Crafting policies is the art of business

Policies are crucial to a successful business. Without them, it’s impossible to consistently control and keep track of all the things that happen day to day. How does an employee know how to handle cash or deal with an angry customer? How does a manager know how to hire or discipline employees? How do employees know how to open or close a shop? Who is allowed to sign the cheques and make orders? Who is allowed to access local networks?

Whether written or not, these events are all governed by policies, usually passed on during training. But written (and carefully considered) policies are far more powerful than policies that only exist in a manager’s or owner’s head, or that are created on the spot, without giving thought to the consequences.

Policies and procedures are our business at First Reference; you might say we’re policy nerds. So it’s great to see others as excited about the topic as we are. Last week, for example, IT consultant Scott Lowe outlined on TechRepublic, “10 things to consider when creating policies.” And it’s not just IT policy he’s interested in.

Lowe’s list is hardly exhaustive—there are countless considerations when developing policies, some general and some specific to an organization—but he offers some terrific points. Here’s Lowe’s take:

I hate inconsistent and inconsistently applied policies. They create conditions that are inherently unfair and can often lead to more problems on top of the ones they were designed to solve. Policies that are thrown together in immediate response to someone being annoyed aren’t always the most well-considered texts, either, and they also tend to lead to problems down the line. However, policies are a necessary part of any organization. They define the parameters around which the organization operates and influence the behavior of people to a particular outcome.

Jeffrey Sherman, FCA, author of First Reference’s Internal Control Library, offers the following insight in Finance and Accounting PolicyPro:

There are several reasons why you should ensure that your organization has documented policies and procedures rather than implicit ones.

To begin with, written policies and procedures can provide employees with guidance in dealing with new situations. When policies and procedures are in writing, there is a greater degree of assurance that similar situations will be handled in a similar fashion over time.

Secondly, documented policies and procedures can help any business operate more efficiently. Often policies and procedures develop and evolve without much deliberate thought. The process of documenting them actually enables the organization to look objectively and critically at the implicit policies and procedures in place. Inevitably, inconsistencies, duplications and conflicting principles come to light in the process. For example, customers might not be charged interest for late payments not because the organization decided this, but because customers were never charged in the past and no one has thought about changing the policy. The process of adopting written policies will identify many such circumstances and will raise many interesting questions. Addressed explicitly, these can be dealt with and result in better operations.

Thirdly, policies set out responsibilities and accountabilities within the organization. They define the rights and obligations of employees and managers, and provide guidance for resolving potential conflicts.

Lowe’s list offers a clear and concise look at an important process that many organizations seek to avoid or downplay, for various reasons.

1. Ensure that there is a policy on policies
2. Identify any overlap with existing policies
3. Don’t develop the policy in a vacuum
4. Step back and consider the need
5. Use the right words so there is no misunderstanding intent
6. When possible, include an exceptions process
7. Allow some shades of grey
8. Define policy maintenance responsibility
9. Keep senior executives out of the routine when possible
10. Establish a policy library with versioning

You should definitely read Lowe’s commentary, as it will provide much food for thought for organizations developing policies from scratch or trying to sort through and update existing policies. But let me offer some additional comments.

A policy on policies
Just like you want policies to make your business practices consistent, you want a policy to make your policies consistent. Lowe suggests this policy outline “what situations constitute the need for a new policy, the format that new policies should use, and the process that needs to be followed for a new policy to be approved.” That’s a great start. Human resources consultant and author of Human Resources PolicyPro Derwyn Hancocks recommends you ask yourself:

• Will you use one policy manual covering all business functions, or separate manuals for each function, such as finance, sales, operations, human resources, etc.?
• Will you use a common format for each policy and procedure statement?
• How often will you review policies?
• What subjects should and should not be included in a policy manual?
• How will you organize the contents?
• How will you develop policy and procedure documents?
• Who will be responsible for writing such documents?
• Will the writing style be formal or informal?
• How will you approve policies and procedures for publication?
• Will you seek legal advice before granting final approval? If so, in some cases or all cases?
• How will you update policies?
• How will you keep track of who has received and read the manual and any revisions?

I’d also add that the policies policy should discuss any applicable legal or regulatory requirements.

Using the right language
Since you and your managers must be able to apply your policies consistently, and employees must be able to understand them, it’s imperative that the language be unambiguous and right for your audience. Lowe suggests, for example: “Use the words ‘must’ or ‘will’ rather than ‘should’ in the body of the policy. The latter implies that the action is optional, which makes the need for the policy questionable.” Hancocks recommends a policy be “clear, concise and complete”:

• Keep sentences short; confine each sentence to a single thought
• Use simple language and short words; avoid jargon, complex terms or legalese
• Present ideas simply and directly; avoid unneeded words or rhetoric
• Break complex ideas into simple statements
• Use active verbs instead of passive, wherever possible; e.g., use “receive” instead of “have received” or “in receipt of”
• Use finite terms rather than abstract terms; e.g., specify a time frame instead of using “reasonable period”

Your policies policy might also act as a framework for a more general documents policy, which would describe how to prepare various business documents.

Shades of grey
It might sound contradictory to use unambiguous language but also to allow exceptions and shades of grey, but just as it’s important for the sake of fairness to apply policies consistently, it’s also important to avoid strictly applying a policy to a situation that calls for discretion. According to Lowe, “there are simply too many instances in which people are allowed to use ‘that’s policy’ or ‘zero tolerance’ excuses to avoid doing the right thing. If your policy leaves a little bit a grey so that a person can make an on-the-fly decision, that’s okay.”

Of course, there may also be legal or regulatory exceptions, particularly when it comes to employment standards policies.

Be sure to read the rest of Lowe’s 10 things to consider when creating policies, and take a look at Human Resources PolicyPro and the Internal Control Library for much more detailed views on policy-creation, along with sample policies for all your needs.

Adam Gorley
First Reference Human Resources and Compliance Editor