Ted Hull Consulting FYI

Never Have a Policy that Includes "Unless the Board Approves"

March 7th, 2018

Recently I was meeting with a board that was just beginning to implement Policy Governance®. The board appeared to have a good grasp of the model including the principle of Executive Limitations. The board understood the idea that it would delegate authority to the CEO to use any means to accomplish the Ends except those which are (a) illegal, imprudent or unethical, or (b) which it has chosen not to delegate to the CEO and therefore to retain to itself. Everything went along smoothly until it came to a policy regarding the termination of employees. At this point, the board insisted that the CEO have a board committee “review” any proposed termination of an employee. It didn’t take a lot of probing to have them discover that a review was for the purpose of approving or withholding approval of the CEO’s decision to terminate an employee.

This board was more specifically interpreting illegal to include the illegal termination of an employee, which it had every right to do. However the board was essentially saying that it must approve – via a board committee, any terminations. Any time I hit a snag like this, I assume there is some history which has made the board risk-averse. To manage its angst, a board will sometimes construct an inappropriate Executive Limitation in such a way so as to direct the CEO to use a means that the board want him or her to use.

This type of policy can blur the lines between whether the CEO has the authority to terminate an employee or or whether this authority belongs to the board.

If the authority to terminate an employee belongs to the CEO, then he or she must reasonably interpret what would be legal as it relates to the termination of an employee. For example, he or she might interpret this to be that any management initiated termination must be reviewed for legal compliance by an attorney with the corresponding experience and expertise.

If the board says it wants to “review” and therefore reactively authorize the CEO to terminate an employee, then it is really retaining the authority to decide whether or not an employee is terminated. This gets the board to the top of a very slippery slope. If the board decides that the employee is not to be terminated, then it has left its CEO with an employee who may not enhance the accomplishment of the Ends and worse may contribute to them not being reached. It cannot then in fairness hold the CEO accountable.

If your board is working on Executive Limitations and comes to a point where it feels compelled to add “unless the board approves,” here are some questions board members might want to ask.

  1. What are we afraid of? What might happen which would violate any value we have as a board?
  2. Have we had an experience that makes us gun-shy from allowing the CEO to make capital purchases over $10,000? If so, what happened and how could that have been prevented other than approving all purchases over $10,000?
  3. What would the CEO present that would cause us to approve or withhold approval of the request?

Suppose the CEO presented a request to make a capital purchase of $11,700. What would your board do? What criteria would it use to either grant or withhold approval of the request? Can we afford it? Your board should already have a policy that prohibits anything causing fiscal jeopardy. Do we need it? Where is your policy limiting expenditures to the accomplishment of the Ends? Ask yourself what your CEO could purchase over $10,000 that would violate a value of your board. Then describe that value as an Executive Limitation.

There are situations where a board may choose not to delegate certain aspects of the operation to the CEO. It could limit the CEO from buying or selling property or making loans or changing the name of the organization. If the board wants to retain authority for these or other operational matters, it is free to do so. In those cases, it should clearly state that in its Executive Limitations.

Having a policy where a means is limited by unless the board approves will put the board in a position of reacting to the CEO’s request for approval. Either the board has authority or the CEO has it. Anything in between will create confusion.

  • Never Have a Policy that Includes "Unless the Board Approves"
March 7th, 2018
If your board has an Executive Limitation policy which includes "subject to board approval", this is a must-read blog......
So Your Board Can Better Serve
204.898.6740

Ted Hull Consulting FYI

Never Have a Policy that Includes "Unless the Board Approves"

March 7th, 2018

Recently I was meeting with a board that was just beginning to implement Policy Governance®. The board appeared to have a good grasp of the model including the principle of Executive Limitations. The board understood the idea that it would delegate authority to the CEO to use any means to accomplish the Ends except those which are (a) illegal, imprudent or unethical, or (b) which it has chosen not to delegate to the CEO and therefore to retain to itself. Everything went along smoothly until it came to a policy regarding the termination of employees. At this point, the board insisted that the CEO have a board committee “review” any proposed termination of an employee. It didn’t take a lot of probing to have them discover that a review was for the purpose of approving or withholding approval of the CEO’s decision to terminate an employee.

This board was more specifically interpreting illegal to include the illegal termination of an employee, which it had every right to do. However the board was essentially saying that it must approve – via a board committee, any terminations. Any time I hit a snag like this, I assume there is some history which has made the board risk-averse. To manage its angst, a board will sometimes construct an inappropriate Executive Limitation in such a way so as to direct the CEO to use a means that the board want him or her to use.

This type of policy can blur the lines between whether the CEO has the authority to terminate an employee or or whether this authority belongs to the board.

If the authority to terminate an employee belongs to the CEO, then he or she must reasonably interpret what would be legal as it relates to the termination of an employee. For example, he or she might interpret this to be that any management initiated termination must be reviewed for legal compliance by an attorney with the corresponding experience and expertise.

If the board says it wants to “review” and therefore reactively authorize the CEO to terminate an employee, then it is really retaining the authority to decide whether or not an employee is terminated. This gets the board to the top of a very slippery slope. If the board decides that the employee is not to be terminated, then it has left its CEO with an employee who may not enhance the accomplishment of the Ends and worse may contribute to them not being reached. It cannot then in fairness hold the CEO accountable.

If your board is working on Executive Limitations and comes to a point where it feels compelled to add “unless the board approves,” here are some questions board members might want to ask.

  1. What are we afraid of? What might happen which would violate any value we have as a board?
  2. Have we had an experience that makes us gun-shy from allowing the CEO to make capital purchases over $10,000? If so, what happened and how could that have been prevented other than approving all purchases over $10,000?
  3. What would the CEO present that would cause us to approve or withhold approval of the request?

Suppose the CEO presented a request to make a capital purchase of $11,700. What would your board do? What criteria would it use to either grant or withhold approval of the request? Can we afford it? Your board should already have a policy that prohibits anything causing fiscal jeopardy. Do we need it? Where is your policy limiting expenditures to the accomplishment of the Ends? Ask yourself what your CEO could purchase over $10,000 that would violate a value of your board. Then describe that value as an Executive Limitation.

There are situations where a board may choose not to delegate certain aspects of the operation to the CEO. It could limit the CEO from buying or selling property or making loans or changing the name of the organization. If the board wants to retain authority for these or other operational matters, it is free to do so. In those cases, it should clearly state that in its Executive Limitations.

Having a policy where a means is limited by unless the board approves will put the board in a position of reacting to the CEO’s request for approval. Either the board has authority or the CEO has it. Anything in between will create confusion.

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204.898.6740
  • Never Have a Policy that Includes "Unless the Board Approves"
March 7th, 2018
If your board has an Executive Limitation policy which includes "subject to board approval", this is a must-read blog......

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