Another governance tool that directors gravitate towards is of course ‘policy’.
This blog will describe what a policy is and how to use it.
This topic is interesting for a couple of reasons. One is that it is a concept that is used in many ways. Not everyone has the same understanding of what it is. Two, because it can be used and abused if not handled wisely. And, three because the board should step back and consider what they are trying to achieve first, before rushing in to write a policy.
So, what is a policy anyway? The business dictionary has a version like this:
“The set of basic principles and associated guidelines, formulated and enforced by the governing body of an organization, to direct and limit its actions in pursuit of long-term goals”. The key word here is guidelines. I think if you asked most people though they would be more familiar with the dictionary.com version which is, “an action or procedure conforming to or considered with reference to prudence or expediency”.
And to that end, many boards rush to thinking of what the organization’s strategy is, and how the board can help. Sometimes they then jump into thinking of policies that will guide the organization. But they are writing management procedures. And so, they place themselves in the position of acting as another management layer. This is because the board is often made of people from the ranks of managers of course. But consider that strategy is the purview of management and governance is the purview of the board. It is management’s responsibility to have procedures for handling a multitude of situations. It is the boards role to build guidelines for the organization.
I am reminded of how the word ‘board’ came into usage in the first place. In the 1600’s in England and Holland groups of investors were in a race to find and trade spices. They formed syndicates in coffee shops and met around a table (the ‘board’). They hired captains and sailors to find the spices in the distant East Asian spice islands. They set the direction, but it was the captain who managed the crew the ship, chartered the route, and the purchasing of the goods etc.
The modern board should be doing the same thing: building policy as a guideline which is the overall objective of the organization. Not the tactics around how to fulfill the strategy. They should be simple sentences, not long explanations of ‘how to’.