University of Wisconsin Center for Cooperatives

MONITORING:
Board's Role in Performance
Assurance Policy Governance

by Marilyn Scholl

May 1995

A cooperative's board of directors is primarily responsible for determining the cooperative's overall purpose and ensuring the
cooperative's performance toward that purpose.  To meet these responsibilities, boards engage in many activities such as hiring and directing managers, communicating with owners, and setting and monitoring policies.  The board should lead the cooperative into the future by explicitly defining both direction and ultimate ends.

Many boards are so busy watching over, approving and inspecting a myriad of organizational activities that they never have time to lead the co-op to the future.  Other boards realize it is impossible to stay on top of all activities and become a "rubber stamp" board. Both of these conditions are unacceptable and unnecessary.  If boards are to stay focused on their job of leading, they must develop an efficient way to track what is important and to let go of what is not.
 
This is not to say that "watching over" is not important, for it is. But watching over is not leading.  The board must first give direction to the cooperative through the general manager or CEO. When the board has done its job of leading, then it has something to watch over. Assurance of performance is only meaningful if the board has said what performance should be.

The system of policy governance described earlier in this series suggests that boards give two explicit messages,  in the form of policies,  to the manager:

(1) what must be achieved (what results or ends are expected); and

(2) what may not be done in order to achieve the ends (how executive activities are limited).

Monitoring, then, is comparing actual results against the standards created in board policies.

To be both effective and efficient, monitoring should be a systematic determination of whether executive performance complies with the board's expectations as expressed in policies.  Every time the board sets a policy, whether ends or means, it should also determine "how will we know?"  All policies should contain the method, the frequency, the timing and the standards by which they will be monitored.

The board should monitor all activities_and only those activities_which it has addressed through policy.  When policies are adopted in accordance with policy governance all the important aspects of the organization will be addressed and should be monitored.  This forces the board to explicitly state what it expects of management. Evaluating management performance then is the same as monitoring board policies:  "Were the results we expected achieved?" "Were any activities violations of our limitations on means?"

To monitor its policies the board needs information.  But what kind of information is useful for monitoring?  Basically, the board should receive three types of information.

(1) Decision making information helps the board make decisions about the future. Specifically, the board needs information about what the issue entails, what the choices are, and the implications of the various choices.

(2) Monitoring information helps the board judge the adequacy of past performance.

(3) Incidental information helps the board feel closer to the co-op and its people; don't confuse it with either monitoring or decision making information.  While not faulty or inferior, incidental information is not precise enough for monitoring and is not aimed at the future (so is not useful in making decisions).

The board should determine how often to monitor policies; this decision depends on how important and how potentially damaging any violation of a particular policy might be.  Monitoring reports should be so clear that they help board members determine if policies are being met.  As much monitoring as possible should take place outside of board meetings, so meeting time is available to deliberate and determine the future, not to rehash the past. Monitoring reports should be discussed within board meetings only if a policy has been violated, if a report's integrity is in question, or if a board member feels the policy being monitored is inadequate or inappropriate.

A cooperative's performance may be monitored in three basic ways:

(1) Internal Reports:  Prepared by the manager or other staff member at the manager's request.  Internal reports are relatively quick and inexpensive ways to monitor activity.  Their drawback is that they are open to internal manipulation.

(2) External Reports:  Prepared by external experts or other disinterested persons.  These reports are more objective but also more expensive.  It is common for the board to have an annual external financial report (audit).

(3) Direct Inspection:  In some rare cases, the only way to monitor a policy is by going to see for yourself.  Such direct inspection is appropriate only when judging a task previously assigned by the board. When using direct inspection, board members must be careful not to meddle and to judge only against criteria set by the board as a whole.  The board may also use direct inspection when it examines a document to ensure that it meets the board's policy (as when it examines the budget).

Monitoring is the board's chief tool for ensuring the manager's-and
the cooperative's-performance.  Equating the two evaluative functions makes it clear that the manager is solely accountable to the board for the results of his or her management.  Thorough and systematic monitoring assures the board that present activities are in order without need for any over-the-shoulder interference with management. Board concentration and time is then available for actively considering and determining the co-op's future.

The ideas for this article come from the book "Boards That Make a Difference", written by John Carver, and published by Jossey-Bass in 1990.


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