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.
References:
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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