- The Challenges of the Reasonable Interpretation
I think I’m a half decent Policy Governance® consultant. I seem to be able to communicate fairly effectively; (although it took a dramatic downturn when my kids were teens). I can explain the difference between Ends and Executive Limitations and I’m able to elucidate about monitoring reports. Boards even get it when I elaborate on the importance of assessing their CEO based on the accomplishment of board stated Ends and the avoidance of those circumstances and situations which would be unacceptable even if the Ends were accomplished. I make sure to underscore the policy which states that the board will evaluate the performance of its CEO solely based on the accomplishment of board policies on Ends and Executive Limitations. I point out that it’s critical to track the board’s assessment of the monitoring reports over the year as it relates to the CEO’s compliance and ultimately his or her performance. I’ve nailed it! They’ve got it!
So how do we do the annual evaluation of our CEO? There’s got to be more to it than just looking at the monitoring reports. We’re thinking of doing a 360 evaluation; what do you think?
My deluded self-confidence is shattered.
So let’s take another run at it.
First it’s important to remind ourselves that Policy Governance is not a set of arbitrarily developed principles. The Carver model isn’t a list of rules that a board need to follow if it’s going to do it right. It’s a system of integrated principles that only work well if they are used cohesively.
So don’t worry about trying to stick to a set of rules.
Second, your board should only be concerned about how the organization is performing. Is it successful? That means is it achieving the appropriate results in the lives of the intended recipients, doing so ethically and legally and at a cost that’s acceptable as stated by the board. A board is able to satisfy itself that the organization is on track through its assessment of the monitoring reports it has received throughout the year. It has been keeping track of those reports that the CEO has provided. This includes data to demonstrate compliance to his/her reasonable interpretation of the board’s policies. Let’s suppose that the monitoring reports have shown total compliance. We understand this to mean that the organization is successful. So what else does it need to evaluate? Obviously if the organization is successful, the CEO must be doing a good job.
However a board shouldn’t accept every monitoring reports carte blanche. From time to time it should take a certain policy and either initiate its own inspection or engage the services of an outside auditor to verify the accuracy of the information that it’s receiving from the CEO. This usually includes a financial audit performed by a duly qualified auditor. Often an information technologist will be contracted to ensure the security of an IT system or the redundancies of its data backup. When it comes to the CEO evaluation, an HR person may be brought in to determine whether employees are clear about such things as employer expectations, whistleblowing protocol and that they are being treated fairly. These audits are intended to confirm that the conditions, situations and circumstances which the board has already prohibited are being avoided. Now it can be confident that the financial records reflect the facts, the IT is safe and secure and the employees have a clear and respectful work environment.
So what about a multi-source evaluation or what is often referred to as a 360 evaluation? My work is almost exclusively with faith-based organizations and because of that, board members are often made up of those individuals who have a pastoral heart. Along with this come concerns about the emotional, spiritual or physical health of their CEO or his/her family relationships. After all, doesn’t a board have some responsibility for the wellbeing of its CEO?
First, remember the board shouldn’t be concerned about how the Ends are accomplished as along as the means used are not prohibited by those policies which reflect the board’s values. Its number one responsibility is to the owners on whose behalf it governs. It has no governance responsibility to ensure its CEO is emotionally, physically or spiritually healthy, except to the extent that any unhealthiness would negatively affect the organization. While the board may have some preferences as to how the CEO should behave and relate, its priority is the health of the organization. At this point you might suggest that while this may be true from a governance perspective, it isn’t consistent with the mandate of Scripture which is to care for one another. As members of the family of God we certainly have a responsibility to care for one another; however that is not intrinsic to the responsibility of governance.
If I haven’t yet made the case convincingly, let me concede your point. So are you now prepared to perform the same evaluation on each of your board members? If caring for one another includes an evaluation, then that should apply to all relationships including the one you and your fellow board members share. After all, any concerns that may arise from an evaluation of your CEO could also be present in the lives of your colleagues on the board. It could be that someone is mistreating one their employees or their time on the board is negatively impacting their relationships at home. And whatever changes you may insist on in the life of your CEO, you must also require in the lives of each other.
Now suppose your board pushes ahead with its evaluation and discovers that the CEO is working extra-long hours, limiting time at home and not using up his or her vacation time. What would it do with that information? Tell the CEO he or she can’t work more than 50 hours a week and must use up all their vacation time? Suppose in doing so it negatively impacted the organization to the benefit of the family of the CEO. Now you have the board looking out for the relational dynamics of the family of its CEO at the expense of guarding the interests of its moral owners.
But we want to find out if our CEO is collegial and able to build consensus. Why that is a board value? While it’s always nice to be nice, your CEO is not on the ballot for a congeniality award. Niceness does not necessarily equate to being ethical, which is undoubtedly a board value. Once a board decides it’s going to evaluate its CEO on the basis of being whatever kind of person employees, suppliers or other CEO’s like, it is now in the ditch. It is effectively telling its CEO that not only must the Ends be accomplished; they must be accomplished in a relational manner that suits those who have no skin in the game.
An additional challenge which comes with a multi-source evaluation is that individuals other than the board are part of the evaluation. While it’s appropriate for a board to obtain information to confirm that its values regarding for example the treatment of staff, to acquire unrelated information from random individuals is not only unhelpful, it can create confusion. Now the CEO is evaluated by random individuals based on random criteria which are not tied to any value or policy of the board.
Your board must be committed to governing only on behalf of its moral owners, ensuring the health and success of the organization as it accomplishes its Ends legally, ethically and prudently. In doing so it can avoid the confusion that can be attendant with concomitantly monitoring the health of its CEO. When it does this it will view the CEO’s performance as identical to the performance of the organization. So if the organization is successful, the CEO is thereby successful.
Policy Governance® is an internationally registered service mark of John Carver. Registration is only to ensure accurate description of the model rather than for financial gain. The model is available free to all with no royalties or licence fees for its use. The authoritative website for Policy Governance is www.carvergovernance.com.