The $380K Verbal Approval: Decision Rights Under Pressure
A bank's program board has nine members and a quorum of five; in the last six months, four meetings were cancelled for lack of quorum. To keep delivery moving, the program manager has been approving change requests up to $500K, although the program charter delegates him authority of only $100K. A component project manager has just escalated that a $380K vendor scope change was approved verbally by the program manager and is already being invoiced. Internal audit has flagged a "governance bypass." The board chair's response is that the program manager "did the right thing for the business."
1. What are the distinct governance failures here, and which is most serious?
Read the worked answer
Three separate failures, often conflated:
- A quorum design that cannot function. A nine-member board needing five cannot govern a program of this size if it meets monthly and four of six meetings fail. This is the root cause; the other two are symptoms.
- Unauthorized exercise of authority. The program manager approved changes four to five times above his delegated threshold. Good intent and good outcomes do not create authority.
- Absence of a decision trail. A verbal approval for a $380K change, already invoiced, with no documented change request, impact assessment, or approval record.
The most serious is the third in its immediate effect, because an invoice has been issued against a change nobody can evidence approving - that is an audit and possibly a contractual exposure. The most serious systemically is the first, because unless quorum is fixed, the pressure to bypass will simply reproduce itself next quarter.
2. The chair says the program manager "did the right thing." How should the situation be remediated without either scapegoating or excusing?
Read the worked answer
Separate ratification from accountability:
- Ratify or reject, don't ignore. The governing body must review the $380K change on its merits - scope, cost, benefit impact - and formally ratify it if justified, or direct renegotiation with the vendor if not. Ratification makes the decision legitimate retroactively; it does not make the original bypass acceptable.
- Document it. A decision log entry recording that the change was made outside delegated authority, the governing body's retrospective determination, and the corrective action.
- Address the cause. Adopt a written-consent or delegated sub-committee mechanism for urgent changes between meetings, so the board can act without a quorum of the full body. Adjust the program manager's delegated threshold only if the board intends to delegate more, in writing.
- Reinforce the expectation. The program manager's role is to escalate and propose, not to absorb. The chair's public support should be paired with a clear statement of the threshold going forward - otherwise the message is that bypassing works.
3. What changes to the governance plan would prevent recurrence?
Read the worked answer
- Quorum and cadence redesign - smaller decision-making forum, virtual attendance, written consent for time-critical items, and a standing delegation to a subset for changes under a stated limit.
- Tiered change authority - explicit thresholds (e.g., program manager up to $100K, sub-committee to $500K, full board above), with defined escalation timeframes so "waiting for the board" is not a reason to bypass.
- Mandatory change record - no work authorized without a documented change request, impact assessment, and named approver; vendors contractually barred from accepting verbal scope instructions.
- Escalation protocol - a defined route for urgent decisions when the board is not in session.
- Governance assurance - periodic audit of change approvals against delegated authority, reported to the board.
The design principle: when the legitimate path is slow, people invent an illegitimate one. Fix the speed of the legitimate path and the bypass stops being attractive.