Governance and Strategic Planning

I receive questions all the time. This question gives me a chance to clarify what might not be clear in a fast-paced workshop.

Since I think the two terms, accepted and approved may be too similar, I prefer neither when it comes to a board using material it does not need to act on. Whatever organization you represent, you should know what relevant laws, regulations, accreditation quidelines require your board to act on. I take the position that the duty of care suggests that a board hire an architect to design its building, hire a CPA to do its audit, and hire competent management to make a myriad of operational decisions it can not study enough to make itself, and in a timely fashion.

When a board’s policies include a list of the reports it wants from management, the board will reprimand or question the CEO about the missing report. Therefore, if there’s no record of a lapse, it is reasonable to assume the board received all required reports. That should be sufficient to any third-party reveiw, as long as a board is consistent in its oversight. Acting on or approving a report implies that a diligent board might someday disapprove of a report.

Let the minutes show that board members have received an item in a simple statement made by the Chair or another board member.

A board receives many reports from other parties so it can know the status and performance of the organization. However, there are no requirements for a board to approve those reports. I’ve inquired with many attorneys across the country over many years and find no fault in this position.

I found the admonition to not approve reports in Robert’s Rules of Order, Newly Revised. While approving reports may never become an issue but for a board, it’s better not to do it. If a board acts in good faith, exercising care, it is difficult for a court to prove negligence and attach a director’s personal assets to cover losses. However, if the board approves a report that is flawed, the case seems much easier to make.

The board must approve the minutes of its actions to record those decisions for posterity. The ‘default’ position is, all decisions will be made by the board; a board needs to act on every decision that it has not delegated. A board usually delegates to committees or the CEO. The duty of care requires a board to be sure it delegates to parties competent to make those decisions, and document those delegations of authority in writing.

Most boards that I know approve an annual budget. You might call it a spending plan that authorizes management to pay out what is in the expense part of the budget. John Carver (Boards that Make a Difference, 1990) reminds us that a budget is a financial control tool; rather than a board approving it, a board could require that management use one for planning and control. In the former case, the board does not have to approve checks written before or after the fact because it approved the spending before the year began. In the latter case a board needs to work out the details so it complies with its Bylaws.

If the board has delegated authority to a Committee or the Executive, then it only needs to be informed of those decisions, not individually in most cases, because the board reads reports on the status and performance of the organization reflecting the results of many of management’s decisions.

An effective board delegates decisions for one or more reasons to a committee or management because:

• The decisions come up frequently and unexpectedly and the organization can suffer waiting for the board to deal with it.
• A committee or management can keep track of the facts and act more quickly than the full board.
• Failure to delegate authority to a competent person is an insult of sorts, and squanders some of the community’s money.
• The duty of care is demonstrated best when a board allows expertise to act in its stead when it cannot render the best decisions itself in a timely manner.

Here’s my 3 min video on the subject: http://youtu.be/-4tgtlg9kIU