Too often boards do not pause to reflect on what it is they do and how it should be done. A framework and regular reflection against it is an essential component of excellence in the boardroom.
A charter is a common approach to codifying this understanding. More than paper, it should sit at the heart of how the board goes about its work as a living document, in use, regularly reviewed and kept up to date.
BoardWorks have created and developed over the past twenty years a good practice template for a board charter. The document focusses on clarifying the role and responsibilities of the board as a whole and of directors individually. It then outlines policy for the relationship with the chief executive and the high-level principles of delegation. It also includes templated governance level committee terms of reference.
Outlined below is an extract from a charter document from BoardWorks International, in this case the Board-Chief Executive Interrelationship Policies.
Board-Chief Executive Interrelationship Policies
Delegation to the Chief Executive
The board delegates to the Chief Executive responsibility for delivering the outcomes stated in its Statement of Strategic Direction/Strategic Plan while complying with the Chief Executive Delegation policies.
- The Chief Executive is the sole linkage and point of accountability between the board and the operational organisation.
- The board will view Chief Executive performance as identical to total management performance so that the achievement of successful organisation outcomes will be regarded as successful Chief Executive performance.
- Only the board acting as a body can instruct the Chief Executive. Typically, all instruction to the Chief Executive will be codified as policy.
- The board will make clear (Name of organisation)’s strategic direction including performance indicators to be applied by the board when reviewing the organisation’s and the Chief Executive’s performance.
- The board will make clear to the Chief Executive in writing the conditions and circumstances that the board deems to be unacceptable, allowing the Chief Executive any reasonable interpretation of these (further defined in the Chief Executive Authority policy). As the board’s principal officer, the board holds the Chief Executive accountable for ensuring that all such conditions and circumstances are avoided.
- The Chief Executive is responsible for the employment, management and performance management of all staff employed/contracted to the organisation. a. Neither the board nor individual directors will ‘instruct’ staff in any matters relating to their work.
- Provided that the Chief Executive achieves the outcomes sought by the board and does so in a manner consistent with the board’s policies and (Name of organisation)’s values, the board will respect and support the Chief Executive’s choice of actions.
- The expert knowledge and experience of individual directors is available to the Chief Executive at his/her initiative.
Chief Executive Authority
- As long as the Chief Executive applies ‘any reasonable interpretation’ of the board’s policies, i.e. does not set out to defeat their stated intent or spirit, he/she is authorised to establish all operational policies, make all operational decisions and design and implement and manage all operational practices and activities.
- Acknowledging a director’s right to have access to information necessary to meet his/her duty of care to the organisation, the Chief Executive may refuse instructions or requests from individual directors or from unofficial groups of directors if, in his/her opinion, such requests or instructions are:
a. Inconsistent with the board’s policies.
b. are deemed to make unjustifiable intrusions into the Chief Executive’s or other staff members' time; or
c. are an unjustifiable cost to the organisation.
- The Chief Executive must notify the Chairperson of the use of point 2.
Chief Executive Remuneration
Chief Executive remuneration will be decided by the board based on terms and conditions that reflect the organisation's performance and executive market conditions.
- Remuneration will be competitive with similar performance within the marketplace based on achievement of the board’s strategic direction and strategic goals while complying with the Chief Executive Delegation Policies.
- A committee process may be used to gather information and to provide options and recommendations for the board for its consideration and decision.
Chief Executive Performance Assessment
The Chief Executive’s performance will be continuously, systematically and rigorously assessed by the board against achievement of the board-determined strategic outcomes and compliance with Chief Executive Delegation policies. The board will provide regular performance feedback to the Chief Executive.
- Organisation performance will be defined in terms of the board’s policy criteria and as identified through monitoring those criteria.
- The standard applied to all facets of the performance assessment shall be that the Chief Executive has met or can demonstrate compliance with the intent or spirit of the board's policies.
- The board shall monitor any policy at any time using any method but will normally base its monitoring on a predetermined schedule outlining the regularity and method of monitoring for each policy.
- The board shall use any one or more of the following three methods to gather information necessary to ensure Chief Executive compliance with board policies and thus to determine its satisfaction with that person’s performance:
a. Chief Executive reporting,
b. Advice from an independent, disinterested third party, or
c. Obtained by a board-appointed director, board committee or working party.
Each board should have its own guiding document that outlines its role, obligations, how it works and the connection to the chief executive. We connect frequently with BoardWorks International and they are regular writers for us.
BoardWorks International keep the document up to date adding as necessary areas such as board oversight of health and safety and organisational culture.
The document is based on the Policy Governance® approach of John Carver which requires the clear separation of determining ends (the board’s role) and choosing the means to achieve them (largely management’s domain). The charters then sets out limitations on choice of means – those things that must be avoided and the expectations that the board places on the chief executive.
The charter is of limited value unless the board understands the principles that it rests on and how they flow through to and infuse all of their processes.
If you would like to book a free consultation for your board charter requirements, you can contact John at Boardworks
john@boardworks.nz
