BOARD LEADERSHIP P O L I C Y G O V E R N A N C E I N A C T I O N

W E x e c u t i v e E d i t o r

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No wise investor proceeds without a plan

Value Investing: A Governance Action Plan by Jannice Moore

Implementing Policy Governance involves a significant investment of time, effort, and money. This is the second of several articles that will examine behaviors of boards that invest wisely in Policy Governance. How can they be sure to make a “value investment” that will stand the test of time, rather than a “day trade” with possible short-term gain but not necessarily substantive gain in the long run? Based on her experience with a vari- ety of boards that have implemented the model, Jannice Moore shares some of the condi- tions and behaviors that contribute to value investing. In Issue 60 ofE3oard Leadership, she discussed succession planning, orientation for prospective and new board members, length of tenure, and the need to be committed to the principles of the model, even when thegoing gets rough. In this article, she introduces the idea of a GovernanceAction Plan (GAP]. A GAP is not the establishment of ends policies but rather a tool that boards can use to set realistic objectives for themselves and to monitor their own progress in their implementation of Policy Governance.

NE OF THE DOWNSIDES that boards can 0 face when using Policy Governance is that they may derail by obsessing on operational details instead of ends. Continual tinkering with the executive limitations policies is one example of

ALSO IN THIS ISSUE

THE CULT OF EFFICIENCY.............. 5

FAQ ............................ . .... . .... . .... 6 Why should the board use negative wording about the staffs means?

such an obsession. Another is the board that, while paying lip service to the prin- ciple that it will monitor the CEO only on previously stated policy criteria, contin- ues to request volumes of “nice to know” information about the internal opera- tions that sooner or later manages to color their assessment of the CEO’s performance. Other boards have a ten- dency to obsess on their own governance process, engaging in extended “naval gazing.” The first problem most often occurs with boards that have a few dis- senters; the second, with boards that are very conscientious. While it is important to evaluate one’s own Policy Governance

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ON A - PERSONAL

NOTE

THE POLICY GOVERNANCE

ACADEMY N 1995, responding to many I requests, I conducted two one-

week programs offering advanced training in Policy Governance. The training, which came to be known as the Policy Governance Academy, gave persons who already knew a fair amount about the model an intensive further education in its theory and implementation. Soon my wife, Miriam Carver, joined me in instructing the course, and it became a twice yearly event.

The Academy proved popular, and by mid-April of 2002, we had trained 181 individuals. Many of these people are consultants. Quite a few are CEOs or board leaders. A number are elected officials-city council members, public school and college trustees, and people in other public roles. Five countries have been represented, with the majority of attendees coming from the United States and Canada. Nine Academy alumni became authors of books on Policy Governance.

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Value Investing (continuedfromfront page)

(PG) process, keeping the balance is important. A board should never forget that the reason it exists is to determine the organization’s ends, not to obsess on whether it is “doing PG right.” The whole point of using PG is to free the board’s time to spend concentrating on ends. It is, unfortunately, too easy to get into a pattern of regularly but mechanically “reviewing” policies without basing those revietsvs on a longer-term plan for contin- uousimprovement of governance.

The reason the board exists is to determine the organization’s ends, not to obsess on whether it is “doing Policy Governance right.”

Sometimes when a board has fallen into one of these traps, its reaction is to blame the model. Another tendency of some boards is to expect perfection or instant results; they constantly want to see if “it’s working.” I liken this to pulling up a new seedling to check the roots to see if it is growing! That kind of checking may well kill it. It needs some time to set- tle in before it will flower. Improved gov- ernance is a long-term proposition. Old habits die hard, and only commitment over time to continuous improvement will provide the long-term value. Just because a second-grade piano student cannot play complex Beethoven sonatas after a couple of years of lessons, you don’t say, “Well, I guess piano lessons don’t really work or “Let’s evaluate whether piano lessons are really worth the effort and money,” do you? Of course not! You set realistic expectations. It is equally unrealistic to expect a board that has spent years operating under an old paradigm to become a master at Policy Governance overnight. Boards that con-

clude that “Policy Governance doesn’t really work or immediately say “Let’s evaluate whether Policy Governance is really worth the effort and money” have missed the point that like learning to play the piano, learning a new method of board behavior requires diligent prac- tice, over an extended period, before moving from novice to master. And even the “master” board is never perfect- there is always room to improve.

Governance Action Plans: A GAP for the Gap

One of the ways of encouraging growth from novice status to mastery is to have a plan. Serious value investors have along- range plan to round out their portfolio. They know in which areas their invest- ments need to be strengthened and have a plan to get there. Boards that have sus- tainable PG also have a plan to bridge the gap from where they are in their gover- nance expertise to where they would like to be. I call this plan to bridge the gap a GAP-a Governance Action Plan. Such a plan is to be distinguished from the CEO’s plan to achieve the ends. This is the board’s plan to achieve excellence in governance.

The GAP is the board’s plan to achieve excel- lence in governance.

Regular board self-evaluation is cru- cial to this endeavor. The board needs to be brutally honest with itself, expecting the same level of “evidence” from itself regarding compliance with its own poli- cies as it expects from the CEO regarding compliance with ends and executive limitations. Such self-evaluation is to be distinguished from the “navel gazing” referred to earlier. Navel gazing might be characterized as feeling the need to dot every i and cross every tregarding the board’s own processes, resulting in elab- orate governance process policies that leave little room for flexibility. Self-evalu- ation is about assessing the board’s com-

pliance with its own behavioral inten- tions and commitment as stated in policy. This article is not about board self-evaluation, but I point out that the starting point for continuous improvement in governance is self- evaluation. If a self-evaluation exercise does not result in a plan for improve- ment, it is of no value.

What should go into a GAP? The answer to that question depends on the stage of the board’s experience with the model. While the following sugges- tions will need to be customized by each board, I propose a potential sequence of areas for consideration.

The Novice Board

Early in the implementation of Policy Governance, the immediate focus for board development is on understanding the model and its application, ensuring that all categories of policy have been developed and that basic processes are in place to start using the model. This might lead to the following types of “desired results” in the board’s Governance Action Plan:

Board is comfortable with the clarity of its instructions to the CEO through executive limitations and ends policies. Board is comfortable with its ability to adequately monitor the organiza- tion’s performance toward accom- plishment of its ends and compliance with executive limitations through monitoring of the CEO. Board has reevaluated its committee structure and retained only commit- tees that help the board do its own work and do not interfere with the unity of the board. Board agendas reflect that the board is doing only board work, not administration. Board has a preliminary plan for “connecting” with the ownership. Board has a scheduled plan for con- tinuously evaluating and improving its governance process.

Achievement of each of these desired results may require a series of actions,

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Personal Note (continued from ffont page)

The Academy runs from midday Monday until a final lunch on Friday. Class size is kept at around twenty so that participants can get to know each other well. Some have even gone into business together thanks to friendships and professional associations born while attending the Academy.

CARVER POLICY GOVERNANCE” v SEMINARS THROUGH 2002

Introductory Training in Policy Governance-Sept. 6-7. No prior knowledge of the Policy Governance model required. Conducted by John and Miriam Carver. Ends Policy Development-Sept 14-15. Special workshop for boards and CEOs using the Policy Governance model. Participants will submit examples of ends policies. Conducted by John and Miriam Carver. Policy Governance Academy-Sept. 30- Oct 4. Advanced training in Policy Governance theory and implementation for consultants and organizational lead- ers. Sufficiency of Policy Governance understanding to be determined on basis of written application. Conducted by John and Miriam Carver. Management Implications of the Policy Governance Model-Sept. 23-24. For CEOs, other executives, and consultants. Prior knowledge of Policy Governance model recommended but not required. Conducted by John Carver. Monitoring CEOlOrganizational Perfor- mance Using the Policy Governance Model-Sept. 15-16. Special workshop for boards and CEOs. Participants will submit examples of monitoring reports. Conducted by John and Miriam Carver. All trainings are in Atlanta. Please contact Ivan Benson by phone, 404-728-9444, fax, 404-728-0060, or e-mail, ivanbenson@ carvergovemance.com; or write to Carver Governance Design, Inc., P.O. Box 13007, Atlanta, GA 30324-0007.

Applicants for the Academy are required to fill out a short quiz on Policy Governance. Miriam and I exam- ine the responses on these quizzes very closely, assessing each applicant’s level of understanding of the model. Some are accepted pending certain remedial learning. But some are rejected out- right. The Academy is not for beginners in the model, nor is it for persons who have a hard time manipulating con- cepts. We try very hard to preserve the quality of the experience for those who are accepted.

We have frequently been asked about the questionable business prac- tice of training our competition. As a business judgment, it might well be suspect. Many of our graduates are consulting with clients that we might otherwise have served ourselves. But Policy Governance was a mission for me long before it became a business. Having an effect on widespread inade- quate governance practices was my point of departure, not building a con- sulting business. Don’t get me wrong; I love consulting and enjoy the income! But the joy and satisfaction of knowing that the effect I wanted to have a quar- ter century ago is really happening is worth a great deal all by itself.

So Miriam and I continue to run the Academy and continue to meet bright, committed people who know the Policy Governance model well and are willing to spend a hard week getting to know it even better.

On to business at hand. In this issue of Board Leadership, I answer the fre- quently asked question “Why should the board use negative wording about the staffs means?” Also, in the second of a series of articles that considers how a commitment to Policy Governance can be thought of as a Value Investment, Jannice Moore introduces the idea of a “Governance Action Plan” that can help a board establish step-by-step goals for implementing its own governance processes and can provide a framework within which a board can monitor its progress toward those goals. Finally, Caroline Oliver considers the gover- nance implications of a single-minded focus on “efficiency.” 0

- __ THE POLICY

- GOVERNANCE -

MODEL

OARD LEADERSHIP requires, above B all, that the board provide vision. To do so, the board must first have an adequate vision of its own job. That role is best conceived neither as volunteer-helper nor as watch- dog but as trustee-owner. Policy Governance is an approach to the job of governing that emphasizes values, vision, empowerment of both board and staff, and the strategic ability to lead leaders.

Observing the principles of the Policy Governance model, a board crafts its values into policies of the four types below. Policies written this way enable the board to focus its wisdom into one central, brief document.

ENDS The board defines which human needs are to be met, for whom, and at what cost. Written with a long-term perspective, these mis- sion-related policies embody most of the board’s part of long-range planning.

EXECUTIVE LIMITATIONS The board establishes the bound- aries of acceptability within which staff methods and activities can re- sponsibly be left to staff. These lim- iting policies, therefore, apply to staff means rather than to ends.

BOARD - EXECUTIVE LINKAGE

The board clarifies the manner in which it delegates authority to staff as well as how it evaluates staff per- formance on provisions of the Ends and Executive Limitations policies.

GOVERNANCE PROCESS

The board determines its philoso- phy, its accountability, and specifics of its own job.

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Value Investing (continued from page 2)

most likely over the course of six to twelve months, depending on how fre- quently the board meets. For example, if the board developed most of its poli- cies in an intensive “blitz,” it may be necessary to review that work more systematically over the first year so as to be totally comfortable with the pol- icy content and clarity. As another example, if an organization’s culture has been to have a large number of Committees that involve membership, which the board now understands ought to be operational committees reporting to the CEO, it may need to develop a transition plan to move to the desired structure. An orderly approach to turning such committees over to the CEO is needed, without making members of those committees feel less important because they no longer report to the board.

The Intermediate Board

Over the first year or so of using Policy Governance, a board should be seeing the results for a novice board achieved. This is a danger point. It is too easy to say, “We’ve achieved the desired results in our Governance Action Plan,” and then simply sit back without producing any growth goals or to start to mechani- cally “review” what has already been achieved. Rather, as a desired result from the first GAP is achieved, a new one should take its place. A few exam- ples should illustrate:

The novice board’s desired result that “board agendas reflect that the board is doing only board work, not adminis- tration” should now be expanded to say something like “The largest com- ponent of every board meeting relates to ends.” The novice’s desired result that the board “has a preliminary plan for ‘connecting’ with the ownership” should be expanded to “Information obtained from representative selec- tion of owners is always considered prior to making ends decisions.”

Since part of a continuously improv- ing governance process includes avoiding unnecessary loss of momentum when new members join the board, the novice’s desired result that the board “has a scheduled plan for continuously evaluating and improving its governance process” might be taken further to “The board has a fully developed orientation plan for new board members.”

The Mature Board

As a board continues to grow in its understanding of the application of Policy Governance and the potential of the model, its expanded goals should also grow. A mature board might con- sider a GAP to achieve desired results such as these:

Agendas are truly proactive, with a planned sequence of soliciting ownership input, obtaining wisdom from additional sources, and targeted board education, prior to ends deci- sion making. Potential board members are provided with user-friendly materi- als about Policy Governance to assist them in determining if they would make a good contribution to this board. The board serves as a model of excel- lent governance in the community, providing leadership in linking with other boards so as to meet community needs more effectively.

Elements of the GAP The discussion to this point has centered on the desired-results portion of the Governance Action plan. This is the point at which there is a difference between the way in which a board han- dles ends and the way in which it handles its own action plan. In the former, the board specifies the ends (the benefits to be produced, who they are for, and the cost) and then turns the actual doing over to the CEO. For the Governance Action Plan, the board specifies the desired results but retains the respon- sibility for the doing itself.

Therefore, the board needs a basic system to ensure that the desired results are more than a nice set of words on paper. Each result should be assigned a target date, and someone must be held accountable for reaching that goal by that date. The board collec- tively remains accountable for achiev- ing the results in its GAP, but it may be useful to delegate the coordination of the details to an individual board mem- ber or subgroup. For example, several boards in my experience have delegated coordination of the development of a comprehensive, multiyear ownership linkage plan to the vice chair. This per- son is not expected to do all the work but rather simply to lead the board in making sure the work gets done.

Finally, the board may wish to have a simple tracking system to ensure that GAP results are checked periodically and that new desired results are regu- larly added so that the board does not get stalled in the novice stage. This may be as simple as a chart that lists target dates and accountabilities and is updated quarterly, with an annual review to delete results that have been achieved and add new desired results for the coming year.

It is wise to keep in mind that one has never truly arrived. There is always room for improvement. The value investor is aware that there will be ups and downs in the market, tempo- rary blips. Those blips will occur in Policy Governance too-for example, every time new board members are added, there will be a need to reexplain the value of the model to those who are not familiar with it. Expect a learning curve. A new CEO may produce a blip as he or she becomes familiar with new rules for working with the board. Using Policy Governance is not about perfec- tion; it’s about progress. As long as the general direction over time is forward, value is being added. Cl

Jannice Moore is a Policy Governance consultant and coach and a conm‘butor to the Policy Governance Fieldbook Uossey-Bass, 1999); more information is available at www.jannicemoore.com. She can be con- tacted at (780) 465-4581 or by e-mail at jannicemoore@cs.com.

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