Management Evaluation Under Policy Governance

The relationship between the board and the general manager is probably the most important relationship in a co-op. To be successful, a cooperative needs a strong manager AND a strong board AND a strong, effective relationship between the two.

In 22 years of working for and with food co-ops, I have seen too many examples of awful board-manager relationships. Too often, boards don't know if they have a good manager or not. Managers are fired for the wrong reasons, and poor managers are often kept too long. Too many good managers quit over frustrations with lack of clarity from the board about its expectations and decision making process.

Growth, efficiency, and profitability are essential if we want to be here in 10 years -- and those results require management. For cooperatives to survive in an increasingly competitive environment, boards must adopt tools which safely empower the manager to build responsive, successful businesses.

How Policy Governance helps the board guide the manager

Policy Governance is a tool for board leadership designed to emphasize values and vision.* Under Policy Governance, the board guides the cooperative by articulating its values in four types of policies: ends, executive limitations, board-manager relationship, and board process. Except for what belongs in the bylaws, these policies contain everything the board has to say about values and perspectives that guide all organizational decisions, practices, budgets and goals. Policy Governance empowers both the board and the manager.

Two of the board's policy areas -- ends and executive limitations -- contain the full sum of the board's guidance to the general manager. Therefore, under Policy Governance there are no separate criteria for evaluation of the manager's performance. Everything the board wants it articulates, clearly and in one voice, through board policy.

Every board policy is monitored to ensure compliance. Therefore, under Policy Governance there is no separate manager evaluation system. By regularly monitoring its policies the board will evaluate each aspect of the manager's performance which is important enough to be guided by policy. The words of the policy are the criteria that the manager's performance results are compared with -- nothing more, nothing less.

This article assumes that you are familiar with and using Policy Governance as a board leadership tool. For more information, please see:

1. "Boards That Lead: Policy Governance for Cooperatives," by Ann Hoyt, in Challenges to the Cooperative Board of Directors, published by Cooperative Grocer in 1996.
2. "Using Policy Governance to Improve Board Leadership," by Marilyn Scholl, in the September-October 1998 edition of Cooperative Grocer.
3. Reinventing Your Board: A Step by Step Guide to Implementing Policy Governance, by John Carver and Miriam Mayhew Carver, published by Jossey-Bass, 1997.
4. "Board Assessment of the CEO," by John Carver, CarverGuide #7, Jossey-Bass.
5. http://www.carvergovernance.com and http://www.josseybass.com.

Board Policies Which Guide the General Manager

Ends policies describe what the co-op is for -- which needs are to be met, for whom, and what that is worth. Written with a long-term perspective, these mission-related policies embody the board's long range-vision. Ends policies let the manager know what is expected.

Executive limitations policies establish the boundaries of acceptability within which methods and activities can responsibly be left to the manager. These policies give the manager a concrete statement of what the board will not tolerate.

While Policy Governance is designed as a board tool to improve effectiveness, efficiency and leadership, managers appreciate the clarity that it gives to them. With Policy Governance, a manager will always know what criteria s/he will be evaluated on, and s/he will know what limits exist to his or her authority.

By empowering the manager, the board can avoid the details and short-term focus of store operations and work exclusively on the holistic, long-term focus of governance. To safely do this, the board needs a manager to make sure everything comes out right. This means that on behalf of the board, the manager makes sure the co-op achieves what the board says it should (ends) and while doing so avoids situations and activities which the board feels should not occur (executive limitations). The manager is responsible for the outcomes of all organizational activity, not only the specific activities that the manager carries out. Monitoring is based upon results, not activities.

Steps to take: how Policy Governance boards evaluate the manager

Monitoring of the board's policies and consequently assessment of the manager's performance is ongoing throughout the year. The board doesn't wait until the end of the year to assess, judge, or react. The board monitors its policies according to the schedule and format which it determined at the time it wrote the policies. The board takes appropriate action at the time of monitoring. The board does engage in a rigorous assessment of performance, but with Policy Governance, the board does not need a separate system or instrument for manager evaluation.

Here are the steps through which the board carries out the assessment of the manager:

1. Determine the accountability the board needs from its manager. The board is accountable to the membership for the co-op's performance through all of its activities. To make this possible, the board delegates some of its responsibility to the manager and holds the manager accountable for achieving its desired outcomes. The board's policies on board-manager relationship provide a clear description of how this organizational authority is limited and then transferred from the board to the manager. Accountability requires setting expectations, assigning responsibility, and checking to see if expectations are met. A strong relationship with the manager requires the board to be clear about the rules and then playing by them.

2. Set performance criteria for the manager by writing policies on ends and executive limitations. The monitoring criteria are the words of the policies. When the board develops its policies in these areas, it authorizes the manager to make all further decisions and take all further actions which reasonably interpret the policy.
   The board does its job first, so that it can evaluate the manager against pre-established performance criteria. Pre-established criteria save board time when it compares performance against expectations stated in policy. The manager saves time by knowing clearly what the board expects. Judgement without criteria is not fair to the manager and it can cause unacceptable conditions to go unnoticed or uncorrected.

SAMPLE: Executive Limitation Policy Monitoring Check Sheet

Policy NameReport Type,
FrequencyMonitoring
Report DueMonitoring
ReceivedCompliance?
(yes/no)Board action,
Comment1.6 Treatment of
ConsumersInternalJanuaryXyesconsent1.3 Financial ConditionInternal, Quarterly (also
External, Annual in Oct.)January (also April,
July and October)Xnoaccept manager's
plan to correct item #31.5 Financial Planning
and BudgetInternal
AnnualFebruaryXyesconsent1.4 Asset ProtectionInternal
AnnualMayXnorequest monitoring
report in JuneEtc.

3. Establish the method and frequency of monitoring. At the same time that it writes a policy, the board establishes a monitoring process: what type of report, how often and when. Monitoring reports are usually either internal (prepared by the manager or someone to whom the manager delegates it) or external (prepared by an outside resource retained by the board).
   Policies are monitored at a frequency and schedule necessary for the board to be assured that performance meets the criteria they have set in their policies. Typically, financial condition policies are monitored quarterly and all other policies annually or semi-annually. By setting and adhering to a schedule, the board ensures that it gets monitoring data throughout the year.

4. Use monitoring data to judge and evaluate, not just to inform. Through the monitoring reports, the board is assured that the organization's performance meets the criteria they have set in their policies. Monitoring data is the board's topic by topic evaluation of organizational performance. For example, the board reads quarterly monitoring reports on financial condition not to be generally informed about finances, but to judge whether or not the board's expectations are being met.
   Monitoring reports are based upon data presented to show that board policies have been complied with. A monitoring report is not simply a statement from the manager that the criteria have been met. Monitoring reports should be concise and focused on the policy being monitored to avoid the board becoming burdened by information that does not constitute monitoring. Other information should be kept separate from monitoring data.

5. Take board action. The reports should state whether or not the results met the expectations, and they should include data to back that up. Reports are distributed to all board members prior to board meetings, and board action depends upon compliance information.
   a. If the monitoring data shows compliance, there is no need for the issue to take board meeting time. If the board has been clear about what it expects and a monitoring report clearly demonstrates that that was achieved, the board has fulfilled its oversight duties and can move on to board work. Typically, compliant monitoring reports are formally entered into the board's documentary records through a consent item on the agenda. For example, the minutes might state, "The board confirmed by unanimous consent that all members received and read the required monitoring report from the manager on Policy EL 5 Staff Treatment and concur with its assertion that performance is in compliance with board policy. The manager was thanked for her work."
   b. If the monitoring data shows non-compliance, the topic always becomes a board agenda item. The board's first task is to determine if the policy still reflects the board's expectation (if not, change the policy). If the original policy stands, the board then determines the severity and the implications of the violation. The board considers the explanation for non-compliance and the manager's plan and timeline for returning to compliant conditions. Using its wisdom and judgement, the board has a broad range of options, from doing nothing in the case of minor blips to replacing the manager in cases of grave significance. The range of board response to non-compliant reports includes:
 * do nothing;
 * increase monitoring frequency;
 * agree with management on a realistic timeframe to correct the problem, and monitor to ensure correction;
 * change policy expectations;
 * replace the manager.
The board should resist the temptation to fix the problem or "help" the manager. The board needs a manager it can depend upon and must be able to hold the manager accountable for delivering on the board's expectations. If the board "fixes" the problem, it will never know if it has the right manager.

6. Plan and hold discussion of cumulative monitoring data. Periodically, usually annually, the board has a summary discussion of the cumulative monitoring data. The manager's compensation and/or contract can be discussed at this time. However, this discussion refers to the existing, already received and acted-upon monitoring data. As with regular monitoring, the board must not permit measures into the summary discussion which have not been previously guided by policy. The board can always change its expectations/criteria by changing or adding to its policies. But it should never judge a manager for not complying with a policy it wishes it had written. A manager has a right to expect that a board will be clear about its expectations and to be judged against nothing else. (See below for a sample monitoring check sheet.)

Summary

In approaching management evaluation, the board must keep in mind that its most important work is to lead the co-op on behalf of member owners. For the board to successfully lead the co-op into the future, it must have a strong manager who is empowered to act, with clear guidance, within clear boundaries. The board is most effective when it delegates authority to the manager and holds him or her accountable for organizational performance within the delegated areas.

Management evaluation is an important aspect of the board's job -- guiding and ensuring results. All board members participate in a holistic approach which empowers the manager to deliver the expected results and holds the manager accountable for failure to deliver. When the board uses Policy Governance, management assessment is not separate but an integrated part of the board's system of leadership.

Strong boards and strong management develop within a system that produces a strong, productive relationship between the two. Our future depends upon it.