Today, I’m musing about what makes some directors operate like supreme court justices that go charging into management territory like a Kardashian at a fame fest. We are mostly all aware that Board can make all the decisions in an organisation if they want to. We also know that doing so is highly ineffective and at times destructive. However, so often directors either individually or collectively will have an issue come up, often through management reporting, and instantly they want to make a ‘decision’. Anyone who’s worked in management for a board will hear the words ‘why did the board get involved’ in their head, because that’s the question they’ll often get from staff. So why did the board get involved?
Let’s take a look at some tips for boards wondering if they’re making the right types of decisions.
1. Is the decision a matter of strategy?
Yes, we understand that EVERYTHING can be argued as a matter of strategy these days, but will the board be looking to amend the strategic plan as a result of a decision? How often does a director argue something is a ‘matter of strategy’ but then can’t articulate what needs to change in the strategic plan. If there’s no change to the strategic plan or its relating measures, chances are the board is getting involved in directing the ‘how’ rather than the ‘what’.
Tip 1. Ask yourself what changes might need to be made to the strategic plan before arguing an issue is a matter of strategy.
2. Is it a matter of board level policy?
What’s ‘board level policy’ you ask? Board level policy should to set parameters for risk and management activity. For example, if you want management to maintain cash flow at a certain level, then set a policy outlining the control measures. If funds need to be invested in certain asset classes with particular ratings, then specify that and let management get on with it. If there’s a reporting policy that’s needed to give the board confidence that governance parameters are being met, then establish one. That’s board level policy. I’m always perplexed when I hear management talking about boards wanting to make decisions about the most mundane things. Eg. which Australian AAA rated bank should our term deposit be invested with. I can’t imagine how a board in most cases adds any value to that decision once a policy is in place to invest surplus cash within set parameters in a secured account in an Australian AAA rated bank. Why is it a board decision then? Usually because the board has determined it to be so! The same organisations rarely find good management wanting to work with them for any length of time.
Tip 2. Ask which board level policy needs amending as a result of a decision. If there’s no board level policy that needs amending, then why is the board involved.
3. What accountability measures need amending as a result of the decision?
There are measures established by the board to manage accountability to the board for the policies it’s set. These include things like delegations, compliance reporting etc. If a board is about to make a decision relating to a matter that is within a control measure area, then what changes to control measures would allow management to operate professionally and quickly whilst also giving the board confidence in management accountability. If the control measures don’t need changing, then the board needs to ask why it’s arguing to make a decision on accountability grounds.
Tip 3. Governance is about ensuring accountability in decision making rather than making all the decisions. Governing is putting those structures and frameworks in place and then monitoring that the organisation is getting the right outcomes. If the board has to make all the decisions, it’s failed to govern.
4. Is this a significant once off decision?
Let’s be frank, it’s not worth the time or energy to write a policy for every possible eventuality. Some decisions are significant and one off. A merger or acquisition for example may be a one off of significance around which the investment in writing policy may be a waste of members funds (unless they’re a recurring theme in the organisation). Boards should make one off decisions of significance but if your board is doing this regularly, you might need to think about how significant the decisions really are. It might be that the board isn’t giving management the right level of delegation, or they have chosen poorly in appointing the CEO (the most important decision a board will ever make).
Tip 4. If the decision isn’t a one off or significant decision, then the board is failing to govern – to put in a framework to allow a CEO to make decisions that reflect the strategy and policy of the organisation.
5. Is this decision a matter of significant risk?
Now here’s another one where EVERYTHING can be argued as a significant risk. Eg. The high profile stakeholder who stamps their feet can be argued as a significant risk to reputation if you try hard enough. If an adverse outcome may mean the substantial maiming or destruction of the business, then yes it’s probably a significant risk but it’s poor governance to get caught up in hyperbole. Boards should get to know and understand the Australian Standards on Risk Management and again, ask the question on what changes need to be made to the risk management framework of the organisation as a result of the decision.
Tip 5. Ask what changes need to be made to the risk framework as a result of this decision?
Now here’s the kicker. If the answer to all of these questions is usually that no changes need to be made to the strategy, policy, accountability or risk frameworks of the organisation and it’s not a once off significant decision (or there are lots of once off significant decisions), chances are the board is not understanding its role terribly well. Governance is about establishing the frameworks for management to operate effectively under and hopefully for management to perform well within. Governance isn’t about making all the organisations decisions, or even making all the important decisions. A great governance framework establishes trust, accountability and performance and it’s the boards job to create and manage a great governance framework. I’m interested in whether people feel boards they have been involved in see themselves and behave as ‘dictators’ or ‘decision makers’ (in the old style of management boards) or true ‘governors’ in which the focus is on frameworks and systems.