Tip #16 Should the Board Trust the CEO
The simple answer: Trust the CEO? - Yes, ideally when you can, but verify regardless of trust.
Yes, of course, trust can be quite valuable. Trust grows as people share the “good” as well as the “not so good” and when their actions are consistent with their words. A board organizational structure that provides clarity about board and CEO roles and relationships, clear expectations for CEO performance, and ongoing balanced feedback regarding CEO performance supports a culture in which mutual trust between board and CEO can grow. Such trust supports and is fueled by the continued expression of honest, open, constructive communication and provides fertile ground for effective and creative problem-solving and decision-making.
However, while trust is valuable, effective comprehensive monitoring of CEO and organizational performance is “trust-neutral,” that is, it needs to occur regardless of how much trust the board may have in the CEO. When things go terribly wrong, “But we trusted our CEO” is never a legitimate excuse.
Boards have a legal responsibility to protect the well-being and the assets of the organizations that they govern. They need to ensure that the CEO’s and organization’s performance meet the board’s expectations. Failure to effectively monitor a CEO because he or she is trusted amounts to board malpractice and an abdication of its fiduciary responsibility for the organization.
Hence, every board needs to have in place a system of ongoing comprehensive monitoring of the CEO’s and organization’s performance. Such a system needs to monitor organizational achievement relative to the organization’s purpose and operational performance in accordance with the board’s values of prudence/risk management and ethics.
The Policy Governance® Model provides a comprehensive system for ongoing monitoring of CEO and organizational performance. A Policy Governance® board monitors organizational achievement and operational performance. With respect to organizational achievement, the board monitors the extent to which the organization is being successful in producing the board’s desired impacts on people’s lives. Is the organization making a positive difference for people? Not so much are organizational services being provided but are people better off. With respect to operational performance, the board establishes firm boundaries within which the CEO and organization are expected to perform. Ongoing monitoring ensures that unacceptable activities and conditions are not occurring or are expeditiously corrected. Ongoing monitoring involves regular review of data related to measureable board expectations with respect to organizational achievement and in such operational areas as personnel, customer relations, vendors, financial planning, financial activity, asset protection, etc.
Whatever system of monitoring your board employs, it is important to make sure that your board is not relying solely on one source of information but that it is receiving information and data from multiple sources. The Policy Governance® Model provides for three types of monitoring reports: internal monitoring reports developed by the CEO and staff, external monitoring reports from outside experts such as auditors, regulators, and consultants, and direct inspection monitoring reports by board members.
For more information about Policy Governance®, go to www.BoardsOnCourse.com/policy-governance.