I recently reviewed some of the footage that I have developed undertaking my Governor Interviews. The Interviews that I have carried out have mainly been with experienced and high profile non–executive board members, the majority have been chairs at some point during their tenure and although there are about 6–8 questions that I always ask, I usually start by asking them to explain to me what good governance and what bad governance looks like from their experience
So, what is governance? Before I share what the Governor Interviews have taught us about good and bad governance, here are three widely used definitions of governance.
“…a set of relationships between a company’s board, its shareholders and other stakeholders. It also provides the structure through which the objectives of the company are set and the means of obtaining those objectives and monitoring performance are determined.”
The Cadbury Report
“Corporate governance is the system by which companies are directed and controlled.”
Larcker and Brian Tayan in Corporate Governance Matters
“The collection of control mechanisms that an organisation adopts to prevent or dissuade potentially self-interested managers from engaging in activities detrimental to the welfare of shareholders and stakeholders.”
Now that we understand what governance is, let’s take a look at what our experienced interviewees said about good and poor governance.
Portfolio NED, Former Director General BBC, Former Chair of The Football Association
“Something has gone disastrously wrong and you knew nothing about it…”
“Something has gone seriously wrong but you knew about it…”
Portfolio NED, Former Director of the Bank of England
“The arrangements of the board have a detrimental effect on the company or organisation that the board is managing…”
“The board behaves as a team…”
Former Trader at UBS /global Synthetic Equities
“Institutions with cultures that lead ultimately to failure…”
“The leadership understand the purpose of the organisation and area able to lead its people to deliver that purpose…”
Former Managing Director Jaguar
“Generally reflects stakeholders or a company or individuals that don’t really understand what governance is or how to apply it to their company…”
“A company, individual or stakeholders that actually get the balance right between the applying and complying with the rules and regulations with the commercial imperatives that they have with the passion and the people and sometimes different objectives of the stakeholders…”
Having read what a variety of experts have said, I now share with you my thoughts and experience gathered from undertaking over 100 assessments based on my TGF governance framework that is delivered across all sectors and all sizes of organisations.
Good governance is about effective and efficient systems and decision-making processes where the owners and other stakeholders can be confident that the board of directors will translate their strategic objectives to the executive team to successfully implement. It works when the behaviour of the board members means that their collective skills are greater than their individual skills.
We need governance because without it there is no accountability. We can’t compartmentalise governance because it impacts on every part of the organisation and touches even the most remote stakeholder. When it works well it is fair, it is transparent and it makes a difference.
Put simply there are three key principles to apply in understanding what good governance is:
Governance is not an option!
Governance is not a function!
Governance is more than compliance!
Failure at any level in an organisation can normally be traced back to the governance and leadership of that organisation. Governance is not just about adherence to rules and regulations and cannot be designated to a function or a department within an organisation. Governance should be integrated across the whole organisation. It is much more than the management of processes, although that is important. It is much more than having systems in place, although once again that is important. Governance is about the systems and controls in place to ensure an organisation is managed efficiently and effectively. It is about the strategic oversight of the board and their coexistence with the operational staff within that organisation. It is about the attitudes of board members, the management of risk and standards in public life.
Governance is many things and it is definitely more than compliance!
Until next time…