A critical challenge that all boards face is finding a way to effectively balance empowering the CEO while retaining organizational control.  Rubberstamping and micromanaging represent two extremes to be avoided in achieving this balance.

Rubberstamping refers to a board accepting or approving whatever the CEO proposes or does without the board exercising independent critical judgment regarding the matter at hand.  Such a board governance style represents an abdication of a board’s fiduciary duty to direct and protect the organization that it governing.  A board’s trust of a CEO is important but doesn’t absolve the board of its fiduciary responsibility.

Micromanaging refers to a board becoming overinvolved in day to day operational decisions.  Such a board governance style undercuts the CEO’s ability to apply professionally informed creative judgment and make timely decisions.  It also diverts a board’s time and energy away from its critically important governance functions.

So, how can a board avoid rubberstamping and micromanaging and effectively balance empowerment of the CEO and organizational control?  To achieve this goal it is important for the board to be clear about the range of discretion being delegated by the board to the CEO and to ensure that this range of discretion is being respected by the board and observed by the CEO.

I’ve seen three approaches to delineating the scope of authority and discretion being delegated to the CEO. 

In the first approach, a board makes no official decision about what decisions it is to make and what decisions have been delegated to the CEO.  Board and CEO may have a tacit understanding that the board makes the bigger decisions and the CEO makes the smaller decisions or the board makes the policy decisions and the CEO makes the operational decisions.  However, it may often not be clear where the boundary is between bigger and smaller decisions or between the policy and operational decisions.   In the absence of clarity about the scope of delegated authority, a board’s legitimate need to exercise control over operations can easily lead to micromanaging.

In the second approach, a board makes a comprehensive list of all decisions that are delegated to its CEO or a board establishes a matrix which lists numerous areas of decision-making and decides for each whether this decision is to be made by the CEO or by the board.  A matrix may become more complex and include additional options such as a decision can be made by the CEO only after informing the board members or such a decision can be recommended to the board by the CEO but only enacted by the CEO after board approval.  While making a list or matrix may be an improvement over the first approach, it is a quite daunting task to identify all potential decision areas.  That being said, this approach does provide clarity for board and CEO with respect to the administrative matters identified.  However, the challenge remains for the board to respect CEO decision-making in areas delegated to the CEO by the board while also retaining appropriate oversight of organizational performance impacted by such CEO decision-making.

The third approach is the Policy Governance® approach which provides a creative solution for clearly defining the scope of authority being delegated to the CEO and for effectively balancing CEO empowerment and organizational control.  In this model, the board develops board policies that define the limits or boundaries regarding the authority being granted by the board to the CEO.  CEO decision-making or activity that stays within these established boundaries is acceptable to and effectively approved by the board while any decision-making or activity by the CEO outside these boundaries is prohibited.  In other words, through its policies, a Policy Governance® board establishes the range of operational discretion that it is allowing its CEO.  After establishing these boundaries or limits, the board rigorously monitors CEO/organizational performance to ensure that it stays within these boundaries or limits.  You might say, the board through its policies builds a fence around the area of discretion being allowed to the CEO.  The board stays out of the fenced-in area and respects the CEO’s right to make any decisions within the fenced-in area.  In addition, the board maintains organizational control by establishing and maintaining a rigorous monitoring system to ensure that the CEO does not go outside the fenced-in area.  Examples of what’s outside the fenced-in area are:  anything illegal, anything imprudent (too risky), anything unethical or inconsistent with board values, and anything which the board reserves for its own decision-making.  In Policy Governance®, the policies that establish these boundaries or limits (or fences) are referred to as Executive Limitations Policies.

Please take the time to check out the Policy Governance® model.  It provides a comprehensive board governance design that avoids the pitfalls of rubberstamping and micromanaging while effectively balancing CEO empowerment and board control.  For more information about the Policy Governance® model please click https://www.BoardsOnCourse.com/policy-governance or contact me at jpbohley@gmail.com.