Tip #10 Clearly State the Board's Expectations for the Performance of the Chief Executive
In the last two Tips for Effective Boards, we focused on the first two principles for effective board delegation to management: 1) be clear about the recipient of this delegation and 2) be clear about the source of this delegation (that is, the board delegating as a unit).
In this month’s communication, our focus is on the third principle for effective board delegation to management: clearly state the board’s expectations for performance of the chief executive.
Traditional approaches to defining the performance expectations of the chief executive include the following: job descriptions that define core areas of responsibility and key tasks, employment contracts, goals and strategies outlined in board-approved plans, and other specific directives from the board.
In the Policy Governance® model, boards express in board policy two kinds of expectations for their chief executive: expectations about results to be achieved by the organization (Ends) and expectations about safe and ethical organizational operations (Executive Limitations). Such expectations then become the focus of ongoing monitoring and evaluation by the board.
Board Ends Policies. In Policy Governance®, Ends Policies deal with three types of issues: 1) the impacts or benefits to be produced by the organization, 2) the persons to be benefited, and 3) the worth of such benefits. Ends Policies focus not on activities or processes but on the organization’s defined impact on the people who are to be benefited by the organization. Organizational impacts or results are quantified and chief executives are held accountable by their boards for the achievement of measureable results that are worth the cost of producing such results. Hence, a Policy Governance® board is a results-driven board.
Board Executive Limitations Policies. In Policy Governance®, Executive Limitations Policies define the board’s expectations about safe and ethical organizational operations. In order to avoid the board becoming a management body rather than a governance body, such policies do not tell the chief executive how to do his or her job but identify only what activities and situations are not allowed by the board. That is, these policies create boundaries between what is acceptable and not acceptable for the chief executive to do or to allow. Examples of what is not allowable for the CEO are: anything illegal, anything imprudent (too risky), anything inconsistent with board values, and anything which the board reserves for its own decision-making. (With respect to the last example, a board may reserve to itself decisions regarding buying and selling real estate and purchases above a board-specified limit, etc.) As long as the chief executive avoids what has been prohibited by the board, he or she is empowered to exercise discretion and make decisions. Policy Governance® boards agree to allow and support all decisions of the chief executive that avoid what the board has prohibited. More about these policies later as we discuss other principles for effective board delegation to the chief executive.
Note: While the Policy Governance® model uses the terms Ends Policies and Executive Limitations Policies, in practice boards use whatever names they select for these categories of policies.
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.