The tgf Governance Code – Part 3
This month’s blog is the final in a 3 part series looking at the Principles of the tgf Code. The previous 2 blogs covered the first 8 Principles which are from the Resources and Competency Compliance Driversof the tgf Governance Methodology. Parts 1 and 2 can be viewed here:https://karlgeorge.com/blog/.
The Charity Governance Code was revised in the aftermath of the failure at Kids Company. This example of a high profile failure was largely linked to mismanagement of funds – in essence, how the Charity were executing or failing to execute their financial controls.
This code has 7 Principles as follows:
- Organisational purpose;
- Decision-making, risk and control;
- Board effectiveness;
- Openness and accountability.
All 7 Principles can be related to how an organisation executes their responsibilities. When considering how the board executes their duties, organisations could consider:
- How far decisions are line with their organisational purpose;
- How well the board act as leadersof the organisation;
- Does the board act with integritywhen making decisions?
- If there are effective decision-makingprocesses in place, how well they monitor riskand what controlsare in place;
- How effectivethe board are and what mechanisms, both internal and external are in place to monitor this;
- How diversethe board is and how this impacts decision-making processes; and
- How openand accountablethe organisation is.
Within the preamble of the OECD Principles it is said that: “Corporate governance is one key element in improving economic efficiency and growth as well as enhancing investor confidence. Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.”
The key phrases here are: “…attaining those objectives” and “…monitoring performance.” These statements are important because having all of the right resources and a competent board alone is not enough to facilitate good governance. There must be Execution – the Board putting into action the monitoring and attainment of the objectives that have been set in the strategic or corporate plan and overseeing performance via a suite of KPIs – challenging and scrutinising how well the organisation is performing.
The third Compliance Driver is Execution. Thelast 4 Principles that are in this Compliance Driver are:
The board should make informed decisions that take risk into account in ways that safeguard and promote the future success of the organisation. A sound decision–making framework that identifies and oversees its internal controls, risk appetite and mitigation should be established and monitored.
The board should be able to evidence challenge, debate, accountability and transparency. The work of the board should be open and they should be able to demonstrate sufficient scrutiny.
The board should be stewards of the vision, values and culture of the organisation and are responsible for setting and monitoring strategy. This should include monitoring the performance of the organisation in line with the vision and strategic objectives.
The board should be able to demonstrate active and effective engagement with stakeholders. Board members should act as ambassadors for the organisation and always seek to encourage meaningful and effective participation from all stakeholder groups. They should be responsive to the needs of all stakeholders.
Each Principle is explored in further detail below.
The board should make informed decisions that take risk into account in ways that safeguard and promote the future success of the organisation.
Principle 4 of Community Housing Cymru’s Code of Governance (2018) says that: “The board makes sure that its decision-making processes are informed, rigorous and timely and that effective delegation, control and risk assessment and management systems are set up and monitored.”
One of the reasons that it is important that every organisation has a vision and mission is that this helps to guide decision-making. Coupled with this, the board should be aware of and actively monitor the main strategic risks. Decision-making and risk go hand in hand when sitting on a board and all decisions that are made should take into account the protection of the assets/goods/services that the organisation have or offer and ensuring the long-term success of that organisation.
To be able to do this effectively, the board must understand what the aims of the organisation are and in its most simplistic form – all reports, agendas, discussions, decisions, actions should be in line with the fulfilment of these aims.
The Good Governance Standards for Public Services (2004) state that: “Good governance means taking informed, transparent decisions and managing risk.” Being cognisant of risks is a vital part of being able to safeguard the organisation.
The board should be able to evidence challenge, debate, accountability and transparency.
On the Effective Board Member Programme and in other consultancy, I teach organisations about 4 dysfunctional board behaviours. They are: groupthink, conflict, operational and passive. A passive style board would be typified by board members who do not contribute, where there is an atmosphere that lacks debate or challenge. Often in these environments there is no challenge which restricts how open and transparent decision-making can be.
Evidence of challenge and debate will be recorded in minutes and although having minutes demonstrates compliance with the ResourcesCompliance Driver, what these minutes say and how they evidence this satisfies this Driver.
The culture of the organisation and the culture of the board meetings is another factor that will impact how challenge takes place. The boardroom should be a comfortable environment but the board should not be afraid to scrutinise the work of the executive.
How organisations report on their work and how they report to stakeholders are crucial parts of determining how transparent and accountable they are. For example, does the governance statement in your financial statements just list the names of the board members or does it outline the skills each board members have, their short biography, details of any cross-directorships (where applicable) and list which committee(s) they sit on? When describing the structure of the board and its committees, do you describe what work the committee and the board have undertaken or just list which committees you have? Transparent and accountable reporting should take the reader on a journey of understanding how the organisation operates – including the details both good and bad, outlining the plans for the future.
The NHF Code says that: “The board must establish a formal and transparent arrangement for considering how the organisation ensures financial viability, maintains a sound system of internal controls, manages risk and maintains an appropriate relationship with its auditors.”
The board should be stewards of the vision, values and culture of the organisation and are responsible for setting and monitoring strategy.
If you are a board member, you should know what the vision and values of the organisation and act in ways that are consistent with these. Away days and other board away time are essential for allowing the board to focus on setting and monitoring the strategy. However, this should not end once these activities are over. The use of a cover sheet that helps report authors to link their reports with the strategic objectives and questions in the boardroom about how decisions are made should all be linked back to the vision and values.
The Department for Education Governance Handbook states that: “The boards’ first core function is about strategic leadership. This involves setting the organisation’s overall strategic framework, including its vision and strategic priorities. It also includes responsibility for setting and modelling its culture, values and ethos.”
I teach that the role of the board is to be strategic. If discussions and decisions are not strategic, you can guarantee that the board has lost sight of the vision, values and culture.
The board should be able to demonstrate active and effective engagement with stakeholders.
No matter what sector your organisation operates in there are stakeholders who are impacted by the good and services you deliver. It is important to engage with stakeholders but this should not be a one off, annual occurrence. In fact, how many boards receive regular stakeholder feedback and integrate that feedback in to the decision-making processes? Stakeholder engagement is a sure fire way to measure the performance of the organisation and also to monitor how the vision is executed. The failure at Mid-Staffs NHS Foundation Trust highlighted that a lack of presence within the hospital corridors meant the board and other senior leaders missed the obvious practical failures that were taking place.
The Code for Sports Governance states that: “Organisations shall be transparent and accountable, engaging effectively with stakeholders and nurturing internal democracy.”
This notion of internal democracy intimates some exchange between both parties where decisions are informed by the views of all stakeholders. To be able to effectively execute the vision requires collaboration and constant exchange.
The tgf Governance Code is a best practice code that can be applied across all sectors. Being able to apply and explain with its principles will help your organisation to ensure that they have the right Resources, Competency and Execution in place to govern well. While the Compliance Drivers alone are not enough to guarantee failure will be avoided, they are the foundation for a framework that will help to build good governance systems that will allow the board to, in the words of the Cadbury Report: “direct and control” the organisation. The Compliance Drivers are the thermometer that help to measure what is in place but the capacity of a thermostat is limited.
Good and effective governance is a thermostat. It regulates the temperature of the organisation rather than just measuring it. Demonstrating code compliance is not enough. There are several other facets of governance practice that create that environment that is regulated where the board have oversight, insight and foresight, taking into account future risks, threats and balancing these with the current position of the organisation.
The Governance Framework© offers organisations the opportunity to test how their thermostat is working. Want to know more? Contact us on 0845 505 1875 to book your consultation today!