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Governing Complexity

The world is getting more and more complex. How can boards cope?

By John CarverJune 22, 2012 | Print

Staying well informed about events that are numerous or complex has always been a challenging task for those charged with accountability for performance that they can’t directly and continuously see. Indeed, it can be difficult even when we can see what is happening right in front of us.

Parents have a hard time keeping up with what a single teenage child is doing. What if, instead of one, there were twenty or a hundred to keep up with? Upper managers and even first-line supervisors are obliged to overcome that difficulty in order for organizations to work well. Boards are in an even more arduous position in that their oversight must be carried out almost always in less time and often from a greater distance.

Early in the process of creating Policy Governance thirty-six years ago, I was acutely aware of what all managers and governors faced. Complexity sets in quite early as organizations grow. And it doesn’t take many persons for the difficulty to become evident. Tom Peters (coauthor of In Search of Excellence) said as few as five personnel are enough to start causing difficulty, much less hundreds or thousands. As the numbers are greater, the task becomes increasingly difficult. Boards, which typically meet for less than 2% of a full-time job, confront this enormous task—one that no amount of delegation can save them from. And if a board aspires to govern rather than simply keep up with what’s going on, the difficulty of the task multiplies.

It is little wonder that boards so often resort to rubber stamping, focusing on trivia that can be easily grasped, and generally succumbing to virtual abdication as the solution. Typically those boards are not even aware of having abdicated because practices have evolved that enable them to feel in control, even when they are not, and certainly to feel that they are working hard.

Policy Governance was designed as a tool to help boards tackle organizational complexity in both keeping informed and leading. The former is, of course, reactive; the latter is proactive. Both are necessary to govern, though commonly the former is sufficiently overwhelming to crowd out the latter. Addressing complexity in Policy Governance is enabled by a number of factors.

Accountability for Everything Means Everything

In my early career as executive director of a mental health center, I found that boards tended to leave program issues to the executives and professional staff while they dealt with “business” issues. The idea had not sunk in that although delegation could certainly be used, a board remains accountable for the total. A board takes a hands-off attitude to any part of the total abandons accountability. Separate silos for governance and management cannot fulfill a board’s obligation for total accountability.

None of the complexity can be left out—despite the fact that this duty for totality makes the challenge even greater from the outset. But any system meant to enable accountability would be bogus if it were not all-encompassing. Therefore, lest steps taken to deal with complexity are incomplete, the system must truly include everything. A governing board must embrace a formidable fact: there is nothing that goes on in the organization that the board has not either caused or allowed.

Stay at the Front of the Parade

Being proactive is easier said than done, especially since information, stories, and endless reports can feel to a board like taking a drink from a fire hose. Yet that unrelenting flow points to part of the solution. Knowing everything that can be delivered to a board about its organization is to drown it in unending detail, thereby dooming any intelligently selected knowledge. Getting too much information is worse than getting none, for in getting none, the board at least knows that it has none.

Ostensibly the reason for getting any information about an organization is so the board can make wise decisions and judgments. In view of that, the question is, “What decisions and judgments do we need to make, and therefore what information do we need to have?” So instead of having its world driven by what information subordinates choose to give (usually with good intent), the board itself drives the process. Although it may not know the data that must be taken into account, it can know that responsible action is seeing to it that the organization does what honestly fulfills owners’ values.

Keep It All at the Table

Addressing complexity requires grasping it as a whole, not farming parts of it out to subordinate persons or groups. The challenge is for the board to understand and carry out its distinctive role as a body. Individuals or committees can be helpful in informing the board’s understanding and even giving advice, but they cannot save it from acting holistically. On the chain of moral authority (chain of command) that connects owners to operators, the board is the single and only point, not a cluster of points with fragmented portfolios.

New Distinctions Replace Old

Any new approach, method, or way of thinking brings with it new distinctions (relevant variables). When we have been accustomed to the distinctions important in one setting or one conception, it is difficult to leave them behind when we move to a new setting or conception. Whether a player walks with the ball is important in basketball but not in baseball, for one game incorporates that distinction and the other doesn’t. The distinction between Ends and means is critical in Policy Governance. Traditionally board members were not only free of that concern, but the distinction did not even exist. Conscientiousness in inspecting a budget line by line is important traditionally, though not in Policy Governance. Rigorous conformity to principles about policymaking is important in Policy Governance, though less so or not at all traditionally. Ironically, this can make Policy Governance easier for inexperienced board members than those who have been successful with traditional board actions.

Identifying Where Variables Don’t Matter

This is the flip side of rigorous attention to variables that do matter. For example, it doesn’t matter whether one previously thought that a specific type of decision should be made by the board versus by the CEO. It doesn’t matter whether money is involved. It doesn’t matter whether law calls for the decision to be made by the board or what long-standing tradition says. After the board has authorized a range within which its CEO can make any decision he or she chooses, it doesn’t matter what that decision is except that it is actually within the specified range. In Policy Governance, rigorous principles address all governance matters; following them will reliably lead to proper board practices, but ones that may or may not be in line with previous understandings.

Large Encompasses Small

The quickest—not to say easiest—way to grasp the whole is to think in terms of the largest, most comprehensive features—those that embrace all characteristics even if they don’t specifically state them. The weakness in this approach is an understanding that is a mile wide and an inch deep, one that covers the whole while shortchanging all smaller matters not directly addressed. The strength is that no matter what else is to be known, it all fits within the larger understanding. Boards can use this often overlooked characteristic of decision making to descend step-by-step into more specific levels of detail until going further is unnecessary. In Policy Governance, we characterize that point with any given topic as the “any reasonable interpretation” point, that is, the narrowness of policy language that, while still allowing further decision making, need not be exceeded because any further specificity that is reasonable would be acceptable to the board.

The Law Doesn’t Matter … Until It Does

Ascertaining good governance practices from the law is a very poor idea. I don’t mean lawfulness doesn’t matter, just that those who write and pass laws are not those you would want for a governance author or consultant. The most responsible approach is to design for your board the highest-integrity governance system you can find or devise; then—and only then—make whatever adjustments are necessary to be lawful. One such adjustment is the “required approvals agenda”: items required by law or contract to be passed by the board can receive such approval without diluting authentic board business.

Set Boundaries, Not Prescriptions

One way to squelch creativity is to tell others exactly what to do. Resourcefulness and creativity blossom when methods and practices are left to the inventiveness of those held accountable for expected achievements. As long as the results are attained, the board only needs to set and monitor boundaries of prudence and ethics that the plethora of practices must stay within. Governing complexity is enabled, in part, by getting responsibly out of the complexity.

If You Haven’t Said How It Ought to Be, Don’t Ask How It Is

So far the board will have simplified its approach to complexity by focusing on results and boundaries at an appropriately broad level rather than on the often esoteric and massive amounts of operational activities. Having set criteria only for variables that matter, then, the board will have already avoided much of the burden of governing complexity. But the follow-up step must be to regularly inspect whether the criteria were met. It would be a great waste of the earlier work if, at this stage, the board fails to use as much discipline in the second step as the first. What is to be checked is not everything, only performance on the criteria. If the checking (I’ll call it “monitoring”) is a flurry of trying to keep up with everything—as many boards mistakenly think they can do—then the labor of criteria setting has been largely wasted. Moreover, staff facing a board that instructs one thing and monitors another will learn that board fairness is not to be trusted.

Be “from Missouri”

With the foregoing actions, the board will have delegated authority generously and, in exchange for granting the authority, will have imposed finite and visible expectations to be met. Recipients of delegated authority in Policy Governance, normally CEOs, know that a range of reasonable interpretation accompanies the board’s words. The board asks only that management demonstrate periodically that organizational performance has been a reasonable interpretation of the board’s expectations as stated in Ends and Executive Limitations policies.

No matter how much faith the board has in its CEO, it does not have the right to depend on its faith in him or her to substitute for that demonstration; trust cannot trump data. Moreover, there is no need for the board to labor over extracting the needed data from voluminous information. The best board demeanor is a “show us” attitude: if the CEO cannot convince the board that credible data reveal performance that is a reasonable interpretation, then by default, the CEO’s report does not pass.

Summary

Everyone recognizes that large organizations are complex and frequently abstruse. This is more than an issue of size; it also encompasses, for example, the amounts of advanced scientific or other professional esoterica involved. Given the time available to a board to do such a seminal job, no board should rely on small organizational size to free it from governing complexity. Policy Governance addresses that challenge in a carefully formulated way that can feel more rigid than boards have been accustomed to. But in the machinery of organization, precision is requisite in many jobs, no less so in the job that in essence contains all the rest.

CONSIDER THIS …

“Just as managerial ability is distinct from technical expertise, so the qualities needed for being a director are not the same as managerial skill.”

Elaine Sternberg, Just Business (London: Little, Brown, 1994), p. 228.

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