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Featured Question - November 10, 2003

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Q:

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

A:

Policy Governance is a better approach because it provides a better definition of fiscal responsibility and it provides a mechanism to enact that definition.  It is important to understand the definitions of fiscal responsibility, and in particular 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 and the second is whether someone is acting responsibly by assuring that the actions or results are achieved.  Often these definitions are combined as if they were same, but they are not.  Someone may have the responsibility for an action but not be responsible in accomplishing it or its intended result.  They have the responsibility but are acting irresponsible

For the most part, when boards discuss fiscal responsibility, they are using 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 to not approve, if not carry out, any task or decision that would appear to be of a fiscal nature.  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 by having the board approve the budget the board is acting more fiscally responsible.  

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 not only apply to the executive but to the board as well.  For the board to allow the executive to not comply with the boundaries, essentially says that not only is the executive being fiscally irresponsible but so is the board.  It is only with the definitions of the boundaries and the assurance that the organization is in compliance 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 so that they can 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 in traditional board governance fiscal responsibility is not well defined and therefore difficult to assure. 

Lynn A. Walker, Ph.D.
Boundary Management Consulting

12411 McKelvey Road
St. Louis MO 63146-2929

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