In this Tip for Effective Boards, we will focus on the fourth, fifth and sixth of the Ten Keys to a Successful Board-CEO Partnership.

Clarify the Scope of the CEO’s Delegated Authority and Range of Discretion.  Lack of clarity about what the CEO is allowed to decide and what is reserved to the board can be a major source of board and CEO frustration and major friction between the two.  What authority is being delegated to the CEO and the range of discretion being afforded the CEO can be defined through a job description, employment contract, or a board listing of decisions delegated to the CEO.  I’ve also seen boards use a matrix listing decision areas in the left column.  Other possible columns of the matrix could allow the board to check off whether each decision area would involve CEO decisions, CEO decisions with prior notification to the board, decisions recommended by the CEO to the board, and decisions reserved to the board.  Such matrixes may go on for several pages.  I personally find the Policy Governance® system to be the most efficient and effective method that I am aware of for establishing clear boundaries delineating what the CEO is allowed to decide or do and what the CEO is not allowed to decide or do.  In this system, the board establishes Executive Limitations Policies which provide limits or boundaries for the CEO who is empowered to make any and all decisions as long as he or she avoids activities and situations prohibited by the board, that is, activities and situations outside the established limits or boundaries.  Instead of being limited to doing what the board explicitly allows, the CEO is free to do whatever the board has not prohibited.  Such a system of boundaries provides clarity for board and CEO and achieves an effective balance of CEO empowerment and board control through monitoring CEO compliance with executive boundaries.

Specify the Board’s Expectations of the CEO.  Traditional approaches include a CEO job description, an employment contract, and an executive plan consisting of goals, strategies, and objectives approved by the board.  In the Policy Governance® model, the board’s expectations for the CEO are expressed in two types of board policies: 1) Ends Policies which define what results are to be achieved by the organization, for whom those results are to be achieved, and the expected worth of those results, and 2) Executive Limitations Policies which define the boundaries within which the CEO is empowered to make decisions.  These boundaries are established by determining what activities and situations are not allowed.  As long as these prohibited activities and situations are avoided the CEO is empowered to decide and act.

Evaluate the CEO against Board Expectations.  For effective board guidance of the CEO and fair accountability of the CEO to the board, the board’s expectations of the CEO must be clearly defined by the board (as stated above).  Then, evaluation of the CEO should relate only to those previously stated board expectations.  With clearly stated board expectations for the CEO and evaluation of the CEO only against those expectations and ongoing tracking by the board of CEO/organizational performance, there are no surprises in the annual CEO evaluation.

In next month’s Tip for Effective Boards we’ll continue with our review of Ten Keys to a Successful Board-CEO Partnership and focus on the last four keys.

For reference, the Ten Keys to a Successful Board-CEO Partnership follow: 

1. Clarify roles and relationship.
2. Embrace the board group authority principle.
3. Respect the integrity of the CEO position.
4. Clarify the scope of the CEO’s delegated authority and range of discretion.
5. Specify the board’s expectations of the CEO.
6. Evaluate the CEO against board expectations.
7. Provide support to the board.
8. Engage in trust-building behaviors.
9. Provide fair and competitive compensation for the CEO.
10. Be a learning organization.

I will be happy to customize a workshop for your board on building and maintaining a successful Board-CEO partnership.  Such a workshop may be particularly helpful when transitioning to a new CEO or when board and CEO would like to enhance their relationship.  If you would like more information, please respond to this email or contact me via jpbohley@gmail.com.    

Please take the time to check out the Policy Governance® model.  It provides a comprehensive board governance design that provides a sound basis for a successful Board-CEO partnership.  For more information about the Policy Governance® model please click https://www.BoardsOnCourse.com/policy-governance or contact me at jpbohley@gmail.com.  

To check out any of the other Tips for Effective Boards, including the two previous Tips on a successful Board-CEO partnership (Tips for Effective Boards 51 and 52), click https://www.BoardsOnCourse.com/blog.