Why Only the CEO Can interpret the Board’s Ends and Executive Limitations Policies
BOARD LEADERSHIP NUMBER46, NOV-DEC. 1999
IN POLICY GOVERNANCE, the board instructs the CEO with ends policies and with executive limitations policies. These policies are ordinarily few and brief and hence the language used by the board in these policies is of utmost importance. One aspect of Policy Governance that many boards struggle with is that after taking so much care in crafting policies, they have to grant the CEO the exclusive right to interpret their words. John Carver looks at how one board tackled this issue.
Recently, the board of a division of a national health charity was having trouble with the provision of Policy Governance that calls for boards to let the CEO—and not the board itself—act as the interpreter of the board’s policies. One board member, a lawyer by trade, was of the strong opinion that the board should never give away the right to say what its words mean. Consequently, the board was considering the following wording in its Monitoring CEO Performance policy
In monitoring the organization with respect to ends and executive limitations, the standard of performance will be any reasonable interpretation by the board of the words of these policies.
Including the words ‘by the board” is sufficient to destroy the ability of Policy Governance to fulfill its promise of governance excellence. And yet the board member’s concern certainly seems to make sense. Why would a board work so hard at choosing the right words, only to forfeit the right to ensure that they are interpreted as the board intended? The obvious answer is that this is exactly the reason they need to that take great care in choosing their words— to make sure that the board’s words can be properly understood by someone else.
If I demand to be the final arbiter of what my words mean, no one can trust my words. It makes sense, of course, that I be the final arbiter of what I meant to say. As the only authority on what I mean, I can correct my error if I’ve used words that convey something other than my meaning. But it is clearly my error to be corrected, not the receiver’s. And so it is in Policy Governance. The board can, at any time, change the words of its policies so as more accurately to convey what is meant. But the opportunity for self-correction was not what this concerned board member had in mind. He wanted the board to judge the CEO’s performance using the board’s interpretation of its words, corrected or not. Remember that in Policy Governance, corrected may simply mean “further defined” by going into more detailed policy language, thereby giving the CEO more specific instructions.
The fact that the board will assess organizational performance—judge the CEO’s success—based on the words of its policies makes the assignment of interpretation rights critical. If the board wants the grounds kept clean. For example, it had better describe what it means by the word clean if it is unwilling for the CEO to use any reasonable interpretation of that word. There are so many details in even a small organization, much less a large or complex one, that any alternative to allowing the CEO these interpretation rights is unmanageable. Either the CEO sends a constant stream of requests for clarification to the board, or the CEO risks being judged by the board on unstated criteria. The former is enough to clutter the board’s agenda and keep it from far more important work. The latter puts the CEO back into the same dilemma he or she was in before Policy Governance.
Under Policy Governance, the communication rule from the board to the CEO is simply this: “We will take responsibility for using the words we mean, recognizing that all words are open to interpretation. We will take care to use words that define our meaning sufficiently clear so that we can entrust our words to you. We demand only that the organization perform in a way that reflects a reason able interpretation of our words. If that yields a performance we don’t like, we’ll take responsibility for our error and change our words for clarity of future understanding. However, if you are unable to demonstrate that organizational performance is a reasonable interpretation of our words, you will he considered to have violated our policies.”
The accompanying flowchart illustrates the decision pathway that a board should use when considering organizational performance (Figure 4.3). That performance is considered every time monitoring data are received. The board does not, of course, have go to through all these steps for each piece of monitoring data. But it should know what sequence to follow when applicable.
It turns out the lawyer and the charity board he sat on were ultimately satisfied with the Policy Governance rationale on this matter, so they changed the wording they had originally proposed to read as follows: “In monitoring the organization with respect to ends and executive limitations, the standard of performance will be any reasonable interpretation by the CEO of the words of these policies.”