The Wisdom of Maintaining the Divide Between Managing and Governance

Do you believe that micromanaging is counterproductive? That directing the CEO’s employees is inappropriate? And that it is important to use members’ money wisely? If you do, there’s room for self-examination. No matter how many times I hear those words and phrases from directors, further investigation reveals that those problems exist. Micromanaging is often the result of a myth. One myth I find that many boards adhere to is the belief that only boards can make policies. We all know that policymaking is a board function. Yet what has grown out of that knowledge is the myth that no one below the board can make policies. A policy is a statement that tells the reader what needs to be done, and, in many cases, also explains why it will be done. Since we often see the phrase “policies and procedures” this is a good time to separate and differentiate the two concepts. While policies explain what and why, procedures tell how. In a recent seminar, a participant’s comment suggested that only a procedure naturally follows and implements a policy. Here’s an example to clarify the situation. “Since the board of directors recognizes the complex nature of this credit union and the financial services business today, it has hired a competent CEO to run the business so that it achieves the credit union’s long- and short-range goals and raises the probability of achieving its stated mission and vision.” That’s a policy that frames the CEO’s job. The CEO announces, “We will use Microsoft Office as our primary office software because an integrated suite will save time and money.” While that statement is an example of implementing the board’s general policy statement, it too is a policy because it only states what and why. It does not tell a person how to use the software. The how is left to the Microsoft Office User’s Guide. You may be thinking, “That’s just semantics.” Yes, it is until you arrive at the conclusion that what management uttered is a procedure that doesn’t match its definition. There is nothing written that I have seen that asserts that the presence of a board obviates all other policy making. The solution is this: Accept that any leadership body or person issues policies in order to lead effectively. It makes sense to divide the policy function by its two policymaking leadership groups. The board maintains governance policies; the CEO maintains operating policies. We know that most boards do not write the operating policies they approve or issue. Operating policies are what and why statements that directly guide employees. Examples include personnel, products and service, and disaster prevention/recovery policies. The CEO, or someone or a group such as the management team, research them and write them up. Then the CEO brings them to the board for approval. That process demonstrates the CEO’s capacity to do that work. Governance in part means the board delegates the maintenance of operating policies to its competent CEO. In this way, the board acknowledges the CEO’s competence, speeds up the implementation of those policies and raises staff’s perceptions of management’s ability and authority. Products and services policies mentioned above may be stressing some board members. Products and services, including their interest rate features, impact members. That may seem to make them the purview of the board only. Did the board initiate those decisions or did management initiate them? Often it is the market place that initiates those changes. In delegating product and service decisions to the CEO, the board will guide the CEO by including philosophies-how they want these decisions approached, the ends to achieve and limitations on management’s authority. An effective board helps the CEO make better decisions through its discussion, debate and questioning. A board is most effective when evaluating management’s decisions by measuring the results and coaching for improvement. Effective use of governance polices means separating policies that guide the CEO from policies that guide staff. That act prevents a seemingly innocuous example of micromanaging.