Tip #66 How Do CEOs Know What Their Boards REALLY Expect Of Them?
In our previous Tips for Effective Boards, we discussed the first eight of the Ten Principles of the Policy Governance® model of board operations. We now turn to the ninth Policy Governance® principle, Any Reasonable Interpretation.
John Carver and Miriam Carver have articulated this principle as follows:
“Any Reasonable Interpretation: More detailed decisions about Ends and operational means are delegated to the CEO if there is one. If there is no CEO, the board must delegate to two or more delegates, avoiding overlapping expectations or causing confusion about the authority of various managers. In the case of board means, delegation is to the CGO unless part of the delegation is explicitly directed elsewhere, for example, to a committee. The delegate has the right to use any reasonable interpretation of the applicable board policies.” (emphasis added by me; “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.)
So, how does the CEO know what the board really expects? A Policy Governance® board clearly states its expectations of the CEO in board policy: Ends policies define what results the CEO is to produce for what persons, and Executive Limitations policies provide the boundaries within which the CEO is authorized to make decisions and to act.
Further, the board allows the CEO to interpret its policies with any reasonable interpretation of its policy words. The CEO does not have to try to figure out what the board really meant when it created policy. Do boards ever actually say, “And this is what we really mean by this policy we have just created?” The CEO does not have to try to figure out what key board leaders or a majority of board members really understand the board policy to mean. Generally, different board members may have differing understandings of what a majority of board members may have intended when they created the policy or they may have differing current “preferred understandings” of the policy.
Rather, the CEO is allowed “any reasonable interpretation” of board policy, any interpretation that might be made by a “reasonable person.” But CEOs must demonstrate to their boards why their interpretations are reasonable. This occurs in the context of policy monitoring reports submitted by the CEO to their board in accordance with the board’s schedule for reviewing such reports (relating to Ends policies and Executive Limitations policies). (In next month’s Tip for Effective Boards we will focus on board monitoring of CEO performance related to board expectations in our discussion of the tenth and final principle of the Policy Governance® model.)
The CEO’s interpretations of board policy are also referred to as operational definitions of board policy in that they include metrics or measurable indicators of organizational performance and define how compliance with board policy will be demonstrated. (The last of the policy governance principles focuses on the board’s obligation to monitor organizational performance to ensure that the board’s expectations as expressed in board policy and reasonably interpreted are complied with.)
In sum, the “Any Reasonable Interpretation” principle provides a basis for establishing a clear range of discretion afforded by the board to the CEO while holding the CEO accountable for demonstrating the reasonableness of their interpretations of board policy.
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.