Praise for Getting Started with Policy Governance

"This is a great read! Such a book is long overdue. It's comprehensive, accessible, and fills a big gap in the market."
―Geraldine Peacock, former chair, The Charity Commission

"Getting Started with Policy Governance is a very interesting addition to the literature on Policy Governance. It will be useful to both boards getting started on Policy Governance as well as those who want to refresh their ideas on using it."
―Judy Mitchell, former chair, Oxfam Australia

"This is a very well-written and easy to understand must-read for all those interested in effective board governance. The Policy Governance framework is a coherent model that allows all types of boards to understand their role and those of the chair (or chief governance officer) and the CEO. Oliver explains clearly how the model works and introduces the reader to the necessary tools to create the framework."
―John Zinkin, CEO, Securities Industry Development Corporation

"For boards wanting to raise their game, this book is very thought-provoking and helpful. It's a must for all board members. Board chairs―ignore it at your peril!"
―John Bruce, chairman, Southend University Hospital NHS Foundation Trust

"Caroline Oliver has written a comprehensive, yet concise, book which provides an excellent introduction to those new to John Carver's highly influential Policy Governance model and, at the same time, systematically guides boards through the implementation of the model."
―Yuen Teen Mak, regional research director (Asia-Pacific), Watson Wyatt Worldwide, and codirector, Corporate Governance and Financial Reporting Centre, National University of Singapore

"Getting Started with Policy Governance provides an excellent guide for boards considering a change to Policy Governance leadership. Oliver's expertise shines through with her skillful explanations, useful examples, sample policies, and many tools shared. A must-read for any board considering Policy Governance."
―Carol-Ann Yakiwchuk, president, the Canadian Dental Hygienists Association

Caroline Oliver is chief executive of Good to Govern Ltd. and founding chair of the International Policy Governance Association and the UK Policy Governance Association which promote and support nonprofit and for-profit boards’ use of the Policy Governance system. She is an international governance consultant with clients in the US, UK and Canada.www.goodtogovern.com

Getting Started With Policy Governance

Bringing Purpose, Integrity and Efficiency to Your Board's WorkBy Caroline Oliver

John Wiley & Sons

Copyright © 2009 Caroline Oliver
All right reserved.
ISBN: 978-0-7879-8713-8

Chapter One

Exploring Policy Governance

Never doubt that a small group of thoughtful, committed citizens can change the world. Indeed, it is the only thing that ever has. Margaret Mead

Exploring Policy Governance means visualizing an entirely different world of board operation-what it looks like, what it feels like, and what it produces. In this chapter, you are going to learn the basics of what Policy Governance is, how it works, and what you can expect to get from it.

This chapter aims to help you to help your board

* Understand what makes Policy Governance unique as a system for organizing board work

* Understand the basic theory and practice of Policy Governance

* Examine the benefits of Policy Governance

WHAT POLICY GOVERNANCE IS

Policy Governance is a complete system through which boards can conceptualize, organize, and fulfill their mandate. Like all systems, it has several component parts that work together to provide a complete approach to a particular job. A shorthand way of expressing the completeness of the Policy Governance system is to call it a model. Thus, in the literature the Policy Governance model or the Carver model, or sometimes the Carver Policy Governance model. Everything in the model fits together because it is an expression of the integrated theory and principles that underlie John Carver's work and that have allowed his approach to become the single most influential model of governance in the world.

Operating from a model that is based on an integrated theory is important in two ways. First, without a fundamental theory guiding your actions, practice will inevitably become haphazard and, ultimately, highly risky for all concerned. Of course, practice is essential, and many of us learn best through concrete experience. But unless practice is derived from theory and the experience derived from practice is used to further inform the theory, how can practice ever be truly practical? In any case, in the same way that it wouldn't be a great idea for a group to tackle a challenge without having some theoretical understanding of the nature of the challenge, it isn't a great idea to start governing without having established some theory about the nature of the board's job that makes sense to everyone. I have seen many boards descend into endless disagreement not because they aren't all wanting to do a good job but because they have no agreed-on theory about what the job is. I have seen many board members who have become apathetic, not because they don't care but because they have tired of trying to make a difference in the midst of confusion. I have seen many boards become totally stuck on board and CEO evaluation issues because they have no agreement about what good performance looks like.

The second reason for operating from a model that is based on a theory that integrates all board work has to do with efficiency. By definition, the value of working from a complete model rather than from a collection of best practices is that all the parts of a model are specifically designed to work together. For example, when you are flying in an airplane, driving a car, or riding a bike, you know that you need all its components to be working together in order to get you safely to where you want to go. Similarly, when you are governing an organization, you need to be sure that as far as possible, everything you are doing is working together to get your organization going safely to where you want it to go. Boards are complex mechanisms involving the energies of chairs, board members, CEOs, staff, and external stakeholders. With a complete model, everyone's role, purpose, and practices can be aligned toward the same ends. Without a complete model, people usually find themselves and their practices pulling in different directions.

Everything about the Policy Governance system aims to help boards enable their organization to achieve their goals as efficiently and effectively as possible. This book aims to help you understand and use that system to best effect. One device that I will use in this book is the creation of analogies, for I believe that in likening the unfamiliar to the familiar, analogies can often be helpful in developing understanding of something new. It's helpful to think of Policy Governance as a vehicle that your board can use to get where it wants to go. In particular, let's observe some important points by examining how using Policy Governance is like riding a bicycle:

Like a bicycle, Policy Governance is a vehicle, a means of getting wherever you choose to go. It is not a destination. Walking and riding a bike are two entirely different modes of travel. Similarly, governing with traditional tools and governing with Policy Governance are two entirely different modes of operation. Riding a bike, like using Policy Governance, does not feel natural before it is learned, but once fully experienced, it is never forgotten. Learning to ride a bike, like learning to operate through Policy Governance, requires having the courage to entirely let go of one form of control in order to gain a different form of control. Once you have learned to ride a bike, you can ride any bike to any destination. Similarly, once you have learned Policy Governance, you can use it on any governing body.

As with any new skill, mastery of bicycle riding-and of Policy Governance-is a function of practice.

ACCOUNTABILITY TO OWNERSHIP: THE THEORY THAT DRIVES POLICY GOVERNANCE

In the same way that the benefits of cycling are the result of all a bike's component parts working together, the benefits that Policy Governance offers are the result of the careful creation of a complete system. Policy Governance starts with a theory. This theory drives certain understandings about the board's job, which eventually translate into movement toward the organization's goals.

Ownership: The Power Behind Your Wheels

The theory or belief that lies behind Policy Governance is that organizations exist to fulfill their owners' purposes and that boards exist to represent those owners. Therefore, Policy Governance theory asserts that the power that propels any board forward should be its interpretation of the best interests of the owners of its organization.

Given that board power is owners' power, it follows that clarity about who an organization's owners are is fundamental. For corporations and their shareholders, as well as for membership associations and their members, the meaning of ownership seems obvious. For many nonprofit and public organizations, however, it is often not at all clear and, therefore, needs to be defined by the board.

Policy Governance theory positions ownership as both a legal and a moral issue. Legally, your organization's owners are the people who, according to your bylaws, have the right to vote at general or special meetings of shareholders or members. However, your board can also choose to define a much wider moral ownership that includes everyone to whom it feels it should be accountable, which might include many others whom your board sees as actually or potentially invested in your organization's long-term future in some shape or form. For example, the board of a food bank might well have a legal ownership that consists of board members alone but decide to operate as if it were accountable to either its entire local community or a subset of the community such as "all those who care about poverty."

A board can only begin to truly govern if it can identify its owners-the people on whose behalf it is governing. And they must not confuse owners with other stakeholders such as customers and employees. A board that sees itself as governing on behalf of its owners will collectively shoulder responsibility for the proper care of its organization in the interests of all current and future beneficiaries. A board whose members see themselves as individual representatives of particular interests will not.

The significance of ownership will be explored in far more detail in Chapter Three but is summarized in the following list: Owners are ...

the source of the board's authority

the people to whom the board is accountable

a touchstone for and ultimate legitimizers of board decisions and actions

a force for unifying the board in common cause

the most likely source of future board leadership

essential for stability and sustainability

a protection against warring self-interests

concerned about the care of the overall organization

Accountability: The Chain That Brings Power to Your Wheels

Having identified owners' best interests as the power that you should be using to drive your wheels, you need to connect that power to the wheels that can move your board and your organization forward. Policy Governance is designed to provide that connection through a chain of accountability, as follows:

1. The board as a group must connect with and be accountable to the source of its authority: its owners. 2. The board must interpret its owners' best interests in order to define what the organization is for and how it should operate. 3. The board must ensure that the organization performs according to its interpretation of its owners' best interests.

VALUES INTO ACTION: THE WORKING PARTS OF POLICY GOVERNANCE

Having created the chain of accountability that connects the power of your owners' best interests through your board to your organization, you have to actually turn the wheels and go. In other words, you have to put the theory into practice. This brings us to what we might call the "moving parts" of Policy Governance-the components that make the organization move. These components, essentially, are actions that the board needs to take.

Define the Difference Your Owners Want to Make

The Policy Governance system starts from where owners start-that is, from an overall perspective in which the organization is merely a vehicle for delivering the benefit that they seek. As the owners' representative, your board's main purpose is to ensure that what owners want their organization to produce gets produced. In other words, what matters to boards about the organizations that they govern are the external impacts they make, not the means of making them. This does not translate into saying that boards have no interest in means at all. It does translate into saying that if boards fail to keep everyone's focus on the reason for everything they do, the doing will quickly go awry.

To put the Policy Governance system into practice, boards have to identify the difference their owners want their organization to make, not in terms of what the organization is going to do but in terms of the impact it is going to have on people's lives. This involves answering three questions:

1. What benefits should your organization produce? 2. For whom? 3. With what cost-efficiency?

In the Policy Governance system, the answers to these questions form your organization's Ends. Whether you call them Ends or something else really doesn't matter as long as you have answered all three questions at some level.

You will find a lot more on Ends in Chapter Five. For now, the important things to understand are that Ends are essentially what you want your organization to achieve and that whereas most boards typically address this issue by creating a mission statement and approving a strategic plan, in Policy Governance, boards are asked to be more rigorous. Answering the three Ends questions is not easy, but unless they are clearly answered by the board, the organization will, to some degree, be rudderless and its accountability therefore hazy.

Assign Responsibility for Making That Difference

The next step in the Policy Governance system is for the board to determine who it is going to make responsible for achieving its Ends. In doing so, it is obliged to recognize that it remains ultimately accountable to its owners for everything, including Ends accomplishment, whether or not it delegates responsibility to others to get the work done. Most boards choose to operate through a chief executive officer (CEO) as the sole connector between the board and management, and the remainder of this book assumes that choice. Other possible choices are discussed on pages 139-140 in Chapter Seven, and the board chair's role is discussed briefly later in this chapter and at greater length in subsequent chapters. Having an intact chain of accountability in which everyone is clear about who has overall day-to-day responsibility for getting the Ends accomplished (whether or not that person-or those persons-further delegate elements of the job) is an essential component of the Policy Governance system. Having a CEO is not.

Limit the Authority That Goes with the Responsibility as Minimally as You Can

To accomplish your Ends with the greatest possible velocity, your CEO needs to be free to take the quickest route available at any time, unless doing so would put the organization in ethical or legal jeopardy. In the Policy Governance system, the board's ethical and prudential limits are typically called Executive Limitations but can be called whatever your board decides as long as they always address things that cannot be allowed rather than how things should be done. Chapter Six gives more detailed information about creating Executive Limitations.

Put Everything in Comprehensive Yet Concise Written Policy

Your board members might currently think of policies as rules, standards, guidelines, or principles. They might also think of policies as procedures that set out the way you do things or as a framework for the way you do your work. If you are a political party or government, you might also think of policy as the high-level plan or course of action that lies behind your legislative decisions on a particular issue. There is no one definition. Policy is a word that is used in many different ways. Policies in the Policy Governance system are values specifically designed to enable your board to be accountable for everything about your organization. The design has three elements.

First, the policies need to be written because owners' authority has been given to your board as a group and, therefore, unless you will be meeting in permanent session, you need a form of control that works whether or not you are all in the building. Concretizing or codifying your control in agreed-on written policies-a permanently accessible set of instructions-is the answer.

Second, board policy must also be comprehensive if it is to cover everything that the board is accountable for, which is, indeed, everything! In the Policy Governance system, the board's policies are divided into four categories that, between them, cover all possible board concerns. The first category is typically called Ends, as described earlier. The second category is typically called Executive Limitations, as described earlier. Together these represent the entirety of your board's instructions to your CEO. The remaining policies are your board's instructions to itself. As such, they could be combined in one category. However, for the sake of clarity, they are typically divided between a category called Governance Process and another called Board-Management Delegation. You can find more about alternative names for the four policy categories on pages 77-79 in Chapter Four.

(Continues...)

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