Does your governance framework mechanism include a system for effective governance - the enhancement of business performance - alongside the systems for risk management and internal control?
Shareholders’ key roles in governance are to appoint the directors and auditors and to satisfy themselves that appropriate governance is in place. In any governance framework, the underpinning element is the governance mechanism – the means by which the Board organises itself and establishes the processes for its success. Typically this element is geared to ensure the board achieves its compliance requirements. This means it normally has three components:
- Model - three dominant models (there are others e.g. Indian) exist in contemporary corporations: the Anglo-US model oriented toward the stock market, and the German and Japanese models focused on the banking and credit market; with a trend from public to large private companies
- Charter - to translate the elements of the entity’s governance framework, constitution or Articles, shareholder agreements and so on into governance policy, practice, procedures, responsibilities and structure through subsidiary documents created from time to time by the Board, Executive Team and Management
- Administration - to maintain the documents, information and resources that facilitate the performance of governance and its evaluation, and arrange, coordinate and organise the operation of the framework
In an era of increased scrutiny of board performance however, effective governance is concerned fundamentally with the enhancement of business performance to effect sustained high value creation.
To that end, from our observations against the SUCCEED Governance Framework we believe that the mechanism described above is incomplete. Boards can often show us fully documented enterprise risk systems and internal control systems for instance, and their system for employee appraisal, but there is usually no equivalent system documentation for the cycle from Strategy round to Accountability.
Just as with risk systems, reward systems and internal control systems, board members need a performance governance system lever to pull - one that complements the command of strategic issues and strategic risks that a balanced board is assembled for and facilitates pursuit of the strategic goal by everyone. It’s essential therefore that the system is defined as part of the governance mechanism alongside risk and internal control, yet it is frequently absent, incomplete or undocumented, creating an effective governance gap. This situation diverts management and executive attention to filling the effective governance gap in inefficient, ad hoc ways. Boards owe it to themselves and to the rest of the organisation to address this.
The SUCCEED Governance System coherently connects all the elements of the SUCCEED Governance Framework so that you can confidently orchestrate change, growth and innovation in the current complex and continuously changing business environment. It enables Boards to demonstrate to all stakeholders how they are balancing competing goals, effectively allocating resources, and aligning action with strategic direction. At the same time, because it can be a single point of reference for all, it enables ethical decision-making, innovation and risk-taking by everyone else in the organisation towards achievement of the strategic goal.
In the next blog we’ll look at how to determine whether you might have an effective governance gap in your organisation.
We're working on a White Paper which will explain the SUCCEED Governance Framework and its accompanying Maturity Matrix fully. If this is of interest, please let us know anything specific you would like to see covered or how we may make it more relevant to your needs.