Policy Governance is a trademarked governance model designed for Boards of Directors that provides a clear differentiation between governance and management responsibilities in organizations. The model was developed by John Carver.
Authors of the Policy Governance model say it is a paradigm shift from the traditional practice of governance. The model uses 10 principles to define appropriate relationships between the Board and owners, CEO, staff, and consumers.
Policy Governance begins with a definition of governance as "Seeing to it that the organization achieves what it should and avoids unacceptable situations." From this definition, board governance is at an arm's length from operations.
The Board's primary relationship is with the organisation's 'ownership'. As a result, governance is a downward extension of ownership rather than an upward extension of management. In this space, the board, as a single entity, assumes a governance position that is the link between ownership and the operational organization. That governance position is a commanding authority. The board exists to exercise that commanding authority and to properly empower others. "Proper empowerment" means to define the results to be achieved by the organization (Ends), and define what would be considered unacceptable in terms of ethics and prudence (Executive Limitations). The Board delegates the job of achieving its Ends within the parameters defined in policy to the CEO. To complete the delegation, the Board rigorously monitors performance to policy to uphold accountability of the CEO.
In Policy Governance, the Board has three primary jobs: Ownership Linkage, Policy Development and Assurance of Effective Operational Performance. The board's focus is at the broadest level of policy that is informed by the ownership's values. The board stops making policy when it can accept any reasonable interpretation.
Authors of the model argue Boards should govern with an emphasis on (a) outward vision rather than an internal preoccupation, (b) encouragement of diversity in viewpoints, (c) strategic leadership more than administrative detail, (d) clear distinction of board and chief executive roles, (e) collective rather than individual decisions, (f) future rather than past or present, and (g) proactivity rather than reactivity.
In general, if a Board applies ALL of the principles of Policy Governance in its process and decision-making, then the Board is likely practicing the model.
The template of policies that is widely available is NOT the model, but policies that boards typically adopt. However, each policy that a Board adopts is an organizational value statement that should be a reflection of the shared values of the ownership.
Many people confuse adopting policies unique to their organization with modifying the model. Model-consistent practice is assessed by actions in alignment with the principles, not by the individual policies that a board adopts.
Carver has written and contributed to a number of books. Boards That Make a Difference is probably the best known but Reinventing Your Board, co-authored with Miriam Carver in a new edition in 2006, is the easiest for a beginner to understand. It also contains typical board policies that can be modified to fit most organizations. Other resources that may be helpful include the "Policy Governance Fieldbook", edited by Caroline Oliver, "Getting Started with Policy Governance" by Caroline Oliver, "Corporate Boards that Create Value" by John Carver and Caroline Oliver.
Industry Canada in the Primer For Directors of Not-For –Profit Corporations expressed concern about Policy Governance. They argue that “Some models of board governance – notably originating in the United States – advocate that directors limit themselves to policy matters only and leave responsibility for administration and day-to-day matters with the executive staff of the corporation. This limited role for directors does not reflect the obligations that are legally imposed upon directors.” They go on to criticize the Carver models board manual template stating “In our view, the policy governance manual favoured by adherents to the policy governance model does not eliminate the need for the material contained in a traditional board manual.[1]
Others have expressed concern that the Policy Governance many not be as universally applicable as suggested by Carver and that the model has a tendency to break down during times of crisis.[2]
Some authors and users of the model seem to have misinterpreted the distinction between 'ends' and 'means' to imply separation of responsibility between the board, focused on 'ends', and management, focused on 'means'.[3][4]
This interpretation is not supported by a close reading of the Carver model.
In fact, Carver states: "because the board is accountable for everything, it is accountable for means as well. Accordingly, it must exercise control over both ends and means, so having the ends/means distinction does not in itself relieve boards from any responsibility".[5]
Another, related, misinterpretation suggests boards following Carver's model do not involve themselves with detailed understanding and/or monitoring of the organisation's activities.[6] However, Carver suggests boards use 'nested sets' of expectations to define their meaning with greater precision until: "At some point, the board will have narrowed its words to the point that it can accept any reasonable interpretation of those words. Now the board has reached the point of delegation".[7]
Further criticism relates to the failure of boards to follow their own governance policies. A board is not a governmental system with checks and balance but rather an entity which legally has ultimate power to oversee the operation of a corporation, either for or non profit. The true failure of policy governance is that it gives board a false sense that they are acting in the best interests of the organization, when they may not be. In other words, at its worst, policy governance advocates ( and the consultants that earn fees to promotes policy governance) are providing a "veil" of legitimacy for boards to act in capricious ways. The focus on policy governance and not on the business of the business is really just a distraction from the real job that boards should be doing.