- The Challenges of the Reasonable Interpretation
I was about 11 years old when I attended my first auction sale. I quickly got the idea how the system worked and as a budding entrepreneur I got into the bidding and ended up outbidding everyone else, in the process scoring an antique rocking chair for two dollars.
Just one challenge: at that time our family was spending a few days with my grandparents who lived over 500 miles from us. So with four people and our accompanying luggage, there was no room for my rocking chair in the family sedan. Great deal. Now what do I do with it?
Many boards treat plans, proposals and even information in a way not dissimilar to my approach to cheap rocking chairs at an auction sale. They are easy to buy, but little thought is given to what they will do with what they have bought.
You have likely had the experience of a friend who has just bought a new car. Hey, whad’dya think of it? You understand that your friend is soliciting your approval but with no expectation that if you withhold your approval they have any obligation to return the car to the dealer. Your approval is essentially a tacit, informal and sometimes even hypocritical agreement with what our friend already believes. You might be invited to sit behind the wheel, have a look under the hood or even take it for a drive around the block. And depending on the degree of your enthusiasm you might fawn over it or mumble your approval.
Some boards feel the same way about items which are presented to them by their CEO. Those boards might adjust the steering wheel or look under the hood, but with little informed idea of what they’re supposed to do with what they have just been presented with.
Boards love to approve. They approve strategic plans and budgets with little more understanding of what they have approved than our approval of our friend’s car. Some boards even approve reports as though they have the power to approve history.
What a board approves, it owns; the decision belongs to the board. To be able to approve a proposal or a plan presumes that the approval could be withheld. As such, if a board has the authority to withhold approval and it doesn’t exercise that authority, it is accountable for that decision.
I had my first lesson in governance at the auction sale and I didn’t even realize it. I learned that I need to decide in advance what I want, what I am willing to pay for it and to make sure it fits in the vehicle.
One of the benefits of the Policy Governance® model is its emphasis on proactive approval. Your board should be going into the board room having decided in advance what it wants in terms of results, what would be unacceptable, even if it was a good deal, and the value of achieving what it wants. Otherwise it might end up owning something it didn’t need and with very little idea what it is supposed to do with it.