On Governance

ON GOVERNANCE Introduction 1. While the term ‘governance’ is often bandied about, and means different things in different contexts, many organisations commonly use the word to mean their compliance and reporting obligations, (and at the risk of ‘sucking eggs’, these aspects are briefly summarised herein). 2. However, for your consideration, the suggestion is that in evolved organisations, governance is much greater than just these activities, encompassing authority, accountability and stewardship of people and resources in a trusted sense. While the allocation of resources, including funds, is typically on the basis of the organisation’s (or business owner’s) vision, plans and directed outcomes, and an organisation’s system of governance supports the achievement of these directed outcomes through probity, accountability and reporting, it is trustworthiness of, and belief in, the organisation (or the owner and his / her people), that should be the organisation’s desired governance end state. And in today’s and the future’s economic climate, trustworthiness is even more important; a premium characteristic to be credited with, and fundamental in nem’s ‘Trilogy of Trust’. Consequently, the suggestion is: Desired Governance Outcomes Confidence in the organisation’s trustworthiness, its people, their decisions and their actions. 3. This evolved role of governance is to support the achievement of the organisation’s vision, plans and directed outcomes in such a way as to enhance this governance outcome. Good governance therefore means that the owner or the Board of Directors, customers, suppliers, shareholders and other external stakeholders can rely on the organisation to do work well, and with full probity and accountability in a trusted way. Core Governance Principles 4. Better governance practice occurs when the following core governance principles are applied: a.

Accountability is the process whereby an organisation and its people are responsible for their decisions and actions, and submit themselves to appropriate external scrutiny. In effect, accountability is the obligation to answer for a responsibility conferred.

b.

Transparency/Openness is required to ensure that stakeholders have confidence in the decision-making processes and actions of the organisation, in the management of its activities, and in its people.

c.

Integrity is based upon honesty and objectivity, and high standards of propriety and probity in the stewardship of funds and resources, and the management of the organisation's affairs. It is reflected both in the organisation’s decisionmaking procedures and in the quality of its financial and performance reporting.

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d.

Stewardship – An organisation such as a company exercises conferred powers on behalf of the Board of Directors. The resources uses are effectively owned and held ‘in trust’. Company employees are therefore stewards of those powers and resources.

e.

Leadership as a business owner, Chairman of the Board, or as CEO, sets the 'tone at the top', and is absolutely critical to achieving a team commitment to good governance.

5. A supporting tenet to these principles is efficiency; that is, the best use of resources to further the vision of the organisation, with a commitment to evidence-based strategies for improvement. This is an internal benefit that will have positive external effects. Traditional Governance Requirements 6.

Governance normally focuses on two main requirements: a.

Performance, whereby governance arrangements are employed to contribute to the organisations overall performance and the achievement of its vision; and

b.

Conformance, whereby governance arrangements are employed to ensure the organisation meets the requirements of the law, regulations, published standards and community expectations of probity, accountability and openness.

Traditional Governance Functions 7.

Normally, traditional governance functions include: a.

the development and conduct of an organisations tasks;

b.

the development and maintenance of specific procedures, documents and publications;

c.

the conduct of planning to ensure project, and subsequent objectives are achieved and sustained;

d.

the development of deliberate plans to meet specified contingent risks;

e.

direction and control of subordinate business units and other assigned resources;

f.

evaluation of the performance of subordinate business units to meet agreed performance targets;

g.

monitoring the performance of supporting contractors to ensure that they are meeting their performance as agreed in contracts or other arrangements;

h.

ensuring the organisation’s systems are manned with authorised personnel adequately trained in the operation and maintenance of applied systems;

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i.

the prioritisation of resources for defined sustained business;

j.

the coordinated management of equipment / system specific training;

k.

the identification and treatment of operational risks; and

l.

the reporting of actual achievement compared to planned (and or rehearsed) outcomes.

Non-Traditional Governance Understanding 8. How do you understand and measure an organisation’s trustworthiness; its manner of acting, characteristics and nature? Externally, stakeholders rely on past performance and independent analysis and commentary. And organisation’s influence the external view through their conduct in the public eye; witness the public reaction to the response by different pharmaceutical companies to different extortion attempts, and these companies’ subsequent market recoveries. 9. However, the ‘internal’ organisation understanding may be derived from a defined knowledge of the organisation’s Intellectual Capital – its structural and human elements as detailed in a previous document on the topic, outlined in framework as follows:

10. With this internal knowledge and understanding, organisations are in a better position to shape the external view and perception, and to develop and hone their trustworthiness.