The tgf Governance Code – Part 1
If you have attended any training I’ve delivered, attended a talk I’ve given or received consultancy from myself or my team, you’ll know that one of things we often talk about are governance codes. Those of you who have completed any of the Effective Board Member Programmes will be well versed in acronyms that have helped you to memorise and be able to apply the UK Corporate Governance Code. You’ll be aware of King’s approach to “Triple Context” ethical leadership and corporate citizenship in the code for South Africa and you’ll recall the different approaches to compliance such as comply or explain and apply and explain.
For those of you who haven’t completed a Programme, I’m sure you will recognise some of this and you may work in a sector where you are familiar with the principles and provisions of your own code. Rooted in the report of the Cadbury Committee that was authored in 1992, the UK Corporate Governance Code has almost become the foundation on which many other codes of governance internationally are built.
I have found in examining codes from different countries and different sectors that some of them have principles and provisions that are unique to that sector or region. Given that code compliance is applied on a sector basis, these differences are not implemented outside your particular sector, despite the fact that they could help to improve practice everywhere. A few of these differences are listed here:
• King – the application of corporate citizenship as a part of corporate governance compliance;
• Jordanian Corporate Governance Code – combination of applicability to the private and NGO sectors;
• A Code for Sports Governance – Each tier has a different level of mandatory governance requirements.
• Good Governance Standard for Public Services – central focus on citizens and then everything permeates from that.
I mention these differences because in my experience, people feel that the principles of corporate governance outlined in their code are generally only applicable to their sector and that on top of that they don’t need to look wider and further. This can be a blind spot because as the list above shows, there is so much to be learned from wider best practice. There have been many times I have heard the words: “this is how we do it in this sector” being uttered which is a dangerous stance to take.
Whilst it is important to acknowledge the idiosyncrasies that occur in sectors are what make sectors different and that some of these differences are necessary to safeguard the business and stakeholders, my years of experience have taught me that the principles of governance are applicable across all sectors. There may be variations in the level of detail required to be applied to certain principles and practices based on size and complexity but overall, there is a framework which, if applied in any sector will offer stakeholders assurance that good governance structures are in place. I would like to add the cautionary note that I often do to remind you that as an organisation, you can have all of the right systems and processes in place but if there is dysfunctional behaviour on the board, failure can still occur.
With that being said, how the same principles of governance can be applied and be effective across all sectors is the area on which I want to focus the remainder of this blog. Having read a number of codes of governance, several years ago I created the tgf Code of Governance. The Code consists of twelve principles that are broken down into the 3 sections of my tgf Methodology – by now, you will know them well – Resources, Competency and Execution. As part of the work on The Governance Framework© which I created as an industry leading platform to combine some of the successful products we have offered at tgf over a number of years with accreditation and a kitemark, an analysis of eleven codes of governance from a number of sectors has been completed. This has allowed me to ensure the key elements of The Governance Framework© are covered by these twelve principles and an audit of these eleven codes of governance has also enabled me to test the completeness and applicability of the twelve principles identified.
The eleven codes of governance we have analysed are:
1. UK Corporate Governance Code (2018);
2. NHF – Code of governance Promoting board excellence for housing associations (2015);
3. Charity Governance Code (2017);
4. King IV: Report on Corporate Governance for Southern Africa (2016);
5. Good Governance Standard for Public Services (2004);
6. A Code for Sports Governance (2017);
7. Oman Code of Corporate Governance for Public Listed Companies (2015);
8. Department for Education (DfE) Governance Handbook (2017);
9. Community Housing Cymru’s Code of Governance (2018);
10. Wates Corporate Governance Principles for Large Private Companies (2018);
11. Nasdaq Corporate Governance Requirements (2019).
By examining these codes, I have created a Code that includes international and cross-sector best practice in a way that no other code has. When testing your governance practices against this Code, you are not only able to demonstrate compliance within your own sector but you can also evidence how you go beyond this.
So all that is left for your organisation to do is demonstrate that they can apply and explain its principles. So what are the principles of this Code?
The first 4 Principles of the tgf Governance Code are:
The board should have a clear purpose and the right resources and structures. As the custodian of corporate governance, it must be effective in strategically leading the organisation and have an appropriate constitutional framework with the essential functions recorded in its terms of reference and other relevant documentation.
The board should have access to the right reports and information and should present a fair and balanced assessment. This information should be appropriate and relevant and provided in an accurate and timely manner.
The board should have the right documentation in place including policies and registers. These documents should be in line with legal, statutory and best practice requirements. There should be a comprehensive, accessible suite of essential governance documentation.
The board’s roles and responsibilities, including the division of responsibilities should be clearly defined. Delegated authorities and a schedule of matters should be available and up to date. The organisation should have a profile of each board member.
These 4 principles make up the Resources section of the Code and are covered in more detail below.
Principle 1 states that: “The board should have a clear purpose and the right resources and structures.”
As mentioned, the Code begins in the Resources section of the tgf Methodology. An organisation’s resources are the foundation of its governance structures. Therefore, the Code requires organisations to be able to provide evidence that they have robust and up to date governing documents in place along with terms of reference. This principle covers the structures, purpose and the presence of an effective governance framework being in place as a contributor to good governance. The evidence required for Principle 1 is that which outlines the how, when and where of the functions and responsibilities of the board.
Main Principle C in the NHF Code of governance – promoting board excellence for housing associations states that:
“Each board must be clear about its duties and responsibilities. These must be formally recorded and made available for all existing and potential board members.”
Both the board and its various members, including the executive being clear about what they are there to achieve is a fundamental aspect of effective governance.
Principle 2 of the tgf Code states that: “The board should have access to the right reports and information and should present a fair and balanced assessment.”
Have you ever received a board pack where the information is not clear or conversely, it is over complicated, neither does it really tell you what you need to know? When sitting on boards, are you always clear about the performance indicators that the organisation has to measure itself against? If there is information circulated, do you receive this in a timely manner? It may seem simple, but is there a full calendar of meetings measured against the formal responsibilities of the board and committees that outlines what should actually be included in the agendas? Does information about the company presented in the annual report present a fair and balanced assessment of the company’s position? The UK Corporate Governance Code states that: “The board should present a fair, balanced and understandable assessment of the company’s position and prospects.”
Do you know what the business plan says and if not, how are you able to determine, in your role in directing the company, if you are working towards it? You may have gathered that Principle 2 of the tgf Code relates to the information the board receive. Without the right information that you have time to read, analyse and comment on, you are not able to contribute to effective decision-making. Access to the right information should be a minimum standard for board members across all sectors.
The NHF Code of Governance states that: “The board must act effectively, making clear decisions based on timely and accurate information.”
Principle 3 states that: “The board should have the right documentation in place including policies and registers.”
If the regulator asked to see your suite of strategic policies, would these be in place? Can governance documentation be easily located and is it accessible, not just to the company secretary, governance officer or an individual in a similar role. When you consider that policies provide guidance for organisations – in essence, the source of what to do if and when if something happens or when decisions are made, having the right ones in place should be a priority for any board. To complement this, there should be forms in place for aspects of governance such as board appraisals, conduct and probity, including registers. Part b of Principle 3 (Director Responsibilities) of The Wates Corporate Governance Principles for Large Private Companies published in 2018 states that: “The board’s policies and procedures should support effective decision-making and independent challenge.”
Principle 4 states that: “The board’s roles and responsibilities, including the division of responsibilities should be clearly defined.”
The final Principle in the Resources section of the Code relates to your role. Becoming a board member is a role in which you should be informed about the expectations. Even if your introduction to the role comes about via informal methods, the undertaking of it should not be so. Organisations should be able to provide you with the information that outlines what this role will be and the expectations – including for how long you will be expected to commit to the role. At inception, you should be aware of this, along with your responsibilities. The organisation should solicit information about your skills and information about you in the form of a profile. Principle 2 of The Good Governance Standard for Public Services states that: “Good governance means performing effectively in clearly defined functions and roles.”
Having the right resources in place creates a platform for systems and processes to become embedded into the work carried out at any organisation. However, having great polices, role descriptions, terms of reference and other important governance documentation in place is not enough by itself. Jim Collins refers to getting the right people on the bus before the bus departs – the bus being a hypothetical business. The next section of the tgf Code begins to explore aspects of competency – having the right people in the right seats so that we can drive the bus.
Decision-making is one of the main functions of the board. To make good decisions, the people making those decisions need to have the right skills, knowledge and experience to do this. Behaviour also has to be appropriate to create an atmosphere and culture that facilitates effective decision-making. What things need to be in place for this to be achieved? You’ll have to look out for next month’s blog to find out!
Until next time…