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Is your board a high performer? The four pillars of good governance
The corporate world is littered with high-profile failures of governance. We all have ideas about good governance, but few people can evaluate their own board in these terms. Didier Cossin explains what governance really is, and how to check whether your board is a high performer.
What exactly is governance?
The word “governance” is widely misunderstood. Many people confuse it with compliance – which is wrong. The word itself comes from the Greek word “kubernaein” and the Latin verb “gubernare,” which means “to steer,” in the context of the rudder of a ship. The function of governance is thus to decide the direction of the organization. It can be thought of as the art of decision-making at the top.
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What does good governance do?
Good governance should do two things:
1. Reduce the downside (minimize risk)
This includes such preventative actions as avoiding the nomination of a bad CEO, preventing fraud, and guarding against poor acquisitions.
2. Increase the upside
This concerns actions such as identifying better corporate strategy, adapting to change, and evolving the culture of the organization (for example, to be more agile or innovative).
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Who in the organization is responsible for governance?
The major actor of governance tends to be the board, but it can be a combination of the board and the executive team, the owner and the board, and sometimes other bodies.
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The four pillars of good governance
Whether it’s the board of a publicly listed company, a family business, a philanthropic organization, or a school, the following pillars make for a high-performing board:
1. People
The first pillar is the people. This concerns not only their skills, but also their diversity, variety of perspectives, and dedication. Do the board members have clarity of focus? Do they pay attention to the right things? Are they dedicating sufficient time to the role?
2. Information
You may have great people, but if they don’t have the right information, they won’t make good decisions. This concerns both internal information from the organization and information from the external context. It can be very formal information or completely informal – and sometimes it’s completely independent of management.
3. Structures and processes
This pillar is a long list of structures and processes, such as the audit process, the strategy formulation process, the risk process, the nomination process, and the onboarding process. Done well, these all make for terrific assets for the board.
4. Culture and dynamics
This concerns such issues as how board members work together. Are they a genuine team? Are they supportive of management, or are they more challenging? What is their relationship with the executives? This pillar is highly correlated with the style of the chair and is a critical dimension of board performance.
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Key learning
The principles of good governance are the same for any organization, and whatever its makeup, the board is central to good governance – the engine of performance.
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