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Governance : Risk : Oversight : Documentation

So Who Really Does Establish Company Policy?

By Rose Hightower
Rose Hightower
IDEAL Consulting Solutions

For good or bad, the days of a CEO marching in and rebirthing a corporate culture, establishing key initiatives and making it happen are for the most part gone.  This has occurred for a variety of reasons and whether we agree or disagree, it is important to mark this passage and recognize that the void has been filled with leadership and direction from the Board of Directors (Board).   

To lead and provide direction the Board is presented with an “idealistic,” sanitized view of the company and little or no exposure to the blood and guts of how the company really gets things done. It can be argued that even the senior executive team is not witness to this underbelly. 

Traditionally, it was believed the CEO established company policy, directing that all laws and regulations be followed. However, how those laws and regulations are interpreted and implemented was left to the CEO’s Senior Executive team who echo the CEO’s directive of following laws and regulations.  Practically though, how much does the Senior Executive team know or should know about the operational processes and the heavy burden of doing more with less and of dealing with gaps in skills and technology? Therefore, if company policy does not practically reside with the Senior Executive team, not the CEO and not the Board, then who? 

The reality is that to answer the questions of if and when to interpret laws and regulations and how they will be adopted within the company falls to process owners; those in charge of managing the risk and monitoring the health of the process. 

So how do the Senior Executive team and the Board know what those policies and procedures are and how do they know these are aligned and complement the activities that are really going on?  The Board relies on the value achieved by the company’s governance journey, top down alignment of the company’s vision, mission and goals to the operational processes and recording of transactions.

The governance journey is the path from ‘big G’ to ‘little g,’ risk, oversight and documentation which finds its way as input to big G. Big G refers to those external laws and regulations which define the political, economic and judicial environment in which the Company must operate.  Little g refers to those internal laws and regulations; i.e., policies and procedures which interpret and adapt those big G into internal policies, procedures and practices.  Risk and oversight of course identifies the opportunities and challenges the company faces when implementing those policies and procedures.  Collectively the documentation evidence is supported with data, analysis, results and testing which proves that little g governance is working.  

The Board needs to understand (in this case understand is an active verb) the process along the governance journey, especially the translation of big G to little g.  If neither the Board nor the CEO is setting policy then who is? 

What level of policies and procedures are we talking about?  Let’s talk specifically and simply.  Within the SEC disclosures 10Q and 10K reporting requirements, management discusses the key accounting policies and procedures.  As Board members, have you actually seen those policy documents? 

Board members tend to be aware of the basic delegation of authority documents which are signed to delegate operational responsibility to the Sr. Executive team; however have you ever reviewed the process of how these statements become company policy, how these statements are communicated and cascaded down through subordinate policies and procedures. 

It is not an unrealistic goal to add a review of the Policy and Procedure Program to the Board agenda at least once a year.  Further, if the Board wants to strengthen and improve their understanding of the little g governance process, review the Policy and Procedure Program.  The quality of the documentation contained within the documentation system is a strong and direct indicator of the degree of alignment the company has between policy, procedure, risk and oversight.  Who the executive sponsor of this program is, how the documents are structured and organized speaks volumes about the “tone from the top”, communication and the corporate culture.

The recommendation is that the Board annually review the keystones and milestones of the Program:
•    Introduction to the Program Manager including credentials which must encompass strong program, process and project management skills as well as years of professional experience
•    The documentation plan, with data and analysis of the volume of documents and timeline for issuance and review
•    A review of the Table of Contents and how the documents are organized, i.e., documentation tree or hierarchy
•    A demonstration of the central document repository highlighting the repository’s control attributes
•    The names and positions of the extended cross functional team who review and approve the documents prior to issuance

Ultimately, the Board, the CEO and the Senior Executive team are responsible for establishing and implementing company policy.  Recognize the importance of this program within the governance journey and provide the leadership and direction which is your mandate.  Make time and assign resources, because whether it is explicit or implicit, the role and responsibility to establish company policy rests with you.

Rose Hightower
IDEAL Consulting Solutions

Rose Hightower, Accountant, MSc, is the owner of IDEAL Consulting Solutions International, LLC, a firm specializing in consulting in implementation of internal control policy and procedure programs for companies. Bringing over 20 years experience from IBM and as a finance manager and providing service as a professor her program contains practical lessons and simple solutions for any size company.  She is known as ‘The Policy Guru’ and offers advice to clients via her website

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