Sunday, June 22, 2014

Are We Making Progress with Policy Governance in SME’s?

John and Miriam Carver wrote back in 2008 that “in Policy Governance the CEO is given a great deal of authority by the board, so it is inconceivable that a board would not want to know that executive authority is being reasonably and defensibly used. A board that does not examine the use of the authority it has granted the CEO is not delegating so much as abdicating its responsibility, (p.1).
Boards of many SME’s are often either family based or ‘country club’ based, the later meaning they are made up of a group of buddies who often struggle to get beyond the ‘buddy’ system and woefully miss their core responsibilities – which is soon forgotten as they meet on the 19th hole and chat about everything but their policy governance requirements.
This may appear unfair and harsh as there are excellently run SME’s with board structures that many large organisations could learn from – but in the 21st Century and especially after the global financial crisis this appears sadly to be the exception rather than the rule. The global financial crisis gave boards the excuse to take their eye off policy while they focused on survival and turnaround strategies, and sadly set corporate governance in all areas back a decade or more.
Also there are some small businesses that may feel that they are too small to take the governance responsibilities too seriously as their main day to day focus is on cash flow and sales. In these very small organisations the ‘board’ is often very operationally focused and hence can lose sight of their other responsibilities. There are strong arguments for these small organisations to employ the services of one or two well-rounded non-executive directors, but though the logic is sound, in practice the two ‘sides’ often find it hard to gel; as the non-execs start to try to get the board to operate as ‘one’ – and the executive members just see the non-execs as interfering in their business and making suggestions about things that too the exec members are just time wasting administrative ‘rules’ that have no bearing on profitability. 
The Carver’s remind us that “board Leadership requires, above all, that the board provide vision. To do so, the board must first have an adequate vision of its own job. That role is best conceived neither as volunteer-helper nor as watchdog but as trustee-owner. Policy Governance is an approach to the job of governing that emphasizes values, vision, empowerment of both board and staff, and the strategic ability to lead leaders,” (p.2).
When it comes to small and medium sized organisations, they often struggle to clearly define the role of the board and its responsibility with respect to policy governance specifically. Four requirements that are worth the board considering are;
Firstly the board determines its philosophy, its accountability, and specifics of its own job.
Secondly the board clarifies the manner in which it delegates authority to staff as well as how it evaluates staff performance on provisions of the Executive Limitations policies.
Thirdly the board establishes the boundaries of acceptability within which staff methods and activities can responsibly be left to staff. These limiting policies, therefore, apply to staff means rather than to ends (i.e. in this instance methods rather than results, which links back to governance policies); and
Fourthly the board defines which human needs are to be met, for whom, and at what cost. Written with a long-term perspective, these mission-related policies embody most of the board’s part of long-range planning.
Whether boards like it or not they do have a governance responsibility and this does revolve around policy as much as other things. Policy may sound like a load of administrative rules and regulations that ‘we’ can do without – but it may be worth taking a moment and just sitting back and thinking about the real pros and cons of setting up your governance policies correctly. Sure it will take time to establish them and ‘write them up’ but once done – they set the foundation for many board related initiatives that have a direct impact on cash flow, sales, and profitability – in fact the policies are the foundation that help define who you are and how you will control your sustainable growth.
Carver, J. and Carver, M. (2008). The Real World of Governance Theory. Board Leadership. Vol. 2008, Issue 96, p.1-3.

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