Processes

Board processes and practices

'The board must strive to be as good at its job as it expects the CEO and staff to be at theirs.'
Terry Kilmister, BoardWorks International

The board is responsible for systematically designing its own processes and practices. Certain governance processes are specified in the constitution, for example, number of board members, board officers, board member appointment and election processes, requirement for and processes for calling and running annual general meetings or special general meetings.

The board must comply with the organisation's constitution. All new board members should receive a formal induction into the board and the organisation. Such an induction should include receiving a full set of governance documentation, such as the strategic plan, the constitution or rules, all governance policies, up-to-date financial position and, prior to the first board meeting, a meeting with the chairperson and the chief executive officer to become familiar with both board and operational processes and issues.

The board should approve a budget developed by the chief executive officer (or the finance committee) for the organisation, and regularly monitor compliance with this throughout the year.

The board should set aside funds sufficient to meet its own operating needs (for example, meeting costs, governance training, attendance at conferences and seminars) and for contracting external personnel such as an external auditor, consultants and so on.

Board meetings

Board meetings should focus on governance matters affecting the control and direction of the organisation, such as policy making and review, financial health of the organisation, strategic thinking and progress towards Key Result Areas, and legal compliance, rather than on administrative and operational matters.

Board meetings should reflect an appropriate apportionment of focus between compliance with formal requirements, for example, monitoring financial performance, and monitoring overall achievement of Key Result Areas and engaging in strategic thinking.

The board meeting is an ideal forum for the board to engage in strategic thinking in order to ensure the ongoing relevance and appropriateness of its strategic plan and Key Result Areas. The meeting should adopt a future focus building on past learning.

Board meetings should be managed in a manner designed to encourage diversity of opinion, ensuring input from all board members as appropriate without prejudicing effective and efficient decision-making.

All board members have equal rights at the board meeting. This includes the right to:

• have their questions, opinions and views heard
• question the chief executive officer
• vote on an issue or refrain from voting
• have their vote recorded in the minutes or record of the meeting
• receive information relevant to the board meeting (agendas and papers) in time to prepare for the meeting.

The board as a whole should develop an annual agenda at the commencement of the governance year, identifying key governance responsibilities and events and programming these into the year's board meetings. With the annual agenda as the basis for all board meetings, the chairperson, with input from other board members and the chief executive officer as appropriate, should shape the agenda for each board meeting.

Meeting agendas should include, as a regular item, the opportunity for individual board members to declare any existing or potential conflicts of interest regarding items on the agenda, before these items are discussed at the meeting.

The board should meet as often as is required to carry out its governance duties. Typically, boards of sporting organisations meet monthly or every second month. Board meetings should take as long as is required to carry out the board's governance responsibilities.

The board should ensure that appropriate records of board meetings are kept to provide an accurate account of decisions reached. Neither the chief executive officer nor any board member should be required to take minutes at the board meeting, as this removes them from participating fully. Rather, the board should engage a meeting secretary or use a staff member to fulfil the role of minute taker.

Board-chief executive officer relationship

Role of the chief executive officer

The board's basic operating assumption must be that the chief executive officer is fully competent to manage the organisation; the chief executive officer therefore should be delegated maximum authority to manage all operational matters. In larger sporting organisations this might include the appointment of administrative, coaching and technical staff. An effective and productive board-chief executive officer relationship is built around:

• mutual respect for their separate but mutually interdependent roles and responsibilities
• a clearly defined and documented delegation, including the authority to appoint and manage personnel
• a clear expectation that the chief executive officer will be held accountable for the performance of the organisation within the bounds of the delegation
• mutual agreement about the limits to the freedom granted to the chief executive officer in order to carry out his or her role and tasks
• clearly defined, unambiguous results to be achieved
• a fair and ethical process for evaluating chief executive officer effectiveness
• an expectation that the expertise and experience of individual board members will be available to the chief executive officer as advice, not as instruction
• a commitment for the board to 'speak with one voice' on all matters relating to the chief executive officer, such as policy, strategic direction and performance expectations
• regular and objective feedback and two-way dialogue about important performance matters.

Once the board has made clear the extent of its delegation to the chief executive officer, it must respect that delegation and allow the chief executive officer the freedom to manage the organisation to the best of his or her ability.

Board members, on the invitation of the chief executive officer, might participate in the recruitment and selection of senior operational staff. Such participation should be advisory, the final decision remaining with the chief executive officer.

Board members should, subject to any directions issued by the board, feel free to liaise with appropriate staff and, in so doing, must take all care to ensure that they do not instruct staff or undermine the chief executive officer position and legitimate authority.

All board member-staff member relationships should be informal except in extraordinary circumstances involving certain chief executive officer performance issues before the board, such as a gross violation of the position (for example, chief executive officer theft). At the very least, board members should know the key staff and their roles, and staff members should know who is on the board.

Chief executive officer authority

An essential element in the expression of the board's duty of care is a requirement that it should understand the risk environment and ensure that appropriate risk management strategies are in place. Many aspects of the chief executive officer's role place the board at risk. Establishing a clear, documented delegation to the chief executive officer is one way that a board can mitigate some of the risks associated with this area.

It is imperative that the chief executive officer knows the boundaries of his or her freedom to act without recourse to the board. With these made clear, the chief executive officer can get on with the job to be done without having to constantly refer to the board to seek permission to carry out operational functions. In turn the board, having documented the delegation, can have the confidence that the chief executive officer knows which things he or she is authorised to do and which matters are outside the delegation and must be referred to the board for a board decision. Such boundaries are best defined by using a proscriptive or limitations format, stating what cannot be done rather than what can or should be done. Alternatively (and more commonly) the delegations are defined as a proscription. Once established, these statements might be known as chief executive officer delegation policies. Typically, the chief executive officer delegation policies will cover some or all of the
following policy categories:

• financial management, including budgeting, day-to-day financial management, procurement limits, financial reporting to the board, creation of and access to financial reserves, andinvestments
• personnel management
• stakeholder relations
• protection of assets
• payment of remuneration and benefits
• reporting to the board
• support and information for the board
• public relations
• emergency chief executive officer succession.

Once the boundaries are defined, the chief executive officer should be granted freedom to use his or her judgement to interpret the board's policies and make all appropriate decisions, and take all actions necessary to achieve the results sought by the board, always within the bounds of policy.

The board has the right to set as many boundaries as it chooses and to define these in whatever detail it considers necessary. The board can then feel confident that the chief executive officer can make decisions that the board will be able to support.

Organisational strategic direction, organisational values, Key Result Areas and board policies define further boundaries within which the chief executive officer must work.

Chief executive officer attending board meetings

The chief executive officer should attend every board meeting. The chief executive officer's advice should be sought in most matters coming before the board. In the not-for-profit sector, it is unusual for the chief executive officer to be a voting board member. However, where this is the case, it is strongly recommended that the board ensures that:

• the chief executive officer does not dominate governance discussions and decision-making. It is not uncommon when chief executive officers are on boards for other directors to defer to this person and, in so doing, fail to fully carry out their legal and fiduciary duties as directors
• the chief executive officer does not use the board meeting as a forum for discussing a range of administrative and operational matters
• the chief executive officer does not unduly influence the determination of the Key Result Areas. It is the board's responsibility to establish results to be achieved, reflecting the views of a broad range of stakeholders, rather than simply rely on the views of the chief executive officer and staff
• the chief executive officer does not determine the meeting agenda. Where a chief executive officer determines the board meeting agenda, this commonly results in a focus on operational rather than governance matters.

Right to instruct the chief executive officer

The chief executive officer should only receive instructions from the board, not from individual directors. Accordingly, the chairperson should not issue instructions to the chief executive officer that are not in accord with board policies and decisions. The chairperson and the chief executive officer may establish a regular forum for dialogue and to serve as a sounding board for chief executive officer decisions. When this is the case, great care should be taken to ensure that this interrelationship does not serve as a de facto board.

The chief executive officer-chairperson relationship can provide a useful forum for the chief executive officer to test interpretations of board policies and to discuss ideas and options. However, the chairperson should take care never to be tempted to give, or remove, permission to the chief executive officer to carry out operational actions.

All operational decisions, within policy, should be made by the chief executive officer who is then accountable for these decisions.

Chief executive officer effectiveness

The board is responsible for evaluating the chief executive officer's effectiveness. The chief executive officer should be evaluated only against previously agreed-to, objective criteria for which he or she has been delegated full operational authority. Such criteria typically include achievements against Key Result Areas, compliance with board directions to the chief executive officer and proper use of delegated authority (chief executive officer delegation policies).

The chief executive officer should not be held to account for the performance of personnel or groups over which he or she does not have full managerial authority. Only data relevant to agreed results or goals to be achieved should be considered as monitoring data.

Every board meeting and all chief executive officer reports to the board should be regarded as a component in the assessment of the chief executive officer's effectiveness.

While aspects of assessing chief executive officer effectiveness might be delegated to a subcommittee of the board, responsibility for the overall assessment belongs with the board as a whole. Ideally the chief executive officer assessment process should not be left to the chairperson alone to carry out.

Chief executive officer remuneration decisions should not be based solely on the outcome of the chief executive officer's formal performance appraisal. The size of the job, additional duties or work carried out, qualifications, market conditions, value to the organisation and special skills, all contribute to the decision.

Board Evaluation

The board should evaluate its own effectiveness annually. The board should explicitly set standards and performance expectations to provide a basis for a formal annual evaluation of its governance effectiveness. The board should assess its performance according to pre-agreed objective criteria, preferably derived from its own governance policies and processes.

Best practice approaches to board evaluation include:

• setting time aside, at least annually, for the board explicitly to address its collective and individual member performance
• using an independent facilitator or consultant to help the board design a suitable evaluation process and to ensure that this is carried out independently and confidentially
• conducting peer and self-appraisal of all board members, and the chairperson.

The outcome of the evaluation process should be used as the basis for board and individual board member development goals, leading to an improvement in board performance over time. Monitoring and evaluating the organisation's performance: a continuous job for the board.

'The single most important thing to remember about an enterprise is that results exist only on the outside. The result of a business is a satisfied customer. The result of a hospital is a healed patient. The result of a school is a student who learns something and puts it to work ten years later. Inside the organisation there are only costs.' Peter Drucker

Monitoring and evaluation are the means by which the board ensures that the organisation is performing to the standards expected. The board's monitoring should focus on the achievement of results rather than on the effort expended by the chief executive officer and staff.

The board should monitor compliance with its chief executive officer delegation policies and the strategic plan via a monitoring schedule that requires the chief executive officer to report against all policies and Key Result Areas.

The board may consider that some policies must be reported against at every board meeting, for example financial policies, while others might be monitored annually. The Key Result Areas will probably be reported on, to a greater or lesser degree, at every board meeting, with in-depth reporting against these on a scheduled basis, perhaps quarterly.

The board meeting agenda should reflect the annual cycle of monitoring results and
compliance reporting, specifying particular results to be reported.

The board's meeting schedule and contents should be planned ahead of time so that both the board and the chief executive officer are prepared for a discussion about results and achievements. Such pre-planning ensures a deliberate approach to board decision-making, thus avoiding ad hoc discussions about issues of the moment for which there is no time to prepare adequately.

Board monitoring should demonstrate a balanced, broad concern for all aspects of
organisation performance, not focusing on one aspect, such as finance, to the exclusion of other matters.

The board may receive its monitoring information from a number of sources, including:

• chief executive officer reports (internal reports)
• external reports, for example, by an external auditor or contractor
• the board's observations, investigations or evaluation.