by Susan Mogensen

The second installment of a series considering the relationship between Policy Governance and hierarchy, originally published in Board Leadership No. 98 (July – August 2008).

With the laudable goal of minimizing the conflicts and irresponsible use of power that often flow from hierarchical structures, is it possible to have a “nonhierarchical governance structure” that remains effective and accountable and not simply ineffective for the sake of being “nonhierarchical”? This question was addressed in Part One of this series (Issue 96 of Board Leadership), and it was determined that hierarchy is integral to any conversation about governance. Having concluded that it is impossible to completely avoid hierarchy, this second and final installment considers in more detail how common problems attributed to hierarchy are resolved by Policy Governance.

When authority flows from owners to board to management, a hierarchy of roles is very much apparent and necessary since there will always be (i) either a legal or moral ownership group, (ii) those who govern on behalf of the ownership, and (iii) those who achieve the results directed by the governors.

While this sets up a “top-down” chain of command, the “top” part of this chain is comprised of the (often forgotten) citizens, shareholders, members or however the ownership group is known, and not a sole authoritarian figure like a King, President, or Chairman and CEO. As such, the uppermost portion of organizational hierarchy resembles an inverted triangle rather than a pyramid. Those with more than a passing interest in Policy Governance understand the inextricable linking of the concepts of hierarchy, servant-leadership and owner-accountability in a free and democratic society.

However, seeing governance and hierarchy as inextricably linked does not mean that problems typically attributed to hierarchical structures inside organizations are inevitable or cannot be mitigated. It is easy to see, though, how one could incorrectly attribute the source of hierarchical problems to governance “structures” if one didn’t have a clear view of the distinction between governance and management. In fact, without the ability to draw a clear distinction between governance and management functions, the potential for problems attributed to hierarchy is highly probable.
 
Imagine, for example, that governance and management functions are mixed together like strands of cooked spaghetti on a large plate. Gathered around this plate, ready to eat, are all the board members, the CEO and even other senior staff members like a CFO, Communications Director, and/or VP Human Resources. As everyone digs in at once with their forks, the inevitable result will be multiple parties tugging at the same noodles from both ends. This, in fact, describes the crude and confused state of governance today. Without a system that clearly differentiates between governance and management, people working on both sides of the equation will never be entirely sure whether or not someone else has already grabbed a noodle at the other end. Inside this messy tug-of-war, problems such as turf wars, power struggles and micromanaging may be attributed to hierarchy.
 
To begin to resolve this mess, one could attempt to try to designate which noodles on the plate belong to whom, and which should be shared. Outside the Policy Governance paradigm, it is tempting to do this. A quicker and more enduring strategy, however, would be to give one full plate to those who govern and one to those who manage or lead the operational side of the organization. While this constitutes a kind of separation of labour between governance and management, the Policy Governance approach still ensures that all are still gathered at the same organizational table, aiming at the same result.

A more appropriate question to explore then is, given that governance is by definition a hierarchical concept, and given that the job of governing can and should be distinguished from the job of managing, what can be done to mitigate problems attributed to hierarchy inside organizations? Further, what impact could the use of Policy Governance have on typical hierarchical struggles?
 
First, let’s think about some typical problems or complaints that could be attributed to the existence of a hierarchy. Perhaps a staff person cannot get a critical tool fixed without approval from a boss who has other priorities. A board of directors might turn down a project proposal presented by a staff committee because the board didn’t agree with staff on the value of the project. One set of board members might resent the perceived power of another set of board members, such as an Executive Committee, because they seem to have all the information and forge ahead making key decisions on behalf of the board as a whole.

In all cases, the players involved experience frustration at not being able to get something done, or they perceive a lack of fairness or equity. These frustrations are attributed to people having a certain level of authority or decision-making power while others do not. In Top Down: Why Hierarchies Are Here to Stay and How to Manage Them More Effectively (Harvard Business School Press, 20025), Harold J. Leavitt puts anti-hierarchical complaints into four categories: “First, hierarchies are inhumane. Second, they are inefficient. Third, they are anti-democratic. Fourth, they are breeders of immorality.” But to ensure we do not get tangled up in the governance–management spaghetti plate as we examine this question, let’s look more closely at where these hierarchical frustrations can occur.
 
If we accept that the actors in organizations are essentially owners, board, CEO and staff, then we can categorize the preponderance of problems attributed to “hierarchy” to frustrations occurring (a) between the people at one level and the people working at one level “above” or “below” in the chain of command, i.e., between board and owners, between board and CEO, and between CEO and staff, and (b) amongst the people working inside each of these levels, i.e., among owners, among board members, and among staff. 

Generally speaking, if a governance system is achieving what it should — that is, owners’ wishes, as expressed by the board of directors, translated into outcomes achieved by the organization — then one would expect a minimum of frustration or barriers between these role players and maximum alignment of purpose from owners to board to staff.
 
Most organizations, however, don’t operate inside a system that effectively aligns owners’ wishes into results achieved by the organization. Instead, one commonly sees wasted effort, duplication of effort, and lack of direction. Imagine, for example, a heavy rock that must be moved by 10 people. If 10 ropes are tied around the rock and everyone pulls in a different direction, the rock will go nowhere, despite the best efforts of the 10 people pulling earnestly on their ropes. If everyone agrees and knows in advance where the rock must go, an equal amount of effort will move the rock into place much more quickly.

Similarly, we consider that a good deal of the blame on hierarchy could come from people simply not agreeing or knowing what the overall purpose or goal of the organization is. A reader of an online article, “Meetings and Dominance Rituals: Implications for Corporate Governance,” on a blog by Stephen Bainbridge (www.professorbainbridge.com/2006/05/meetings_and_do.html), comments that, “… if a meeting has a clearly pre-defined structure/agenda/goal, then the pecking-order will fall into place more easily … The worst power struggles always seemed to occur when the purpose was most vague.” Like vagueness in a meeting agenda, lack of clarity in organizational purpose can create a vacuum that will inevitably be filled with a power struggle of one type or another.

Boards using Policy Governance principles can drastically reduce the probability that anyone will be unclear about the purpose of the organization and reduce the chance for conflict between the board and owners. The principle that the board connects its authority and accountability to those who morally if not legally own the organization … seeing its task as servant-leader to and for that group calls on boards to first know who their owners are, and secondly, to link with the owners so they can accurately formulate the purpose of the organization. When boards wholeheartedly acknowledge their accountability to owners, engage themselves in this ownership linkage process, and have a mechanism to turn input into action, they can create direction that is clear, justified, and credible. Everyone knows where the rock must go, and they are more likely to understand and to accept the rationale.
 
Helping boards to create this clear direction on behalf of owners is the principle that the board defines in writing the results, changes or benefits that should come about for specified recipients, beneficiaries, or otherwise defined impacted groups and at what worth or relative priority for the various benefits or various beneficiaries. So not only does the board link with owners, but it is required to write down the Ends, and to include those three components of results, recipients and worth. “Get it in writing!” seems like common sense to most people, but few boards are as precise — and concise — about the course they have set for their organization as the ones that are using Policy Governance principles in their entirety. Not only do the CEO and staff become clear about the purpose of the organization, but the ownership does as well.
 
Some of the most typical types of hierarchical conflict between board members can be mitigated through the use of Policy Governance principles, aided by the principle that the board makes authoritative decisions directed toward management and toward itself, its individual members and committees only as a total group. Application of this principle eliminates the common syndrome of Executive Committees, for example, where a small subset of board members make key decisions ostensibly on behalf of the board as a whole, leaving board members not part of the Executive Committee in the dark or bypassed entirely. Many Executive Committees will roll up their sleeves and get to work on everything from budgets to strategic plans to hiring the CEO, and then expect the rest of the board to agree to their recommendations or rubber-stamp their decisions after the Executive Committee considers its work done. This practice sets up a hierarchy within the board of directors that can lead to conflict, apathy and dysfunction.
 
Of course, boards using Policy Governance delegate the role of Chief Governance Officer to a director, a role which requires the ability to make reasonable interpretations of board decisions when necessary. Boards might also create committees to help them with their job. Direction to board committees is, however, written, once again, and created by the board as a whole, along with all the rules that the board develops for itself in Governance Process policies, which are then regularly monitored. So while individual board members might fulfill a variety of functions from time to time, all board members understand that their authority as a board is group authority, and no single board member is asked to or allowed to “run the show.”
 
The Policy Governance principle that the board defines in writing those behaviors, values-added, practices, disciplines and conduct of the board itself adds valuable, written clarity to board processes so that directors can be on the same page with respect to how they interact with each other. Of course, the purpose of Governance Process policies and the “one voice” principle is not to eliminate or diminish the diversity of viewpoints around the table, but rather to provide the space in which to have rigorous, thought-provoking dialogue. While interpersonal conflict can always occur, boards operating inside these principles can focus on the conversations that really matter and avoid most of the misunderstandings, frustrations and squabbles that proliferate in far too many boardrooms.
 
Policy Governance principles are also extremely effective in mitigating common conflicts between the board and CEO. In organizations where Policy Governance principles are not in use, for example, board members will typically be asked to approve various projects, budgets, and even hiring and firing decisions. When a board decides to not approve something prepared by the CEO or staff, complaints aimed at “the hierarchy” can immediately ensue. When staff put time, effort and resources into a project that is halted at the board level, it can very well be said that hierarchy is to blame. If only the staff had the freedom to make its own choices, without meddling, micromanaging or nitpicking from above.
 
Of course, Policy Governance boards bypass this hierarchical complaint in part by applying the Executive Limitations Policies principle, the board makes decisions with respect to its staff’s means decisions and actions only in a proscriptive way in order simultaneously (a) to avoid prescribing means and (b) to put off limits those means that would be unacceptable even if they work. By setting out the criteria for good staff decisions in advance, and by allowing any means available except those that are prohibited, and then following through with the monitoring process, boards provide staff with far more freedom to make decisions, create results and get the job done. The CEO or staff do not need to approach the board on bended knee to ask for approval for everything and instead there is clarity around the Ends to achieve, and the means to avoid. The CEO must know his/her limitations.
 
The Delegation to Management principle further reduces the potential for board-CEO or board-staff conflict, because if the board chooses to delegate to management through a chief executive officer, it honors the exclusive authority/accountability of that role as the sole connector between governance and management. As a result, individual board members are not doing end runs around the CEO, using their position as directors to tell staff what to do, or how to do it, or interfering in any way in management or staff operations. Once staff understand this and the board holism principle, they know that even though the board as a group stands higher than staff in the governance chain of command — or hierarchy — individual board members have no power (unless a task has been specifically delegated to them by the board as a whole). How many CEOs or staff members grumble every day about direction or meddling by individual board members? The hierarchical position of the board over CEO and staff is not to blame. The system — or lack thereof — generates hierarchy-based problems. Using Policy Governance principles effectively, board and management can exercise their power and freedom with minimum frustration.
 
The Policy Governance model does not specifically address conflict or issues that might occur between the CEO and staff members. It does, however, give boards the opportunity to create a Treatment of Staff policy, for instance, and monitors compliance with the CEO’s interpretation of that policy. If the staff have access to the CEO’s reasonable interpretation of this policy, they should see with a fair degree of clarity the parameters in which they work. CEOs can also share board policies with staff members and engage them in the process of developing reasonable interpretations and essentially cascading out board policy language into staff-level policies. The need for multiple levels of approval-seeking inside the organization might also be eliminated if a similar process of Ends and Executive Limitations is developed between the CEO and staff.

While many Policy Governance principles can help to create a more motivated, purposeful and productive staff, hierarchical complaints among staff members throughout the organization are not otherwise addressed. Further, whether or not the organization is structured in a flat or pyramidal manner will depend entirely on the CEO’s interpretation of any relevant board policy.

And so, in response to the original question posed in Part One, whether there can be “nonprofit governance structures that do not fit what has become the standard org-chart model of hierarchical chain of command,” we conclude that hierarchy in governance is necessary but that it is not necessarily evil. Organizations clearly can be governed fairly, effectively and accountably in a hierarchical structure.

Power struggles or competition between people can never be eliminated entirely. It is the nature of humans. However, many of the frustrations typically experienced inside organizations and around board tables can be minimized among people of goodwill and common purpose, thereby allowing more good work to be done. Boards using Policy Governance principles have many advantages in this respect, and the time and energy they save in avoiding some of the most common needless battles can then be directed toward doing so much more than Policy Governance principles require of them. For instance, better decision-making processes facilitate conversations and improve interactions between board members, between board and owners, and between staff members. The fields of emotional intelligence, appreciative inquiry, spiral dynamics and so many other disciplines can also help people to live, to work and to succeed together. By using Policy Governance principles, boards can overcome the frustrations of yesterday and enjoy the opportunities of tomorrow.

See also: Who’s at the Top? The True Nature of Hierarchy and Authority