9 Principles of good governance
Good governance as the key to organisational success
Governance refers to the framework companies use to define their rules and policies and then carry these processes out when leading the organisation. There exists a variety of opinions on what constitutes good governance, and exact definitions will be organisation-dependent in line with their guiding principles and long-term goals. However, anyone in a position of power must be held accountable through a pre-established system of checks and balances within the company to engage effectively and authentically with the principles of good governance.
If you are active in, or even new to, the governance space, you may have already heard the term thrown around: “good governance” is a bit of a buzzword these days, but not without reason.
DOT Scorecard founder and principal consultant Lloyd Mander MBA CMInstD defines good governance as “Being clear about the purpose of the organisation, and then ensuring that everyone is enabled to work towards that purpose. This includes focusing on having the right people, resources, and ways of working together.”
Practising good governance can help guide an organisation to achieve success ethically, ensuring that they do not cut corners and instead follow best practices and legal norms. This naturally engenders good faith in said company’s shareholders, enhancing everyone’s legitimacy and prosperity.
Organisations today face increasing scrutiny regarding their corporate practices, particularly regarding ESG (environmental, social and governance) issues. They are rightly held to high standards in these areas; following good governance can help them meet these expectations, including providing a rubric for dealing with tough calls.
Grounded Governance managing director Giselle McLauchlan LLB ChFInstD says, “Good governance is having a great system to direct and control your organisation. The system establishes how the whole team will make sure the organisation is heading in the right direction … and controls its speed, costs of travel and risks on the route. Great governance systems are clear, simple, well understood – and they are actually used by the Board and the management team.”
Strong leadership makes up the foundation upon which good governance can flourish. This leadership includes hands-on, lead-by-example style direction from Boards and senior managers in the organisation and necessitates company-wide agreement on a shared definition of good governance. To function successfully, everyone within the company must clearly understand what good governance entails and recognise the importance of strong governance principles in guiding the organisation to future success.
If you are just beginning to implement good governance in your organisation – or if you are simply continually seeking ways to improve your existing operational framework – you may be here with some questions about the first steps you can take, such as:
- What exactly is good governance?
- What examples can you draw on to guide your own practice?
- What role does technology play in establishing good governance?
Luckily, we have answers.
- Consensus oriented
- Effectiveness and efficiency
- Equity and inclusiveness
- Rule of law
- Strategic Vision
Here at BoardPro, we have identified nine major characteristics of good governance. It is participatory, consensus-oriented, accountable, transparent, responsive, effective, efficient, equitable, and law-abiding and demonstrates a strategic vision. Part of its purpose is to minimise corruption and promote the views of minorities and marginalised populations. When it comes to decision-making, good governance also looks to the present and future needs of society, acting in a timely manner and bringing forethought and awareness to an organisation. Below, we have outlined these nine features of good governance.
For Mander, the most important factor of good governance for an organisation in current times is learning. ”Organisations can’t completely control the outcomes from their actions, and they especially don’t control their external environment, which is inevitably more complex and less predictable than expected,” shares Mander.“ But Boards can support their organisations to act based on testable propositions. This should be connected with sufficient monitoring to ensure that progress is reliably measured. Such an approach creates higher quality opportunities for learning - translating into informal and sometimes formal intellectual property, and ultimately better performance over time.”
Good governance is, at its heart, participatory. This means that it encourages participation from members across a variety of backgrounds and encompassing varying areas of expertise. Participation in good governance means that Boards are aware of their composition and that they place importance on being equitable and diverse, both in their makeup and in their hiring/outreach practices. Boards have a unique position to promote diversity in the organisation, and diversity is equally as important to the health and success of a Board as it will be strengthened by a variety of viewpoints.
Mander shared his perspective on participation with us, including the company-wide practices that he believes are crucial to ensuring inclusion and accessibility in hiring processes as well as once employees have been hired. “Involving people in your decision-making processes and how induction is approached [are key],” he says.“ This applies regardless of whether you’re hiring a new board member, a senior executive, or someone in an operational team.
A diverse group from the existing team or Board should be involved in the process to identify the attributes required from the new person. They should also contribute to the selection and hiring process.
Careful consideration should also be given to how the new person is inducted into the organisation. This will include the information they are provided with and the relationships that are important for success in their new role.
Once the new person is inducted, they should be involved in making meaningful decisions as soon as possible. This supports their feeling of inclusion through both action and structure. For those around them, their contribution to the recruitment process gives them greater commitment to their relationship with the new person, further supporting inclusion and belonging.”
This focus on diversity and representation should go far beyond tokenism, stressing transparency and genuine practice. Strong, well-composed Boards include and value the views of people with various skills, talents, abilities, experiences and perspectives. Under good governance, all members of a Board should have the opportunity and support to participate in Board meetings and share their opinions on the topics being discussed.
Board meetings thrive on discussions. As such, the Boardroom should function as a space conducive to lively debate. A passionate, participatory, informed debate can lead to the most insightful solutions as members work together to find common ground among various points of view.
Good governance ensures that resolution is born from these discussions rather than discord. Consensus-oriented decision-making under good governance means that the Board considers the broad range of opinions presented before making its decision, including the needs of diverse groups and facets of the organisation raised in regard to the question at hand. Boards should aim to land on a decision of broad consensus that will serve the best interests of the company and its community.
Accountability is a key factor of good governance practice. Although Boards hold a position high-up in an organisation, this does not mean that they are without checks and balances and can do whatever they wish; rather, they are held accountable to anyone affected by their decisions. This includes shareholders, stakeholders, vendors, employees and the larger public; their decisions will have a direct impact on the integrity of the company.
Integrity, transparency in practices and the ability to abide by the law are all closely linked to company accountability – they drive and make visible accountability.
Good governance means that an organisation is transparent about its process and that it ensures its records are available to shareholders, stakeholders and any other relevant parties. This includes financial records, which companies should take care to report factually, as they could face legal headaches in the future if records are falsified. This also means that reports to shareholders and stakeholders should take care to explain findings and company news in easy-to-understand language, bearing in mind that not everyone listening may be involved in the governance space on a daily basis.
Stakeholders should be informed of key organisational contacts and policies and directed to members who can answer any questions that may arise and explain the presented reports. All organisations should ensure that their reports are comprehensive and accurate in regard to the state of the company.
Organisations need to remain on their toes, handling matters that may arise promptly and effectively to avoid crises and scandals. Too often, companies become embroiled in sudden controversy and are unable to disentangle themselves, failing to exercise good governance that would necessitate a swift response and honest communication about the particular state of affairs with the entire governance team.
6. Effectiveness and Efficiency
Board directors lead by example for their entire company and as such, should aim to be the model of effective practice and efficiency. If the Board is struggling to act in a timely manner, the company will lose valuable time and struggle to maintain both momentum and adequate resources to meet its goals.
This factor of good governance also applies to the environmental impact of an organisation. Good governance can include switches towards more energy-efficient and sustainable solutions in a company.
7. Equity and Inclusiveness
Inherently tied to participation, equity and inclusiveness are key components of a healthy Board. Each Board member should feel capable and supported, with an equal seat at the table and equal respect given to their opinions. They should feel empowered to share their experiences, opinions and philosophies, particularly if these differ from their peers, as they can help enhance discussions and steer Boards in new directions.
Good governance holds that these values be demonstrably true at all levels of the organisation. DEI (diversity, equity and inclusion) are core elements of good governance and must be present both within and outside the Boardroom, acting as the foundation of all operations.
In terms of the support that companies can offer to ensure DEI objectives are truly being met, Mander suggests that “Firstly, [companies should] set objectives that they actually believe in. If you’re just following the crowd or ‘faking it’, then it will be difficult to achieve the required focus and allocate the necessary resources. Secondly, invest in valuing differences. This includes valuing different life experiences and especially different thinking. In practice, this means structuring work so that people with differences across multiple dimensions will need to collaborate together to address shared goals.”
8. Rule of Law
Boards should be sure to conduct themselves in an ethical and equitable manner both when collaborating outside their company and in external decision-making. Whether relying on advice from third parties and consultancy work or operating within the confines of their team, they should make sure that they act honestly and follow all applicable laws to avoid future headaches.
9. Strategic Vision
Perhaps the most motivating of all aspects of good governance, the strategic vision is ultimately the responsibility of the Board. However, in an ideal world, it will be shared among and championed by all members of the organisation.
To help realise this vision, the Board should plan strategically, define the company’s mission and values and foster a conducive workplace environment. These steps will guide the company as it strives for its goals.
Planning in terms of good governance should include detailed information on action points, budgets, operating plans, analysis, reporting at certain stages of the operation and more. This level of detail helps hold members accountable for their decisions and contributions (or lack thereof). Boards should also be taking into consideration risk management strategies and planning ahead to protect the company’s reputation, all of which can be accomplished by focusing on the principles of good governance; it comes full circle.
“The key role of any board is “to make the choices that create the future for the communities they serve”. Creating the future is all about being aware of what is happening in the strategic environment, focusing on the things that are likely to have an effect on your organisation, choosing what needs to be modified, created or discontinued and repeating this process continuously,” says Steven Bowman FAICD, Founder of Conscious Governance
Examples of Good Governance
So how does good governance look in practice? There are many signs that a company is exercising good governance. A few examples include the following:
Does your Board represent a variety of opinions and backgrounds?
Is your Board organised, with a set schedule and a centralised online system that facilitates collaboration between team members?
- Does your Board model strong ethics and legislative compliance for the company?
- Is your organisation at the forefront of sustainability?
- Are you proactive in your internal and external communication with stakeholders and shareholders?
- Do you have an established framework and a clear plan to support and improve these areas?
The Role of Technology in Good Governance
Good governance is not some unreachable ideal; it is a necessary and achievable reality for your company. Assisting your good governance journey with technology will make the process easier for you and your team. By automating aspects of your governance process, you can increase accessibility and efficiency while freeing time to focus on other aspects of the company. Good governance should be one of your company’s top priorities, and – especially with the help of modern technology – you can achieve it.
View our Board portal buyers guide to find out more about your technological options.
About the BoardPro community
The BoardPro community is made up of over 20,000 business leaders, senior executives and executive support staff, who are all committed to streamlining board meetings across the industry.
Here at BoardPro, we regularly interview and survey our community through short questionnaires to shed light on the varying ways our members approach a theme, area or challenge within their organisations. We then share their insights with our wider audience.
BoardPro would like to thank the following people for their contribution to this article:
Conscious Governance managing director Steven Bowman
Grounded Governance managing director Giselle McLauchlan
Diversity of Thought founder and principal consultant Lloyd Mander
If you would like to join our content community and contribute to our many articles and white papers then please reach out to us here.
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