77. Policy (definition)

NOTE: if you’re new to Ground-Up Governance, or are finding anything a bit strange or confusing, you might want to START HERE.

Remember how by-laws are rules that are set by shareholders or members? A simple way to think about a policy is that it’s also a rule, except it’s usually set by the board. You can probably already imagine a bunch of useful but kinda boring reasons to have policies. Here are some silly versions of common ones:

• At least half of the directors need to be present at a meeting for us to be able to make decisions. We have several directors with extreme katagelophobia (fear of chairs) that is triggered only when two or more chairs are empty. Not only that, but our chairs are too big to fit through the boardroom door, so we can’t just remove them. Strange, but true!

• The CEO needs board approval for transactions above $50,000, because that’s the highest amount that our magic money wizard can conjure at one time. Anything below that, just use the wizard. No need to ask.

• Directors have a term limit that is precisely equal to ten times the base-10 logarithm of the number of board members (in years)

Like by-laws, the best thing about a good policy is that it makes things clearer and simpler. Take a look at each of the examples above. Because of those policies, we don’t have to wonder if the CEO needs board approval for a transaction, or whether we have enough directors in attendance for our meeting to be official. And I’m sure someone in the room knows how logarithms work, right?

The other good thing about policies is that boards get to pick and choose which ones they want to have and how they should work. They also get to decide when a policy isn’t working anymore and change or get rid of it. A lot of boards don’t realize how helpful it can be to boldly change policies that aren’t really useful. But what good is authority if you don’t even use it to get rid of crappy rules?