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Monitoring, as construed in Policy Governance, consists of comparing performance data against a reasonable interpretation of either ends policies or executive limitations policies. Consequently, only the characteristics or aspects of some topic (e.g., budgeting, personnel treatment) that are controlled by the board need to be checked. The board will have built those criteria into applicable policies, so the CEO knows up-front the expectations against which he or she will be judged. Therefore, the board does not do blanket approvals of budgets, program designs, or staff compensation plans, but it will have set out the limits of prudence and ethics within which the CEO must stay. Monitoring pointedly targets those board-stated criteria, making these criteria the board has chosen to control stand out in bold relief.
The customary use of board approvals occurs with few or no criteria, drawing the board into greater levels of detail than it needs to control. Instead of giving careful consideration to, for example, the characteristics of budgeting that the board would find unacceptable, subjecting various opinions about those characteristics to debate, then demanding proof of CEO compliance, approvals occur by summing individual board member votes on whether a budget is acceptable. However, if standards of performance are clearer and trivia-free, the board is enabled to focus on the broader values, those in its judgment it must require the organization to meet. Approval does stamp a document as official, but it is impossible to tell what characteristics made it approvable and what might have made it unapprovable. Moreover, by far the greatest number of items in the approved document are considerably below the level of most boards' need to control, yet the CEO is not authorized to decide them—a blunt delegation instrument, indeed. Instead of building a set of carefully considered board values over time about the various aspects of organization, there is merely a stream of documents officially blessed by the board.
The purpose for monitoring reports is to enable the board to know the degree to which a reasonable interpretation of its ends and executive limitations policies is being fulfilled. Consequently, a board should seek in those reports answers to two questions: (1) has the CEO made a reasonable interpretation of our policies and (2) do the data demonstrate accomplishment of that interpretation. Failing either constitutes a policy violation. In a report, then, the board should expect to see the CEO's interpretations along with justifications for the board to find them reasonable; the board must fairly but rigorously decide whether the CEO's case is convincing. Also in the report, the board should expect to see data purported to demonstrate achievement of those interpretations; again, the board must fairly but rigorously decide whether the data credibly prove compliance.
Non-compliance—or, put more pointedly, failure to demonstrate that a reasonable interpretation of board policy has been achieved—is an important event, decided by a vote of the board as to whether board members found both the CEO's interpretation and submitted data convincing. The Policy Governance model does not dictate what a board then does, except that it cannot ignore the non-compliance. In some instances, the board's best judgment would be to declare the non-compliance, but take no disciplinary action unless the non-compliance continues. In other instances, immediate firing of the CEO might be best. And there any number of options between. It is possible, of course, that the board having had its attention drawn to the policy being monitored will choose to change the policy. But policy change is a separate issue and never to be done simply because of non-compliance, but only due to an actual change in the board's values about the matter.
When judging CEO performance upon receipt of a monitoring report, the board must be true to its promise to accept any reasonable interpretation of what the board has said in the applicable policy. It is not fair to impose more detail in judging than was stated in the criteria. Any reasonable interpretation means just that. It doesn't mean the interpretation of the most prominent board member, the interpretation the board had in mind but didn't say, or even the interpretation now favored by the entire board. The board is obligated not only to be fair in this judgment, but to protect the CEO from individual board members who wish to judge based on their interpretation of the board's policy.
The standard financial report—take, for example, a profit-and-loss statement—is a management document with great utility for managers. But that does not make it a useful governance document, for the data needed for one level of organization isn't necessarily the data needed for another. Documents appropriate to a lower level have the propensity for drawing the higher level position inappropriately into lower level issues. Consider for a moment why a board wants a report to begin with. In Policy Governance the board would have set out the financial conditions and activities it considers imprudent and that must be avoided. It would do so comprehensively, exhaustively—possible due to the unique nature of the Policy Governance treatment of descending layers of decisions. The criteria would likely be about current ratio, cash balance, bad debts, or other aspects of financial management that pose imprudent risk. Having set its values out in an applicable executive limitations policy, the board must obtain reassurance on some regular basis that the CEO is not allowing the organization to violate the policy. So the board requires the CEO to furnish tailored monitoring reports that compare the board's criteria to real performance on those items sufficiently complete that the board can decide whether a reasonable interpretation of policy has been achieved. Standard financial reports are not tailored and pointed in this way, for they are not aimed at a specific board's criteria. Moreover, it is common for boards to have financial criteria that are not only hard to find in a standard financial report, but totally omitted. Policy Governance requires more precision than is afforded by standard reports.
An operational definition in research is a specific measurement that can justifiably stand for a broader concept. Say we want to know whether a good breakfast influences school performance. Before designing research, a scientist may define "good breakfast" as no fewer than X calories and "performance" as ranking on a specific test. (If these are not reasonable definitions, the research results will be disregarded.) In Policy Governance, the CEO interprets ends and executive limitations policies before setting out to achieve them. The range of potential interpretation depends on the level of detail in each policy. Therefore, the interpretation is an actual metric—never just a dictionary definition—that the board will later judge as reasonable or not.
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