- Why Bother Evaluating Your CEO?
Effective governance includes learning five words. However all five words need to be understood because missing one word will lead to trouble.
Suppose you own a home in a modest area of town where you are raising your 2.3 children and your dog. Next door is an unoccupied boarded up house…sort of. The back door is broken down allowing access to potentially undesirable visitors. You are also aware that the smoke alarm system is not functional which raises concerns that should a fire be “accidentally” set, your home and your family could be at risk. Furthermore the property is arguably worth more to the owner if there was no house on the lot. You have brought this to the attention of the city, but to this point nothing has been repaired or resolved. What is your option?
Let me suggest that if you feel strongly enough about the risk to your home and family, you should have the house demolished. I realize that you will have to pay for it, but that’s better than the potential of having the house start on fire and your home - and your family becoming collateral damage. So you now have a plan that decreases the risk of fire and increases the value of the property next door and you have the money to pay for the demolition.
The only thing you lack is authority. There is only one person who has the authority to demolish the house (permits and by-laws aside) and that is not you.
The board is the only body within an organization that has the authority to govern. If it doesn’t govern or govern well, no one else can assume that authority, (members and by-laws aside). This authority does not rest with the individuals on the board but the board as a whole. This is can be understood better if the board is referred to as it rather than they. The board meets on Monday night and it meets in Room 155. The implication of this is such that no one board member or director has the authority to govern. I am a board member carries no weight.
You have recently found out that your absent neighbour with the derelict house is an 86 year old man who is incapacitated resulting from a stroke. He has become aware of the situation and decided to exercise his authority by having the house razed. Unable to do that himself, he has delegated his authority to someone while remaining ultimately responsible for the house.
No board can make sure that everything that should happen within an organization takes place. It is unreasonable to assume a board can purchase office supplies or ensure the towel dispenser works in the women’s washroom. So it delegates that authority.
Your octogenarian neighbour has called you to ask if you would take care of having the house demolished. Relieved, you agree to take care of it which leads you to go to the city permit office and pull a demolition permit. Permit in hand you head home realizing you need to call the owner about obtaining the funds to pay for the demolition. The owner casually comments that he has mailed a cheque to a demolition company in town. You and the company now have at least one thing in common – you are both confused. You will not pay to have the house destroyed until you get the money and the demolition company can’t destroy it until it gets a permit. The net result is that the house will not be demolished.
This is a frequent trap into which boards can inadvertently fall. A board may delegate financial operations to its CEO and then appoint a treasurer. So who does it hold accountable; the CEO or the treasurer? Or the CEO is responsible to oversee the staff, but an HR committee is somewhere in the mix. The CEO recognizes that an employee needs to be moved on but the HR committee nixes the idea. The CEO is responsible for results while being told who will be employed to assist in producing those results. The board can’t have it both ways; it cannot delegate the authority to its CEO to obtain certain results and then handcuff the CEO by dictating how the job must be done.
By now you are convinced a controlled burn of the house next door would have been so simple and more straightforward. However you have tracked down the person with the authority and he has delegated the authority to destroy to the house solely to you. He expects the house will be knocked down with the materials being recycled or dealt with in an environmentally friendly way. (He hasn’t struck you as environmentally conscious, but work with me on this analogy). In addition he needs it done within 90 days after which time he will be fined by the city. Just one detail is missing: he hasn’t stated all those expectations to you.
Boards have the right and responsibility to set expectations about the end results and the means which can’t be used. Another heading for this section could be “no surprises”. The homeowner can’t blame you if the expectation that the materials be recycled wasn’t stated or if the deadline wasn’t mentioned. In the same way a CEO should not be blindsided by the disappointment of a board because of unmet but unspoken expectations.
Let’s assume now that all his expectations have been stated to you in writing. But, by and by, the aged and disabled property owner receives a registered letter from the city indicating it has placed a lien on his property because the materials are still in a pile on the yard. (Let’s skip the part where he is being sued because some kid stepped on a nail and got tetanus and his friend fell into the basement and broke his leg.)
Everything was apparently taken care of; the person with the authority delegated that authority to one person with clearly stated expectations. The only thing he didn’t do was to check to see the anticipated results were accomplished. And because we determined a long time ago that the owner is the only one with the authority, he is one responsible. “Oops” won’t take care of his problems.
Trust is a bad word
The word trust should never be in a board’s vocabulary; nor the word mistrust. Checking is not an issue of trust or mistrust. A board must implicitly trust that its CEO will meet its expectations. If it starts out believing the CEO will not meet the stated expectations, the board should be ashamed of itself for hiring or keeping that individual. However, as much as your property owner friend might trust you, he has a responsibility that extends beyond him and you. He had a responsibility to the neighbourhood including the children who might wander onto his property.
In somewhat the same way a board has responsibility that goes beyond its relationship with its CEO. It has a responsibility to those on whose behalf it governs to make sure that what should happen has happened and what should not have happened hasn’t happened. Fulfilling this responsibility is not about trusting or not trusting, it is about checking in a manner that assures others about what is going on.
Four out of Five Isn’t Good Enough
Authority, delegation, clarity, expectations and checking. Let’s take out one word and see what we have.
A board cannot delegate authority it doesn’t have.
If the word delegation comes out, then the board has some inane expectation that either it’s going to do everything itself or that some unidentified person(s) is/are going to do some undisclosed task(s).
If the board has not provided clarity as to whom it has delegated its authority, then it will be frustrated with the constant “It’s not my fault; I couldn’t meet your expectations because someone else was responsible for something over which I had no control…,” or some iteration of that argument.
When expectations are not stated, then a board must not be surprised when its undeclared expectations are not met.
Without checking to monitor the accomplishment of the board’s clearly stated expectations which it has delegated, it has no assurances that its values are being met. Furthermore it has abdicated part of its responsibility in governing the organization on behalf of its members.
A board will be well on its way to effective governance when it sees its role as authoritative rather than advisory; it delegates but does not abdicate, its expectations are stated and not just implied and it is checking instead of assuming.
This is a preprint of an article published in Board Leadership November-December 2014 edition copyright 2014 Wiley Periodicals Inc., A Wiley Company. www.boardleadershipnewsletter.com