University of Wisconsin Center for Cooperatives
The following article appeared in the December, 1994 (Vol.2 No.3) issue of "Working Together", the newsletter of the University of Wisconsin Center for Cooperatives.

POLICY GOVERNANCE

by Marilyn Scholl

Boards of directors of cooperatives have the authority and the responsibility to make decisions on behalf of the members.  While the board is accountable for every action taken by the co-op, it cannot and should not consider each activity and/or decision.  To fulfill its responsibilities efficiently and effectively, a board should develop policies to guide future decisions.  While an article in the April '94 issue of "Working Together" discussed more fully principles of policy governance, this article will specifically focus on the categories of policies the board should develop. Future articles will examine the board's role in monitoring policies and business performance.

Policies Categorized

Focusing on Results (Ends): The most important work of any governing board is to determine and refine the reason the organization exists. A cooperative exists to produce worthwhile results, usually of benefit to its members.  Before considering just what is worthwhile, the board must consider whose needs will be met.  In other words, who are the members and potential members that the co-op serves, and which needs of members will be met by the co-op.  A cooperative is a very flexible structure for business operations.  Co-ops can exist to increase the income of their members, make goods or services available at a fair price, give consumers more control in the market place, build an economically self-sufficient community, and more.

The board must determine not only what member needs the co-op will satisfy, but also what constitutes satisfaction.  How will we know when we are successful?  These all-important questions relating to "why we are here" should be the board's primary business.  The board is obliged to provide management with a very clear message regarding what ends should be achieved and what results are expected.  This series of value questions should help the board create policies on ENDS.  The ends policies should include organizational mission and be the starting point for long-range planning.  Management should be asked to develop long-range plans designed to address the future, to achieve the ends which the board has determined.

Executive Limitations (Means): The next category of board policy is executive limitations.  The board is not only concerned with what should be accomplished (ends), but also how it is done (means). Since the board is responsible and accountable for all of the co-op's activities, it must have control over the complexity and the details of operations without being consumed by details and complexity.  In sum, the board is challenged to be reasonably sure that nothing goes wrong, while giving management as much room as possible to get the job done.  The board could not and should not define all the activities that the co-op should be engaged in.  By defining the boundaries the board can control activity efficiently. The primary evaluation for activity (means) is not measuring the activity itself, but instead involves comparing actual results to those that were intended.

In setting executive limitations, the board defines what activities are "out of bounds" and thus may not be engaged in regardless of whether they meet the ends.  The first level of limitation for most boards requires that all activities be legal, ethical and prudent. The board should further define, through executive limitation policies, the boundaries for treatment and compensation of employees, protection of assets, financial condition, financial planning, and management succession.  By defining and monitoring the limits, the board is reasonably assured that they will approve of all activities within the boundaries without restraining management's creativity and ability to manage.

Board-Management Relationship: The most successful cooperatives have both strong boards and strong management.  As a precursor to this the board should define the relationship it wants with management through policy.  Policies in this category define how the board passes its power and responsibility to management, what is expected of management and how management will be compensated and evaluated. Generally, the board wants management to achieve the ends it has defined without violating any of its stated limits on means.

Clear expectations make it possible to evaluate effectively.  If the board hasn't articulated how it should be, then how can it judge how it is?  Explicit policies make the board's job easier.

Board Process: Finally the board should establish policies about its own job description and internal operations.  The board's three primary job products are linkage with owners, developing policies in the four categories and assuring performance.  The board obtains its legal and fiduciary authority and responsibility from the cooperative's member owners.  It is the board's responsibility to develop and maintain organizational connection with the owners, and this linkage requires two-way communication.  The board must understand and act upon the needs of the members and report the condition of the business to them.  Linking with owners and establishing policy is not enough.  The board must also ensure that the cooperative is performing as desired.  This requires a satisfactory monitoring system and a resolve to take decisive action with respect to executive failure to perform.

Having adopted a formal statement about its job, the board must then determine what standards of discipline and what structures are necessary to keep the board focused on its task.  Finally, the board should develop policies in this category to help it evaluate its own performance.

Policy Governance

Defining policies in the four categories creates the framework from which all organizational activity occurs.  By making explicit statements about values, the board maintains control without sacrificing efficiency.  Policies should be categorized in a way that ensures that all areas are covered and should clearly state the board's priorities.  Finally, policies should be easy to monitor and manage from.

The next article in this series will focus on monitoring policies and the board's role in the assurance of performance.

Ideas for this article are drawn from:  Boards That Make a Difference: A New Design for Leadership in Non-Profit and Public Organizations, written by John Carver.  San Francisco:  Jossey-Bass (1990).

Categories of Board Policies

1.   Ends to be achieved - purpose. What should the results be? Set of values about the intended impact of the organization.  What needs are satisfied, for whom, and at what cost?

2.   Executive limitations - means.  When ends are clearly stated, the only remaining question is "How do we get there?"  A board's primary interest in the "means" is that they be effective (really a measure of end result), prudent and ethical.

3.   Board-staff relationships - approach to delegation. View of CEO role. Method of assessing and compensating performance.

4.   Process of governance - the board's job description. Linkage with member/owners and public. Monitoring tools. Board processes and structures.