We have read quite a few of the many governance codes available. Certainly, every director should read a code relevant to their context. Some are quite good; others do not move far from compliance and duties—important but with a limited perspective.
During some recent work with a client, we started thinking about the handful of things that actually distinguish effective boards. We suggest giving strong attention to five central matters.
They come not from codes but from what we have observed and learned across 30 years of consulting, 650 very different clients, over 240 board reviews and serving on a range of boards.
Governance is a living system. Templates, guides and policies are necessary, but it is how they are used and how they fit together that makes the system as a whole effective or not. We highlight just these five principles, suggesting that—if these are in place, fully understood and kept front of mind—your board has a strong chance of being good, if not great.
These principles do not pick up every aspect of governance. It is after all a changing world. But adherence to these five as a starting point will serve any board in any context very well.
Governance is a human process. It needs groups of people with diverse views. But there must be anchor points or the group drifts without focus.
Attention to these building blocks of governance will make sure everyone’s time is focused on the right value-adding matters. Basically, more time to think, more time to invent the future and less time on the minimally relevant.
We will look at these principles over the next few editions of Good Governance and publish the complete framework in edition #100 – September 2024.
The five principles
Being focused ● Being clear about roles ● Being the right team
Being organised ● Being better
Being focused
Every board should clearly define what is meant by above sustainable average performance in its particular context. [1]
All organisations exist to deliver some form of benefit to a defined group of people. That naturally varies depending on the type of organisation and its products or services. But no entity exists for itself alone, so it follows that this benefit creation must be clearly articulated.
Without being clear on core purpose and outcomes—benefits to be created—all bets are off. It is the role of the board, on behalf of the owners, to make clear the change the organisation is trying to make in the world. In short, what will success look like and how will we know? Simply put, what is the goal and its associated measures?
This is the board’s job; nobody else’s. Of course, others will input but the board cannot delegate this core responsibility.
Before strategy—options to achieve the goals—can be addressed, the board needs to go through this strategic thought process, defining the ends to be achieved.
Paraphrasing Lewis Carroll’s Chesire Cat:
Well, if you don’t know where you want to get to then any road will do.
Once clarity is achieved, all decisions should be couched in the context of the relevant desired outcome. Without this clarity the board is directionless, and management lacks the necessary guidance to inform its operational choices.
One of the great boardroom questions is, “Will this make the boat go faster in the right direction—and how will we know?”. In other words, what is the optimal use of the resources at hand to achieve the best possible performance in pursuit of our stated outcomes. This discussion sits at the heart of the board’s work, which is (in the words of John Carver):
To achieve the right results for the right people at the right cost.
The for-profit world has a simple measurement for success: the bottom line. Absolutely essential but now insufficient in a world of broader accountability, so a more nuanced set of measures is needed.
In the nonprofit (for value) sector, we know from research that one thing that characterises successful organisation is absolute focus on impact:
It is an obsession with impact that drives internal alignment. [2]
In practice
What does being focused look like in practice?
Statement of Intent
There will be a high-level Statement of Intent. This frames the board’s intent for the organisation, outlining purpose and what is to be achieved. It is set preferably in outcome terms, with measures that are then annualised for the business plan cycle.
The strategic plan responds to this document: a road map of how we intend to get there.
Focussed on outcomes
The board’s work is organised around achieving stated outcomes and the factors that may assist or impede those results, now and into the future. This is reflected in the shape of the meeting agenda and in the board’s annual work plan.
Information and performance
Management works with the board to assist the focus on outcomes. Information to the board supports this core board function rather than narrating management busyness.
The agreed performance framework and associated reporting criteria (as defined by the board) will make clear progress towards stated goals. Management will keep the board fully informed of all matters that may impede or assist in pursuit of those goals. The board pushes back on irrelevant or unfocused information.
Decision making
Decision making is set in the context of the desired outcomes. A useful perspective on governance is that a board’s core role is to make a small number of very big decisions such that others can make hundreds if not thousands of smaller but consistent decisions.
Interconnected
These principles are, of course, not discrete one from another. They overlap and interconnect. Being focused links strongly with these two principles:
Being organised ● Being better
Good Governance 98 will look at what Being about roles means.
Notes
- Hilmer. F. Strictly Boardroom. Information Australia 1998
- Crutchfield LR and H. McLeod Grant. Forces for Good. The six practices of high impact non-profits. Jossey Bass San Francisco 2012
