How Hard Should Board Governance Be?

Caroline Oliver

The more I appreciate what it takes to govern well, the more I understand that good governance is hard work.   However, the more boards I meet, the more I also understand why board members would want to avoid embracing this basic fact:

a)    They have usually been recruited with the expectation that they will not have to spend a lot of time on the job – often not more than a few hours a month as a whole group.

b)    It is difficult not to feel that focus on board work is a distraction from the main event which most people think of as being the day to day operation of the organisation.

c)    We all tend to want to avoid hard work if we can!

In this article, I want to argue that the time has come for a radical rethink that starts with the admission that good governance is inevitably hard work.  I say “inevitably” because, if one considers the board to be nothing less than fully accountable for all aspects of the organisation that they govern, then how could it be anything less?  I say “the time has come” for it seems to me that the days of boards providing no more than “a fig-leaf of decency” are gone.  We need real governance – governance that actually does what we want rather than fobbing us off with a pale imitation of what we want.

What we want is well expressed in The UK Corporate Governance Code published by the Financial Reporting Council in June 2010:  “Every company should be headed by an effective board which is collectively responsible for the long-term success of the company.” No matter whether we are talking about for-profit, non-profit or public organisations, surely long-term success is what we want our boards to provide.  So, really, how much work should that need?

 

Let us look at what is involved.  It is not merely a question of appointing a good CEO, “lighting touch paper” and retiring.  Good governance is a matter of providing continuous leadership in terms of strategic, ethical and prudential direction and ensuring rigorous monitoring of same.   No matter how wonderful your CEO appears to be, every board is obliged to operate with the same level of rigour.  No board has any guarantee that today’s hero will not turn out to be the witting or unwitting author of tomorrow’s downfall.  And no CEO, however brilliant carries the full authority of an organisation’s legal and moral ownership – only the board does.

Neither is the work involved in being “an effective board which is collectively responsible for the long-term success of the company” about being a mere watchdog.  However assiduous you may be in your questioning and probing, truly being responsible for your organisation’s long-term success clearly requires a much more proactive approach involving:

i)              Setting the organisation’s strategic direction and continuously reviewing it in the light of changes in the organisation’s environment.

ii)             Setting the organisation’s ethical and prudential direction and continuously reviewing it in the light of changes in the organisation’s environment

iii)            Ensuring rigorous monitoring of the organisation’s accomplishment of the board’s expectations in i) and ii) above. 

This is clearly a lot of work not least because a board is a group authority and, as such, nothing can get accomplished unless a majority of the board can be demonstrated to be in favour.  Which means that, in addition to all the requirements above, the board needs to pay close attention to the development and maintenance of fair and orderly governance process.

The work involved in organising a board to fulfil all its responsibilities is, in my experience, almost always resented and typically under-estimated.  “When can we get back to what really matters?” board members ask, failing to realise that their first job is organising themselves to be able to make proper decisions, and their second job is to decide “what really matters”.  If these two steps are not taken, getting back to what really matters can mean simply returning to the status quo which may or may not be what is required for “the long-term success of the company”.

Organising yourselves to make proper decisions requires identifying on whose behalf you are making those decisions and developing consultation and accountability mechanisms for legitimising those decisions with them.  It also requires clarifying which decisions you must make and which you can delegate to others.  It also requires working out how you are going to remain accountable for all the decisions you make as a board including all the decisions you delegate.

Next, organising yourselves to make proper decisions requires being clear about when you need to decide and evaluate what, and what information you need for those tasks, and what your decision-making process should be. 

Only having decided all this, are you truly prepared to make the decisions that will provide the strategic, ethical and prudential direction and rigorous monitoring your organisation needs for long term success.  In other words only once having decided all this is your board ready to decide what really matters.

A tall order indeed and one that cries out for a framework to enable the board to systematically accomplish all it needs to accomplish.

Another way of looking at what I am suggesting is to say, that to do its job properly, a board has to focus on function before form.  You can’t possibly know how many board meetings you need of what duration, until you know what they are for.  To do its job properly, a board has to accept that its work, far from being a distraction from day to day operations, is a necessary pre-requisite for ensuring that day to day operations are properly directed and monitored.  To do its job properly, a board must seek to be as efficient as possible while recognising that dealing efficiently with all the details of operating a governing board requires planning, planning and more planning.

As the person with delegated board authority for ensuring that the board functions properly, the responsibility for this planning rightly falls to the Chair who may in turn delegate all or some of this responsibility to others.  The problem is that if the Chair is neither a good organiser nor a good delegator or simply does not appreciate the need for a high degree of organisation, the board will struggle.  And, if the board is struggling because of lack of organisation, it cannot say “oh dear how we wish our Chair would do something about it”.  The board must ensure that the Chair (who is after all their servant-leader, not their boss) does do something about it or find someone else who can.

That “someone else” for some boards is a corporate secretary or clerk or other designated board administrator.  Again, it seems to me that, because the importance of board organisation tends to be under-estimated, the potential of these roles tends to be greatly under-estimated.  I see the role of board administrator, as much more akin to a director of board operations than its current status as an only somewhat glorified minute-taker.

However, it all starts with the board valuing itself. No-one in a support role is going to put much value on what they do for the board if the board does not recognise the importance of its work and the fact that it requires large amounts of careful thought and planning.   .

So, here’s my plea.  Recognise the importance of your board’s work as providing the basis for your organisation’s long-term success.  Recognise that to accomplish all that is on your plates you need a sturdy framework designed for the job such as Policy Governance2 and make sure you have invested sufficiently in support resources to get the job done.

 

References:

1The UK Corporate Governance Code ©The Financial Reporting Council Limited 2010

2Policy Governance is a system for organizing board work developed by John Carver in the early 1990’s.  Policy Governance® is an internationally registered service mark of John Carver. Registration is only to ensure accurate description of the model rather than for financial gain.  The model is available free to all with no royalties or licence fees for its use.  The authoritative website for Policy Governance is www.carvergovernance.com

 

© Caroline Oliver, September 2010