Tip #12 Empower the Chief Executive to Make Decisions within the Defined Delegated Scope of Authority
In the last four Tips for Effective Boards, we focused on the first four principles for effective board delegation to management: 1) be clear about the recipient of this delegation, 2) be clear about the source of this delegation (that is, the board delegating as a unit), 3) be clear about the board’s expectations for the performance of the chief executive, and 4) be clear about the scope of authority and discretion being delegated to the chief executive.
In this month’s communication, our focus is on the fifth principle for effective board delegation to management: empower the chief executive to make decisions within the defined delegated scope of authority.
When the board and CEO have a shared understanding about the scope of authority and discretion being delegated to the chief executive the board can empower the CEO to make any decisions and engage in any actions within the defined delegated scope of authority. As stated in the last Tip for Effective Boards, some boards may not officially clarify the scope of authority and discretion being delegated. Or they may identify specific operational matters delegated to the CEO. For Policy Governance® boards, defining the scope of CEO authority and discretion means that the CEO can do anything not prohibited by the board, that is, everything is permitted unless it is forbidden. Further, Policy Governance® boards agree to support all decisions of the CEO as long as the CEO does not go outside the boundaries of acceptability and do anything prohibited by the board’s policies.
In other words, the Policy Governance® board does not say to the chief executive you are allowed to do A, B, and C. Rather, the board says, you can decide to do anything you think should be done as long as you avoid X, Y, and Z. It’s like saying, you are free to drive wherever you wish, as long as you don’t break the driving laws. Or, you are free to make any number of decisions about how to live your life as long as you don’t break society’s laws. CEOs whose boards follow the Policy Governance® model experience a high level of empowerment in their freedom to do whatever has not been prohibited by their boards.
Most boards say they don’t want to engage in micromanaging their CEO, that is, being overly involved in operational matters. But often, it remains unclear for boards when they cross over into micromanaging. In Policy Governance® the boundary is clear. Through policy the board determines the range of CEO decision-making that is acceptable to the board. Once the boundaries are established, the board does not involve itself in making decisions within the range of discretion delegated to the CEO. Hence, Policy Governance® boards do not micromanage.
However, it is extremely important to recognize that empowerment of the CEO does not mean a reduction in board oversight of CEO performance and operational matters.
Empowerment needs to be coupled with stringent board oversight and accountability but that’s the topic of the next principle for effective board delegation and our next Tip for Effective Boards.
For reference, the seven principles for effective board delegation to management follow.
Seven Principles for Effective Board Delegation to Management
- Be clear about the recipient of board delegation to management.
- Embrace the “group authority” of the board with delegation to the chief executive coming from the board as a whole. (This principle and the following principles assume the board is delegating to a chief executive.)
- Clearly state the board’s expectations for performance of the chief executive.
- Clearly delineate the scope of authority and discretion being delegated to the chief executive.
- Empower the chief executive to make decisions within the defined delegated scope of authority.
- Track and evaluate the performance of the chief executive in relation to the board’s stated expectations.
- Recognize positive performance of the chief executive and take corrective action when indicated.
For more information about Policy Governance®, please go to www.BoardsOnCourse.com/policy-governance.