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The Policy Governance@ Model Page 9 of 16 statement of a nonprofit board may be that persons without shelter should have adequate housing. Another may be that families with school age children should have housing that allows children of . different genders to sleep in separate rooms. It is easy to see that the second example is more detailed. or "narrower," than the first. Notice that these two statements can be pictured as a set of nested bowls, in that the first is a broader value that includes the second one within it. Even more detailed choices exist within the second level, and so on to third. fourth. and more bowls until the specificity reaches a level where Mr. Smith rather than Mr. Jones gets a particular amount of shelter next week. Now let's illustrate the "nested bowls" concept with an example of unacceptable means. One means value of a nonprofit board may be that the CEO not allow anything imprudent, illegal or unethical. Another may be that unbonded persons may not have access to material amounts of funds. The first example is a broader prohibition than the second, but less specific. Even more detailed "bowls" exist, of course, such as a further proscription against access to more than $5.000 on anyone occasion or more than $8.000 cumulatively OVer a one year period. Board values about ends and unacceptable means. as well as the board's own means, then, can be stated broadly, or more narrowly. The advantage of stating values broadly is that such a statement is inclusive of all smaller statements. The disadvantage, of course, is that the broader the statement, the greater is the range of interpretation that can be given to it. To take advantage of the fact that values or choices of any sort can be seen as nested sets, the Policy Governance board begins its policy making in all four categories by making the broadest, most inclusive statement first. The board then considers the range of interpretation that such a statement allows, and determines whether it is comfortable with the statement being given any interpretation that is reasonable. If the board would be uncomfortable delegating such a range. that is a signal that the board must define its words more narrowly, moving into more detail one level at a time. At some point. the board will have narrowed its words to the point that it can accept any reasonable interpretation of those words. Now the board has reached the point of delegation. . As an example, consider an Executive Limitations policy in which the board is putting certain financial conditions and activities "off limits." At the broadest level. the board might say: "With respect to actual, ongoing financial condition and activities, the CEO shall not allow the development of fiscal jeopardy or a material deviation of actual expenditures from board priorities established in Ends policies." That covers the board's concerns about the organization's current financial condition at anyone time, for there is likely nothing else to worry about that isn't included within this "large bowl" proscription. However, most boards would think such a broad statement leaves more to CEO interpretation- eVen if reasonable interpretation-than the board wishes to delegate. Hence, the board might add further details. such as saying the CEO shall not: (1) Expend more funds than have been received in the fiscal year to date except through acceptable debt. (2) Indebt the organization in an amount greater than can be repaid by certain, otherwise unencumbered revenues within 60 days, but in no event more than $200,000. (3) Use any of the long term reserves. (4) Conduct interfund shifting in amounts greater than can be restored to a condition of discrete fund balances by unencumbered revenues within 30 days. (5) Fail to settle payroll and debts in a timely manner. (6) Allow tax payments or other government ordered payments or filings to be overdue or inaccurately filed. (7) Make a single purchase or commitment of greater than $100.000. with no splitting of orders to avoid this limit. (8) Acquire, encumber or dispose of real property. And (9) Fail to aggressively pursue receivables after a reasonable grace period. A given board might go into less or more detail than in this example. But in any case, these principles stay intact: The language moves from a broad level toward a lesser level (we showed two levels in the example just given). The values that become policy are generated by the board's deliberations, not approved from a staff recommendation. The board, not the staff, decides what to say and where to stop. No matter where the board stops, the CEO is granted authority to use any reasonable interpretation of the board's words. The board can shrink. expand. or change the content of the policy at any time, as long as it does not judge performance retroactively. e http://www.carvergovernance.com/model.htm 6/12/2002