The board’s policy when it comes to policy-making

It is widely accepted as one of a board’s primary responsibilities – and it is also a rather straightforward task…which makes it all the more surprising that boards, generally speaking, seem to be so universally mediocre at it.

‘It’, of course, is the board’s vital role in policy-making and, more to the point, giving life to the policies, making them top-of-mind and integral to the company’s culture and behaviour.

I’d like to highlight just two of the more common pitfalls in this regard and offer a few simple, tried-and-tested measures that are sure to remedy them.

The first is the all-too-familiar scenario where a board commits a policy decision only to the minutes of the meeting. That’s fraught with danger as the chances are that a year or two down the track, people will have forgotten about it, the board will have new members who have never been aware of it, or both.

Good boards are adept at ensuring that policies are separated from minutes, they are indexed and stored where they can be accessed, reviewed and kept up-to-date. This is important because if you consider court actions where directors are sued, you will often find in the statement of claim an accusation that the board had not acted in compliance with the policy they put in place.

Often that’s because the policy they endorsed years ago has done nothing more than gather dust on some shelf…and we all know that’s no defence and directors might even be in breach of their duty of care and diligence.

Another problem area is where what were once small organisations have grown but the policy-making has failed to keep pace with and adapt to the expansion.

When small, you will typically find board policies being quite detailed as there is no-one else to prepare them. But as the organisation grows, boards need to differentiate between those policies they need to own, approve and review and those which are more operational and can and should be left to management.

I’d say boards fail to do this 90 per cent of the time, choosing rather to continue to believe they own all policies. They simply can’t do justice to all and end up doing justice to so little when the obvious solution is to haul out the old butcher’s paper.

That’s right, the time-honoured butcher’s paper routine, where a line is drawn down the middle, a ‘Policies Owned by Board’ heading is placed on the left and a ‘Policies Owned by Management’ on the right.

Boards need only worry about the ones on the left, and good boards will keep these in focus by scheduling regular policy review sessions as part of their annual calendar.

If they follow these steps – and it helps to write the policies in plain English – the chances are they won’t gather dust.

Rather, they will thrive as living documents that guide the organisation to a brighter future.

Until next time,

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