Good Governance

Good Governance is Focused in Purpose, Effective in Implementation, Accountable in Results

Good Governance needs to be assessed on outcomes, not mechanisms.

Focused Effective Accountable GovernanceGood Governance.pdf

There is an unfortunate tendency to measure the quality of governance, as well as performance, by mechanisms used rather than outcomes achieved. This is tokenism. Tokenism is the practice of making only a perfunctory or symbolic effort to do a particular thing (Oxford Dictionary).

Good Governance is a result, not a set of tools, it would be like saying someone is a good carpenter just because they own a hammer.

  • Having a business plan does not mean you have good governance, but a business plan is a tool that supports achieving both good governance and great performance.
  • Having policies does not mean you have good governance, but policies are tools that support achieving both good governance and great performance.
  • Having a budget does not mean you have good governance, but budgets are a tool that supports achieving both good governance and great performance.

Good Governance

Good Governance is an achievement, not a process. Good Governance means your business or organization is focused, effective and accountable. Being focused, effective and accountable is not about having governance tools in place, it is about how you use governance tools, and perhaps more importantly, why you use governance tools. You use governance tools to achieve being focused, effective and accountable, not to just show that you have governance tools.

  • Focused: Expectations are defined and understood broadly and in as much detail as needed by everyone responsible for accomplishing them.
  • Effective: Planning and implementation for proactive but flexible achievement of expectations. Risk and opportunity are never completely predictable so planning and implementation must support management innovation to unanticipated mitigate risk and harness unexpected opportunity.
  • Accountable: Outcomes are measured against organizational purpose and defined expectations.

In measuring the quality of performance of a business or organization, the ultimate measure is the bottom line, and so it should be for governance as well. In businesses, the bottom line is financial profit, which is the basic function of a business or for profit organization. For not-for-profits, charities and other organizations performance should be measured against the bottom line of the purpose or fundamental function of the organization. Performance evaluations of organizations are not effectively measured by mechanisms used and neither is quality of governance. Does it matter if a business or organization has a mission statement, diverse board or policies if they are effectively directionless and unaccountable?

 Focused, Effective and Accountable. Those are the values of good governance, and also great performance. The first question in evaluating governance is whether a business or organization is focused, effective and accountable, what are the gaps and weaknesses in these values how are the gaps and weaknesses in affecting governance and effective, sustainable performance.

Good Governance is Focused in Purpose

 Focus is the fundamental purpose of the business or organization refined by defining expectations of realizing that purpose.  The first question in pursuing and achieving good governance is:

 Is your business or organization focused on achieving what it should?

What are the gaps or weaknesses in focus? What is the fundamental purpose or reason for existence of the business or organization? Is that purpose clearly articulated and understood? Are the expectations of achieving the purpose of the business or organization clearly defined and understood, the short and long term objectives? What are the parameters in achieving expectations, legal, financial, ethical values that are expected not to be transgressed? Are these all clearly defined and understood?

Circle GovernanceFocus of a business or organization is a board responsibility. Management can and should support the board in defining the focus of a business or organization, but if the business or organization is not focused it is a board failure, not management. Management is responsible for achieving the focus and expectations of the business or organization, not defining them.

 Defining focus and expectations must be a thoughtful process. Expectations that are unrealistically high are as meaningless as ambiguous expectations. Low expectations disrespects the organization and erodes the credibility of the board. SMART expectations, Specific, Measurable, Achievable, Relevant and Time-bound, respects the abilities of capable management and ensures a respectful and pro-active relationship between management and the board of directors.

SMART Expectations

Specific (Expectations must be clear and unambiguous)

Measurable (Achievement of Expectations must be able to be measured in meaningful ways)

Achievable (Expectations should be high but must be realistic and attainable)

Relevant (Expectations must relate to your organization’s vision, mission and the fundamental purpose(s) the business or organization exists to achieve)

Time-bound (Timely accomplishment of targets and objectives must be part of measurement of success)

If a business or organization is not focused, it may be indicative of board weaknesses such as:

  • Lack of knowledge or commitment to the board role and responsibilities?
  • Structural problems such as too many board members or ineffective board members?
  • Too many committees, ineffective or inappropriately tasked committees?
  • Lack of commitment to the purpose of the business or organization?
  • Ineffective chair?
  • Lack of independence of board from control or influence of staff or special interests?
  • Lack of resources to make effective decisions such as information and *expert advice?

 * Expertise can be a significant conflict in board performance. An expert board member may not be committed to the business or organizational purpose, and expert board members can weaken board performance by valuing risk aversion or personal aspirations over risk and opportunity management. Often boards are better served by recruiting expert board advisors rather than expert board members. The most important assets in board members are commitment to the purpose of business or organization and commitment to effectively performing the role of a board member.

Good Governance is Effective in Implementation

Effectiveness in achieving the focus and expectations of the business or organization is management’s role and responsibility. The Board of Directors defines organizational focus and expectations. The Board of Directors also selects lead management, the CEO responsible for achieving expectations. The quality of the CEO in regard to expertise and experience is the board of directors responsibility. How expectations are achieved is less the board’s focus than that expectations are achieved effectively. So the second question in pursuing and achieving good governance is:

 Is your business or organization effective at achieving what it should?

 Is the business or organization effectively realizing expectations? If not, why not? Is the focus or purpose of the business or organization not clear or understood? Are expectations in accomplishing the focus or purpose of the organization not clear or understood? Is accomplishing the purpose and expectations not adequately resourced? Financially? Materially? Personnel? Other necessary resources? Finally, if the focus and expectations are clearly defined and adequately resourced, are the people tasked with accomplishing the purpose and expectations competent for the responsibility? And if operations are effective and successful, is that effectiveness and success sustainable?

Circle Management
Good Governance is Effective in Planning and Implementation

The board of directors does have a role in effectiveness but that role is hands off, eyes on. The board of directors must be confident that management will be effective in achievement of expectations. This confidence comes first from the board selecting a CEO that has the experience and expertise to achieve expectations, but also pro-active confidence in management comes from reviewing and critiquing the CEO’s plan to effectively achieve expectations. A business or operational plan is fundamental to pro-active management as well as the ability of the board to pro-actively apply management accountability. The board defines expectations, management’s plan defines how expectations are to be achieved. A business or operational plan is a high-level collaboration between the board of directors and management. Management develops the plan to achieve expectations, the board decides whether they are confident management’s plan will achieve expectations. The board may refine expectations based on changes in circumstances or recommendations of management and management refines the plan to achieve the confidence of board that expectations will be met. The business or operational plan changes over time as expectations and circumstances change.

 Effectiveness should also be pro-active. A business or operational plan is proactive management and a primary tool in pro-active accountability. Is there a credible plan to achieve the purpose and expectations? Is management pro-active in managing not only progress to realizing the purpose and expectations of the business or organization, but also opportunities and risk? Is planning inflexible, or flexible to manage unforeseen risks and opportunities while being responsible and accountable.

Good Governance is Accountable in Results

 Focus defines expectations. Accountability ensures expectations are met. Accountability is a necessary duty in any delegation process or relationship.  The third question of Good Governance:

Is your business or organization accountable to ensure it is doing what it should?

Circle DelegationAccountability is a responsibility of those who delegate responsibilities or outcomes, to ensure performance of the responsibility meets or exceeds expectations. Accountability is due diligence, ultimately on behalf of the ownership of the business or organization, and accountability is also feedback on quality of success of performance on expectations.

 Accountability should never be personal. Applying accountability should never be considered  criticism f a person or persons. Accountability is a duty. Those who delegate responsibility are still responsible for the outcomes therefore, if you delegate, you also apply accountability to that delegated responsibility. Accountability is not personal, it is a duty.

 Accountability should not be considered an negative or confrontational relationship. If performance does not meet expectations it is both proper and important to criticise performance results and perhaps apply discipline. However it is equally important, when performance meets or exceeds expectations to express appreciation for that performance and reward performance that is exceptional.

  • Evaluate and Critique Performance compared to Expectations
  • Appreciate good performance
  • Reward exceptional performance
  • Depreciate poor performance
  • Discipline exceptionally poor performance

Accountability is fundamental to the legal and ethical expectations, duties and responsibilities of a Board of Directors:

 Duty of Loyalty

  • Directors must give their undivided loyalty to the organization and must not let matters of personal interest or profit come into conflict with the interests of the organization.

 Duty of Honesty

  • Directors must act honestly at all times when dealing with, or on behalf of, the organization

 Duty of Care

  • Directors must look after the affairs of the organization with as much care, good sense and good judgment as a reasonable person would in the same circumstance.

 Duty of Skill

  • Directors are not required to be experts. Directors are required to use as much skill in making decisions for the organization as any similarly skilled reasonable person.

 Duty of Diligence

  • Directors must be diligent about their work as directors. Directors need to attend meetings regularly, read all minutes and reports from committees, look at all the available facts including expert recommendations on issues, but then make up their own minds on decisions.

 Duty of Prudence

  • Directors are expected to exercise caution and common sense on behalf of the organization.

 Good Governance is Systemic and Cultural

Systemic Good Governance
Good Governance is Systemic and Cultural

Good Governance is not isolated to the Board-CEO relationship. Focused, effective, accountable are appropriate values for all levels of organizational delegation. The Board-CEO relationship is a relationship of delegation and accountability, so are all organizational relationships such as manager or supervisor to staff relationships as well as relationships with contractors and collaborative relationships with other organizations.

 Are the organizational relationships all focused, effective and accountable and do they all support the focus and expectations defined by the board of directors?

 The Board of Directors defines the focus and their high level expectations of the business or organization.  The focus should be understood and supported throughout the business or organization while expectations should be refined at each level of expanded capacity.