Boundary Management

An Extensive Policy GovernanceĀ® Resource for Boards of Directors

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Featured Question: Is Policy Governance a better approach for a board to fulfill its fiscal responsibility or a worse approach?

Answer: Policy Governance is a better approach because it provides a better definition of fiscal responsibility and a mechanism to enact that definition. It is important to understand the definitions of fiscal responsibility and the word responsibility. These definitions are important, not just as a matter of words but as a recognition that how someone uses the word reflects how they think about and carry out responsibility and accountability.

There are two uses of the word responsibility that need to be clarified. The first definition is who has the responsibility for an action or result. The second is whether someone acts responsibly by assuring that the actions or results are achieved. These definitions are often combined as if they were the same, but they are not. Someone may be responsible for an action but not be responsible for accomplishing it or its intended result. They have the responsibility but are acting irresponsibly.

For the most part, when boards discuss fiscal responsibility, they use the first definition: who has the responsibility to carry out the actions or results that create fiscal responsibility. With this definition, it would be difficult for any board not to approve, if not carry out, any task or decision that would appear to be fiscal. Unfortunately, even a board that might accept all the fiscal tasks, thereby having one hundred percent of the responsibility for the tasks, can not be assured that they are acting fiscally responsible. For example, it would be difficult to show that the board is acting more fiscally responsible by having the board approve the budget.

One of the reasons that Policy Governance works is that it successfully separates these two aspects of responsibility. A board should first define the difference between fiscal responsibility and fiscal irresponsibility. The best way to do this is through the logic of establishing limitations. In this case, it is important to recognize that these limits or boundaries apply to the executive and the board. For the board to allow the executive to not comply with the boundaries essentially says that the executive is being fiscally irresponsible, and so is the board. Only with the definitions of the boundaries and the assurance that the organization complies with them can a board say that it is being fiscally responsible. This is the mechanism that assures fiscal responsibility.

As most students of Policy Governance know, traditional board practices are all about the first definition of fiscal responsibility and have little to do with the second definition. Traditional practices work to better leverage the board's time to accomplish all the tasks rather than clarifying and assuring compliance with the boundaries. Policy Governance is not just a better approach, but one could argue that fiscal responsibility is not well defined in traditional board governance and, therefore, difficult to assure.

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