Still Drinking Policy Governance Lite

Several years ago, the Outpost Natural Foods Cooperative board of directors implemented changes to its use of the Policy Governance model. The president and general manager presented the work at the CCMA conference, and an article was published in Cooperative Grocer in September/October 2006. (Subsequent issues carried comments from readers, including one who called our version “Policy Governance Lite.”)

The modifications made to the Policy Governance model included:

• addressing the cost aspect of ends policies using strategic initiatives;
• reducing what had become an overly prescriptive limitations policy register to a single global limitation policy that addresses six limiting principles, and then adopting more rigorous monitoring of this global limitation policy through both direct inspection and external reports; and
• linking board process policies to meeting fiduciary obligations.
  Outpost now has had several years of governing our cooperative under these changes. This article is designed to provide some evaluation of the changes and to share the successes and challenges to better support board leadership system-wide.

Ends: Strategic initiatives address costs
Review of Process: The Outpost board of directors continues to allocate a significant amount of agenda time each month (30–45 minutes of our two-hour meetings) to envisioning the future. The exercise centers on topics brought to the meeting by board members, the general manager or her employees, or invited guest speakers. These sessions help the board think big about where the organization is headed, how new ideas and directions feed into ends policy; they also affect the prioritization of ends policies that we determine annually through our strategic initiative discussion.

With the general manager, we continue to set three to five strategic initiatives annually that link directly to, or further define, specific ends policies. We also tie these strategic initiatives into a rubric for general manager compensation. During the year, the general manager provides frequent monitoring of these strategic initiatives through an accepted interpretation and measures that demonstrate progress toward these initiatives.

Although Policy Governance author John Carver doesn’t specifically use the term “strategic initiative,” our board has treated this process as an important part of ends development, in particular with respect to cost. Because our and many cooperatives’ ends statements leave the general manager with a multitude of possible priorities, the Outpost board has found it a key part of our strategic role to further define ends annually through this strategic initiative process.

Successes and challenges
The board and general manager continue to find this use of strategic initiatives helpful: the board speaking specifically to the cost or prioritization of ends, and the general manager with a clear interpretation of what is prioritized for progress toward multi-faceted ends statements. There is a link between our “envisioning the future” sessions during the year and the initiatives set for the following year.

In addition, the increased frequency in monitoring these strategic initiatives keeps the general manager focused and the board involved in specific ways the cooperative is working toward ends. This helps the board as it links with owners.

Finally, the board has found a way to tie the governance system clearly into a compensation/bonus plan by annually linking the annual strategic initiatives to specific bonus amounts for the general manager via a balanced scorecard rubric.

The main challenge of defining strategic initiatives occurs when priorities need to change during the year, either during times of financial difficulty or when the environment changes unexpectedly. With a culture of honest and open communication between the board and general manager and a willingness to remain open to new situations, this challenge has not been a difficult issue for our board.

Executive limitations policies and monitoring
Review of Process: In efforts to reduce our lengthy, overly prescriptive policy register, the Outpost board decided to adopt a global limitation policy that speaks to six limiting principles: integrity, legality, mutual respect, sustainability, growth and accessibility. These limitation principles are monitored in various policy areas including financial condition and planning, employee relationships, and owner/shopper relationships. For each internal report on these limitations, the board monitors externally or via direct inspection. The monitoring process is illustrated in the table on the facing page.

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Heather Schmidt Albinger is vice president of the board of director at Outpost Natural Foods in Milwaukee, Wisconsin and a professor of accounting ([email protected]).