Define and delegate
Saying ‘Don’t’ or ‘No’ is preferable to saying ‘Do’ or ‘Yes’
Saying ‘Don’t’ or ‘No’ is preferable to saying ‘Do’ or ‘Yes’
The board’s operating assumption should be that the chief executive is capable of managing and overseeing all operational matters.
The board should formally record the extent of its delegation to the chief executive. Unfortunately, most boards don’t make their delegation clear.
It is common for directors to assert that a board should not have to spell out its expectations of its chief executive – that any chief executive worth his or her salt should not need to be told what they can and cannot do. Chief executives generally express the opposite view. The lack of an explicit delegation creates the risk that the board (or any individual board member including the chair) starts directing the chief executive, or worse, other staff, as to how something should be done. When this occurs, the board takes over part of the chief executive’s role and they can no longer be held accountable for the results.
Chief executives don’t want to continually seek their board’s endorsement for operational initiatives. Commonly, however, there is uncertainty about exactly what is to be ‘got on with’ and what limits the board might wish to place on these activities.
No board should offer its chief executive an unbounded delegation. The risks are too great for all parties. Documenting allows the board to assert appropriate levels of control over the risks associated with its delegation and is an important safeguard for the chief executive. It requires the board to clarify its expectations and ‘speak with one voice’.
While there is no one right way to define the board’s delegation of authority to its chief executive, certain approaches are clearer than others. Three approaches to writing delegation policy are illustrated below. Some basic principles apply to this process and underpin whichever approach is used.
There are three commonly used ways a board could document its delegation to its chief executive:
This approach has two major shortcomings. Firstly, while the board has established a list of ‘must do’ or ‘could do’ actions, there are many other ways the chief executive could satisfy the essence of the delegation. The chief executive is left having to make a judgement call and risk breaching the board’s unstated policy.
Understandably, the alternative is to play safe and go to the board and seek permission to take an action that is not on the board’s list. This wastes time and encourages an ineffective chief executive to delegate to the board many of the decisions he or she should be making.
The second shortcoming is the opposite problem; that is, a prescriptive list can be never-ending. A chief executive can take an almost unquantifiable array of actions to achieve the board’s outcomes. This leaves little room for the chief executive to exercise their judgement. The job is likely to be over-prescribed.
This approach requires the board to define what must be achieved (ends, outcomes, results) and then set limits to the chief executive’s freedom to choose the means or actions to achieve those ends.
Most boards can identify the key risks facing their organisation, from which risk boundaries can be established for their chief executives. The chief executive is deemed to have complete operational freedom within these boundaries. This is more empowering for a chief executive than prescriptive policy. With the board outlining what is unacceptable or unallowable, the chief executive can manage with the assurance that all other actions are permissible.
This proscriptive approach creates a ‘win-win’ situation: a board more in control and a chief executive more empowered.
All of the Delegation policies in the online resource are written in this way.
The main advantages of this approach are that:
This approach requires the board to state which powers or decisions it reserves to itself, thereby making clear that these are not within the chief executive’s prerogative. This approach is similar to the limitations or ‘no’ approach in that it clearly demarcates the board’s decisions from the chief executive’s, while allowing the chief executive considerable latitude in determining which decisions he or she will make within the authority granted by the board. It differs from the limitations approach, however, in that it speaks to the board rather than the chief executive. To this end it provides the chief executive with much greater freedom than is granted by using the limitations approach. With this increased freedom comes increased risk.
It is recommended that, before reading this section, you download the Delegation policies from the online resource.
As has been stated, the sample policies in the online resource follow the Carver Policy Governance principles and thus are written in proscriptive form. The guiding principle that governs the way the policies are structured requires that each policy set (Governance Process, Board-CEO Interrelationship and CEO Delegation policies) commences with an overarching policy that sets the tone for the policies to follow in that set.
The overarching policy in the CEO Delegation policy set states:
The Chief Executive must not take, allow or approve any action or circumstance in the name of (Name of organisation) that is in breach of the law, is imprudent, which contravenes any organisation specific or commonly held business or professional ethic or is in breach of generally accepted accounting principles.
In the event that the policies to follow miss a point or fail to fully articulate a particular board expectation, this overarching ‘catch all’ statement is designed to provide general guidance to the chief executive: don’t break the law, don’t do anything imprudent or unethical, and don’t work outside of accepted accounting and general business practices.
The Delegation policies that make up the rest of this policy set expand on the areas of ethics and prudence covering:
In each case the sample limitation policy covers basic matters that the majority of board members wish to address. Before adopting the policies offered, your board should spend time looking in depth at each one to ensure the language is right, the policy addresses your organisation’s values and priorities, and nothing is missed or is present that does not need to be.