What is governance and why is it important?

5 min read
Jul 14, 2022 10:22:43 AM

According to Governance Today, governance can be defined as “the system by which entities are directed and controlled.  It is concerned with structure and processes for decision-making, accountability, control and behaviour at the top of an entity. Governance influences how an organisation’s objectives are set and achieved, how risk is monitored and addressed and how performance is optimised.” 

Reframing the mundane

Although governance can be viewed as legislation and regulations, at BoardPro, we believe that it should be about joyous, capable members of the board who can deliver on success. We believe that effective boardroom leadership is vital for successful outcomes. 

For a corporation to function properly, the board and employees must be aligned on mission, vision, and core values. All organisation members should be periodically reminded of them and receive constructive feedback. By doing this, the chair of the board is not only able to align values but to build a thriving company culture. 

Company culture is all about the attitude and behaviours of a company. A pleasant company culture transfers smoothly into the boardroom. Board members need to support those around them, enabling them to enjoy their job. A pleasant working environment encourages members to be well-informed and researched. Structure, board effectiveness, boardroom dynamics, and engagement with stakeholders are four points that should be fundamentals for a business.

Defining the governance structure

All members of the board must have a firm grasp of their legal duties as company directors. They should be aware of what they are allowed to weigh in on and where they should keep their opinions to themselves. Some decisions should be made by the board, whilst keeping aware of management who also has a part to play in the organisation.   

Led by a highly capable chair, the board comes to a consensus regarding decision-making. This includes decisions about strategy, business models, financials and management structure. 

To ensure smooth execution, the board needs to be clear on delegating tasks and decisions. They must keep in mind members from the chief executive to the management director and other members. Every member should comprehend accountability, to whom they are accountable and to whom they should report to. It is advised to have an internal audit put in place to check that the organisation is running according to plan. 

Board effectiveness

An effective board, needless to say, starts with having the right people. “Right people, in this context, means those with the ability to think strategically and ask the deeper, more probing questions,” explained Steven Bowman, the managing director of Conscious Governance and a seasoned board advisor.

A company’s constitution document may dictate the number of board members in place. Therefore it is essential to find the correct ones for the job. In addition, board members should have the correct mindset, set of competencies, and behaviours for them to really add value. 

It is important for the board to annually utilise the Skill Audit process to emphasise the kind of talent needed to be recruited by the board to achieve growth and drive excellence. Unfortunately, there can also be members who are not performing as expected, and although it is never an easy conversation, it is essential to encourage them to move on. 

Board members are responsible for deeply understanding their role and ensuring their own performance. They also need to do their utmost to be a contributing member and an effective team player, ready to accept the collective responsibility of decision making, overseeing performance, and controlling any uncertainties that may arise.

A responsible chair should lead the board meeting, following an agenda and tackling all relevant topics. There should be a balance on both sides of governance – conformance and performance. Conformance means how well a system meets standards, such as safety and legality. Performance means executing the action, such as having a clear vision and insight into the company’s core values and how to get there. 

Unsplash boardroom meeting post its

Boardroom dynamics and culture

The perfect situation for a board would be for members to consider their actions and empathy. Building trust and relationships with others in the team can be crucial for the dynamics of the board. Different directors have different styles of communicating, and different chairs have different ways of leading. The diversity of leadership styles, as well as mindset, should be considered. It is important to be open and honest about what works and what does not work in the context of the boardroom. 

Unhelpful dynamics should be addressed, and the chair should be encouraged to take the offending member aside to discuss the attitude. It has been found that mindfulness and humour helps balance out the tensions that can arise from the power play, narcissism and ego. 

It is important to note that the chief executive and the chair of the board should work together to build a healthy, functioning, trusting relationship with each other. This will greatly benefit the dynamics of the board, and the energy flow of the meetings. 

Boardroom culture should be open, respectful and collaborative. Directors set an example for others to follow, so they should be on their best performance at all times - inwardly and outwardly. It is recommended that every board should take company culture highly into account and reassess it when necessary. There is always room for improvement, and this can be found by talking to the members of the board. By assessing internally, board members will know that they are being observed and thus encouraged to perform on their best behaviour. 

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Stakeholder engagement

As previously mentioned, all board members should know who they are accountable to and who they are accountable for. In almost all cases, it is the stakeholders that hold them accountable. There may be legal and regulatory stakeholders or a broader range of other stakeholders, such as the customers, staff and partners. 

The board should reflect on their key stakeholders and engage in stakeholder mapping. This is visually laying out all possible stakeholders onto a type of map. This way, they can get a visual idea of all the people who are involved or can influence the organisation, as well as how they connect together. This way, the appropriate kinds of communications and feedback exchange will take place.

Good governance is about having the right kind of people in the boardroom. These people are accountable for doing the right type of analysing, and having the right kinds of discussions. They can receive the right kind of information to conclude the right decisions.  They have the right attitude to create a healthy company culture that attracts like-minded, capable talents. Our mission at BoardPro is to support the board that wants to make that happen. 

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