Tip #64 Defining How Much Discretion Your CEO Should Have
In our previous Tips for Effective Boards, we discussed the first six of the Ten Principles of the Policy Governance® model of board operations. We now turn to the seventh Policy Governance® principle, Policy Size.
The purpose of this principle is to enable the board to have control over all aspects of the organization while providing the CEO with clearly stated boundaries that provide the CEO with as much authority and discretion as the board is comfortable with.
John Carver and Miriam Carver have articulated the Policy Sizes principle as follows:
“Policy Sizes: The board decides its policies in each category first at the broadest, most inclusive level. It further defines each policy in descending levels of detail until reaching the level of detail at which it is willing to accept any reasonable interpretation by the applicable delegatee of its words thus far. Ends, Executive Limitations, Governance Process, and Board-Management Delegation policies are exhaustive in that they establish control over the entire organization, both board and staff….” (“Policy Governance® Source Document” produced by the International Policy Governance Association in consultation with John Carver and Miriam Carver, 2011: https://www.BoardsOnCourse.com/policy-governance.)
Let’s take the simple example of a person requesting a cup of coffee. If a person requests a cup of coffee and makes no further specifications, their request is open to a large number of possibilities: black or with milk (or cream, half and half, powdered creamer, flavored creamers), regular or decaf, strong or milder blends, etc. If this person doesn’t care which of these possibilities occur, they don’t have to specify their request for a cup of coffee any further. But, if a person would not be satisfied with some of these possibilities, they can specify their request further. They may say they would like regular (not decaf) black coffee and thereby narrow the range of possibilities regarding their request. Similar to our coffee example, the board continues its policy making and becomes more and more detailed and specific until it is comfortable with the remaining range of discretion, the remaining range of options available to those to whom it is delegating authority. The board’s goal is to clearly delineate through board policies the boundaries that create a range of discretion for the CEO as large as the board is comfortable with.
In each of the four policy quadrants (Ends, Executive Limitations, Governance Process, and Board-Management Delegation), the board establishes a very general comprehensive policy covering the whole of that policy quadrant. It then proceeds to develop policy in specific areas within each policy quadrant. These specific policies begin with a general summary policy statement covering the whole of that policy area. The board then develops more specific policy statements related to that general summary policy until it is satisfied that it has clearly defined how much discretion it wishes to allow the CEO (or other person delegated authority).
For example, in the Executive Limitations quadrant, the board may establish a very general comprehensive operations policy such as the following: “The CEO shall not cause or allow any practice, activity, decision, or organizational circumstance which is either unlawful, imprudent, or in violation of accepted business and professional ethics.” (in Governing By Principles: An Approach to Unleash the Power of Policy Governance® by Eric Craymer and Susan Radwan, Grand Ledge, MI: PPG Press, 2020, p. 72) The board can then proceed to develop policies in different operational areas such as: treatment of clients/customers, treatment of staff, financial planning and budgeting, financial activity, management of assets, support for the board, etc. Each of these policies would begin with a general summary policy statement and be followed by more specific detailed policy statements until the board is willing to accept any reasonable interpretation of its policy words.
Boards don’t have to start from scratch in developing these policies. Template board policies have been developed by John Carver and Miriam Carver. (See their book Reinventing Your Board: A Step-by-Step Guide to Implementing Policy Governance. Revised Edition. San Francisco, California: Jossey-Bass. 2006, pages 233-268.) In addition, the most recent versions of these template policies are available from consultants who have completed the Policy Governance® Academysm. I have completed this training and have the Carvers’ permission to use these template policies in my consulting. Other Policy Governance® consultants with this training can be identified through Govern for Impact’s “Find a Consultant” service. (www.governforimpact.org)
For additional information about this principle and alternative approaches to defining the range of CEO discretion, please check out Tips for Effective Boards #11: Clearly Delineate the Scope of Authority: https:www.BoardsOnCourse.com/blog.
To see all ten principles of the Policy Governance® model, please click https://www.BoardsOnCourse.com/policy-governance and then click The Principles of Policy Governance® on the left-side menu.