What is governance?

you hear the word governance a lot these days but what does it really mean and is it as important and serious as it sounds board governance or corporate governance simply refers to the job of a Board of Directors now if you look at the position boards holding corporations you can see that they are sandwiched between shareholders or some kind of ownership on one side and the CEO and staff on the other side since the ultimate authority for the company or organization comes from the ownership naturally the governance job of the board comes down to three things one have ongoing dialogue with the ownership to discern their expectations for what results the organization should produce to translate those expectations plus other information and the directors own perspectives and values into written criteria for success and three check to see that those criteria were met in a nutshell that's it board members can do other things like volunteer to help staff or get involved with fundraising or public relations but the boards core governance rule is ownership linkage policymaking and monitoring policy compliance now you can see why governance is so important the job of the board is at the front end of what happens in organizations sometimes a really strong CEO can compensate somewhat for a weak Board of Directors but for any organization to truly live up to its potential and achieve relevant results good governance is critical this is Susan Mogensen with brown dog consulting

The Governance Problem: How it Started

an excellent article appeared in the January 24th Globe and Mail's report on business it was an article by Janet mcFarland storming the boardroom sound fury and little else this article tells us about the frustration and disappointment with the pace or lack of true governance reform felt by shareholder and good governance advocate Bob monks he says when I hear the word reform I want to vomit because it means we've lost the battle of terminology he also says he's results-oriented and really doesn't see any material change in corporate governance despite all the disasters and Fiasco's we have seen in the past dozen or so years Bob I couldn't agree more so what is wrong with governance today anyway I believe it all starts out with a fundamental lack of common understanding around what governance is we can see how this problem developed when we look at the evolution of a typical company and the roles and relationships that form let's start with the humble business owner let's call him Joe Joe has an idea and starts a business he is the business owner operator chief bottle-washer and everything the business grows and Joe decides to hire staff now Joe is the business owner and a manager then at some point the business owner manager decides to get together with an investing partner or two to be able to grow the business now the business owner is a partner and probably still a manager as well then as this business gets bigger and bigger the owners or partners decide it is time to incorporate which requires forming a board of directors naturally since Joe started this whole thing he needs to not only be on the board of directors but it is accepted that he should be the chair of the board and of course maintain his role as the leader of the operational side of the organization in other words Joe must also be the CEO this sets up the problem however with the legal and fiduciary responsibilities of a Board of Directors comes the principle that board authority is group Authority no longer do you have a single individual at the top of the heap but a group of individuals who exercise authority as a group and yet we still have Joe who founded the business and therefore needs and wants to remain in charge of both the board and operations then even when Joe retires and someone new steps in somehow the same problematic configuration of having one person as both chair and CEO seems to stick Joe's two hats create a conflict how is it going to work when as CEO he is accountable to a Board of which he is the chair how will he exercised his board responsibilities when the scope of his power extends far wider and deeper than that of his fellow board members are the other board members simply playing an advisory or supporting role or are all board members truly governing as a group meanwhile what appears to be missing or forgotten in this picture ah the shareholders remember when Joe started out he was the head honcho because he owned the idea the product of business now who knows if the company went public or has owners beyond the board of directors we really need to know and understand that the head honcho the true head honcho in this whole picture is the legal ownership group or the shareholders whoever they may be and it is the Board of Directors that must ensure that the long term interests of the shareholders are effectively executed this is what governance is whether you have a singular business owner or a group of partners or a board of directors acting on behalf of shareholders one principle remains the same the ultimate authority in a company or organization starts and ends with the ownership from that premise the job of boards is to govern on behalf of ownership with all power and authority flowing through the board before it gets to the CEO this means boards need to engage with their ownership to translate expectations into written comprehensive and concise policy and to monitor policy compliance I think that the sooner everyone can agree that Authority flows from ownership to board to CEO to staff the sooner we can truly achieve governance reform and indeed see Bob monks happy this is Susan mogensen with brown dog consulting