail the board determines is needed, the organizational results that the CEO is accountable to produce, the beneficiaries, and what it is worth to produce those results (the cost). These Ends policies are
not in the negative. They are “prescribed” as expectations.
The second category of policies that provide direction to the CEO is the Executive Limitations policies. A lot of people have difficulty understanding why limitations can be so effective, because the prevailing wisdom is that saying something negative must inherently be bad. In this case, the reality is exactly the opposite. While the board is ultimately accountable for everything about the organization, if there is a CEO, that person is “on the ground” and is the one who actually needs to get the job done. Giving the CEO as much authority as possible to determine how best to do that job is to the board’s advantage. But at the same time, the board should not give away so much authority that it abdicates its governance role.
Think of a teeter totter – it works best when evenly balanced. Similarly, the balance between board and CEO needs to be such that the CEO has the authority to make decisions expeditiously, with as much freedom as possible for creative and innovative solutions, while the board still has authority and oversight sufficient to fulfill its fiduciary responsibilities. Policy Governance
® provides an elegant solution for this balancing act. The board is always more powerful than the CEO, because the board sets the Ends (the results the organization is to produce, the beneficiaries, and what it is worth to produce those results), and the board sets parameters, or limitations, on the means that the CEO may use to achieve the results. The limitations set boundaries. The board allows the CEO to use any means, as long as they fall within a reasonable interpretation of the board’s limiting policies. In other words, “if we didn’t say no, it’s pre-approved.” This gives the CEO much more creative freedom than saying, “do it this way, and come back for approval if you want to do it any other way,” which is more typical of how many boards function.
Executive Limitations policies should always be about
prudence or
ethics. What means to achieve the Ends would be
unacceptable even if they worked, because they are imprudent or unethical? Once the board has specified these limitations, to whatever level of detail the board feels necessary, it can allow the CEO to determine the most appropriate means. Of course, the board then monitors to ensure that there is appropriate performance consistent with the policies. (That’s another question – please check the FAQ on monitoring for more details.) A combination of well constructed Ends and Executive Limitations policies, and structured, rigorous monitoring provides the board with complete control of everything it needs to control in order to provide future-oriented direction and fiduciary oversight.
More details about how Policy Governance
® works are available in the
Introduction to Policy Governance® Workshop, our NEW
Governance Coach Online Virtual Workshop Introduction to Policy Governance, as well as our interactive
REALBoard Self-Directed Learning Modules.
