What is governance and why is it important?

governance

Governance is the leadership of decision-making, culture, controls and accountability from the boardroom and throughout the organisation to get consistently great outcomes.

Governance – A dry topic?

We often hear potential new clients talking about governance being ‘a dry topic’ – far from it!  Thirty years ago The Cadbury Report defined it as ‘the system by which companies are directed and controlled’.  In the 21st century, it’s recognised that governance is equally important in the public and charity sectors as in business, and also that there’s much more to it than a system.

If we were to only focus on the laws, regulations, structures and rules, maybe governance would be a little dry but, at Leading Governance, we believe governance is really about happy, capable people delivering great outcomes and making the world a better place!  So what’s not to love about that?!  Bob Garratt wrote that brilliant book ‘The Fish Rots from the Head’.  We agree with that title, and we also believe that effective boardroom leadership is essential for great outcomes to be delivered.  For an organisation to work really well, we need our board to be really clear about the vision and core values, to ensure everyone in the organisation understands those, and for everyone to get regular feedback on how they are leading by example (including the Chair of the Board)!  That’s how a culture of success is developed.

We like to focus our attention on the people that need to set the tone in the boardroom, to support and enable everyone else in the organisation to do a great job, and to enjoy doing it.  If you’re new to being a Board Member, you might want to check these fundamentals for your organisation:

  • Structure
  • Board effectiveness
  • Boardroom dynamics and culture
  • Engagement with stakeholders

Structure

How is the organisation set up, and what is its legal constitution?  If it’s a company, all Board Members need to understand their legal duties as company directors.  If it’s a charity, they need to be aware of charity law, and their duties as trustees, including ensuring that all of the activities are for public benefit.  Who makes what decisions?  There are some decisions that the members need to make in a General Meeting.  Most decisions, about the strategy and business plan, budget and financial arrangements, management structure etc, are made by the Board.  The Board should clearly set out what tasks and decisions it delegates to any of its committees, to the Chief Executive / Managing Director, and onwards to others (remembering that they, as Board Members, are ultimately responsible).  Everyone should understand accountability – to whom they are accountable, and for what.  There should always be some kind of proportionate Internal Audit in place to check that the necessary controls are in place and are working.  Checks and balances are key to giving the Board assurance that all is as it should be.

Board Effectiveness

While it may sound obvious, the first step in building Board effectiveness is getting the ‘right people’ into the boardroom!  Board members need to have the right mindset, competencies and behaviours to enable them to really add value.  The constitution document for the organisation may dictate a minimum and maximum number of Board Members that must be in place.  It’s essential for the Board to use the Skills Audit process at least annually to highlight the kind of people that need to be recruited to drive performance.  As Jim Collins said in his wonderful book ‘Good to Great’ ‘Get the right people onto the bus, and the wrong people off the bus’!  Sometimes we find that Boards are too polite to do that!

Board members need to really understand their role, and work hard on being an effective individual and also an effective team member, willing and able to engage in the collective responsibility that goes with the task.  They need to be proactive in setting strategy, overseeing performance, and managing risk.

The leadership of a great Chair of the Board should ensure that Board meetings are focused on the topics that really matter, rather than just ticking a box for having a meeting.  There will be appropriate balance on both sides of the governance task – conformance (ensuring that everything in the organisation is safe, legal, and following the rules) and performance (having a clear vision for the future of the organisation, and an agreed strategy and core values to get there.

Boardroom Dynamics and Culture

Whether we’re always aware of it or not, there are group dynamics at play in our boardrooms every time we meet.  Board members need to consider the behaviours and emotions that can make or break trusting relationships and a healthy boardroom culture.  The impacts of diversity in leadership styles, followership styles and mindsets shouldn’t be underestimated, and it’s important to be open above the helpful and unhelpful dynamics at work.  We find that mindfulness and humour can help us deal with issues around power relationships, egos and narcissism.  The Chief Executive’s relationship with the Chair of the Board is a key element in building trust, and they should work together to improve energy flow in the boardroom.

Boardroom culture needs to be collaborative, open, honest, respectful, and action-focused.  The Board has to set the tone on ethics and culture for the rest of the organisation.  If the senior managers are seen to lie, steal, bend the rules, or allow unhelpful conflict or bullying to create discomfort, they will find it difficult to attract and retain the best staff for the organisation.  We recommend that every Board should pro-actively assess culture, both in the boardroom and across the organisation, and continually influence it to further improve.  Their own behaviours will be closely observed by others, so it’s vital for them to lead by example.

Engagement with Stakeholders

All Board members need to know who will hold them accountable.  There may be legal and regulatory stakeholders (eg) Companies House, the Charity Commission, shareholders or members.  There will also be a broader range of other important stakeholders (eg) customers, staff, partner organisations.  Really effective Boards will, at least annually, reflect on who their key stakeholders are, and they will engage in a process of stakeholder mapping, to agree the communications needed with each of those groups.  They will then ensure that the necessary communications happen, and that feedback from stakeholders is actively sought and learned from.

Conclusion

So in our view, governance is about having the right people in the boardroom, doing the right thinking, having the right conversations (even when they are difficult ones), receiving the right information, so that they make the right decisions to develop a fabulous culture that attracts and retains the best people to make great things happen!

Our purpose in Leading Governance is to support Boards to make all of that happen – please get in touch if you feel we can be useful to you and your colleagues.


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