Tough Talk about Policy Governance

Mention Policy Governance around the Co-op these days and you’re likely to get an irritated look.

The framework for conducting Board oversight, invented by Atlanta-based governance consultant John Carver, has been in official use at the Co-op since the late 1990s.  Policy Governance can be difficult to understand, is frequently tiresome to practice (endless monitoring reports!), and it is often misapplied in a manner calculated to reduce boards to affable and toothless advisory bodies.

Nevertheless, Policy Governance is well worth keeping.  Here is why.

John Carver’s big pitch is to focus boards on what really matters.  Rather than telling Boards that “operations” is off-limits – such claims are the prime source of model misapplication – Carver’s insight is that Boards should be outwardly focused, on what he refers to as “ends.”

This is what Carver says at page 81 of the third edition of his major treatise on Policy Governance, Boards that Make a Difference:

“The organization lives within the larger context of the world and, hence, affects it. That the organization exists makes a difference to this larger world, and the difference it makes can be characterized

in two ways: (1) the world is richer, happier, and less in pain because of the care, knowledge, cure, beauty, order, peace, or support produced; and (2) the world is poorer, more depleted, and more in pain

because of the talent, capital, and space consumed. These two impacts on the world, corresponding to benefit and cost, should be the chief interest, even obsession, of the governing board. The board should ask itself, ‘What good shall we accomplish, for which people or needs, and at what cost?’ It is important that boards view organizational results in terms of cost, benefits, and beneficiaries.”

This means little until you consider what most Boards occupy themselves with.  Rather than looking outward at whether the world is truly richer, happier and less in pain because of the organization the Board is governing, most Boards focus inwardly.  Carver warns of “the captivating allure of organizational events and issues,” adding: “Typically, a high percentage of board time is spent on internal matters. Even when the subject matter is related to services or programs, the focus tends to be on personnel, financial, logistical, or other organizational aspects of programming.” (Boards that Make a Difference, p. 80).

Policy Governance doesn’t counsel Boards to ignore these things – under the model, they become the focus of the Board’s “executive limitations” policies that are the subject of so much monitoring time.  Instead, the model nudges Boards to take care to reserve time and energy to ponder global impacts.

Step 1 is to attempt to define what those global impacts should be.  In this regard, the Hanover Consumer Cooperative has performed admirably.  The “global ends” policies with which the Co-op begins its policy register are the best in the business.  (Full disclosure:  I helped write them, so I am not objective.)  You can read them here (at page 4) and evaluate them for yourself.

Step 2 is for the Board to assess the extent to which the Board is achieving the ends defined in the ends policies.  This is the hardest work of all.  It is hard work for the general manager, who is tasked with producing evidence for the Board of how the organization is doing.  It is hard work for the Board, which must evaluate the evidence and decide whether it is adequate – and, if not, ponder whether the policy must change or whether management must change.  Discernment and difficult conversations are essential elements.

At the Hanover Co-op, Step 2 occurs annually at the March Board meeting, just in time to report the results at the Annual Meeting in April.  So, we can look to the record of the Board’s March meeting to get a sense of how the Co-op and its Board are doing.  Is the Co-op truly achieving its global ends?  Is the Board holding management, and itself, accountable for such achievement?

At its meeting of March 22, 2017, the Board voted to accept the report of General Manager Ed Fox as having demonstrated compliance with the Global Ends policies.  His report came in the form of a 2016 ends “scorecard” that can be read here.

The first of the Co-op’s Global Ends policies specifies that because of the Co-op, “the Upper Valley will have a retail source of food that is affordable, healthy, grown and/or processed locally to the fullest extent possible.”

The scorecard noted that nearly 19 percent of the Co-op’s food store sales in 2016 involved products that were locally grown or produced.  This seems like a laudably high percentage, although from the report there is no way for the Board to tell whether 19 percent is truly “the fullest extent possible.”

With respect to affordability, the scorecard report states that the Co-op’s “Food for All program makes healthy food more accessible to everyone in our communities, regardless of socioeconomic status, by providing a discount on purchases for qualifying applicants.”  According to the scorecard, 145 people participated in the program last year.

This brings to mind what Carver writes at page 85 of Boards That Make a Difference:

“An organization can become so permeated by the belief that well-intended or reasonable actions (rather than results) are the reason for existence that no one realizes something is awry. A striking example is the allegiance given to services and programs as if they were results. Services and programs are often treated as if they have value in themselves; however, they are only packages of prescribed activities. In Policy Governance, services and programs are always and only means. The ends concept prevents righteous busyness from becoming just as meaningful as results, or perhaps even more so.”

It is good that 145 people were able to get a need-based discount at the Co-op.  But we have no way of knowing whether this made shopping at the Co-op truly affordable for them, nor do we know anything about whether the Co-op was truly affordable for everyone else.  Should more people qualify for the program?  Should it be promoted more aggressively?  Should there be a greater emphasis on lowering prices for all – and, if so, at what cost to the achievements of other objectives specified in the ends policies?

As to the reference to “healthy” food in the first ends policy, the scorecard mentions only that 84 Co-op employees are “ServeSafe” certified, that 103 employees participated in food safety training last year, and that there was a total of 356 food safety training hours.  This is exactly what Carver means by “righteous busyness.”  One can assume that those 356 training hours were well-spent, but we have no way of knowing whether the result was healthier food for sale at the Co-op.  Left begging is the question of whether by “healthy” the Board meant more than just “safe” but also intends the Co-op to sell food that makes members and shoppers less prone to obesity, adult-onset-diabetes, heart disease, cancer, etc.

The point here is not to criticize either the Board or, especially, a general manager who is brand new and just learning about what it really means to work with the Policy Governance model.  Rather, the point is to illustrate how challenging all of this is, and how potentially valuable.  For example: The Co-op has a reputation for being more expensive than its competition and there is reason to worry it is losing market share to the investor-owned supermarkets.  So, the reference in the Global Ends policies to the Co-op being an “affordable” food retailer presents a prime opportunity for the Board and management to confront this problem and determine the extent to which it is perception and the extent to which it is reality.  In so doing, the Co-op could demonstrate to the community that it is serious about affordability as a priority – or the Board could change the policy and implicitly conclude that serving the price-conscious is too big a challenge in light of the organization’s other objectives.  That would be a difficult conversation – but difficult conversations are exactly the sort of conversations a Board should be having on a regular basis.

There are similar questions and concerns to be raised with the remainder of the scorecard but I will focus on only one more of them here.

The second item in the Co-op’s Global Ends policies recites that because of the Co-op “there will be economic value returned to the community via charitable contributions, outreach projects, patronage refunds to members and other avenues.”  To demonstrate compliance with this policy, the scorecard refers to the Co-op’s “Pennies for Change” program, which began last summer and generated $138,599 over its first six months of existence.

Notably, the scorecard is silent about the fact that the Co-op operated at a loss in 2016 and thus there was no patronage refund.  There is no reference to outreach projects or “other avenues” for returning value to the community.  And as for Pennies for Change:  While a program that asks customers at the checkout to round their grocery bill up to the nearest dollar, with a charitable contribution of between 1 and 99 cents, is a fine thing, in the end it involves shoppers making donations and not the Co-op.

Please don’t misunderstand:  Pennies for Change is fabulous.  I participate enthusiastically as a part of my personal checkout ritual.  But the existence of Pennies for Change proves very little with respect to whether the Co-op is producing the results specified in the ends statement about returning economic value to the community.

“The only justifiable reason for organizational existence is the production of worthwhile results,” admonishes Carver (p. 79). “Worthwhile results always relate to the satisfaction of human needs. Whose needs, which needs, and what constitutes satisfaction are the unending, subjective quandaries confronting a board. Resolving the important, even existential value quandaries inherent in these questions is the very heart of leadership in governance.”

It is difficult work, no doubt about it.  Here it involves taking the risk of discouraging fledgling general manager by thanking him for his ends report and then telling him to come back with more evidence that speaks directly to achievement, or non-achievement, of Board-approved ends. Perhaps it also involves taking a hard look at the ends policies themselves – they’ve been in place a long time – and thinking about whether we need a new and better statement of exactly what the Co-op is striving to accomplish.