Let’s face it, board governance isn’t the most exciting topic. However, it’s vital to the smooth running of every business, no matter the size or scope. A robust governance structure helps organizations meet business goals. These include risk management, better decision-making, and achieving long-term strategies. In short, corporate governance builds compliant, ethical, successful businesses. And it could give you that all-important competitive advantage with investors and consumers.
This week’s post looks in detail at governance frameworks focusing on a board structure. We look at the different types of boards and explore the elements of a best-practice governance framework.
Let’s kick things off with a definition.
What Is Governance In Simple Terms?
Governance structures set the rules, practices, and procedures that direct and control the activities of an organization.
A governance operating model is all about the big picture. Generally speaking, board directors shouldn’t get bogged down at the day-to-day operational level. Instead, they focus on overseeing strategic planning and internal controls and building a culture of continuous improvement.
The board advises senior executives in making strategic decisions and planning for future growth.
Many think a governance structure is only relevant to public companies and big corporations. However, small businesses, not-for-profit and public sector organizations also benefit from the improved accountability and oversight of key business activities.
What Is Enterprise Risk Management Governance?
Enterprise risk management governance is the process of setting up structures and procedures to provide oversight of organizations’ risk management activities.
And here’s the deal. Every organization is exposed to risk of some sort. It’s in the company’s best interests to safeguard assets, reputation, and value from potential losses, damage, or threats. Furthermore, organizations must ensure compliance with legal and regulatory standards. And performance is enhanced when leadership decision-making and problem-solving consider the opportunities and risks involved.
Many organizations have governing boards to support company leadership in overseeing risk. The governing board helps guide the overall running of the business by setting a long-term strategy. The board structure may vary depending on the nature of the business. However, governance is vital to creating compliant, ethical business practices and, ultimately, successful organizations.
What Is A Board Governance Model?
A board of directors is the most popular governance operating model. Each organization’s approach will be different. However, corporate boards help management control the following key components:
- Business growth and developing a clear vision of the future
- Creating strategies for managing or reducing risk
- Overseeing regulatory compliance
- Monitoring organizational culture
- Improving trust and reputation with stakeholders, investors, and customers
- Making executive management appointments
Corporate boards vary between organizations, especially for-profit and not-for-profits. However, here are the most common types of board governance:
Governing Board
This type of corporate board follows the interests of stakeholders and offers direction to senior management.
Executive Board
With this option, board members may get involved in some day-to-day operations and they also make key decisions.
Working Board
Most often seen in SMEs, board membership is made up of board directors and management.
Advisory Board
Board members are comprised of external experts who provide advice to directors and management.
Who Are The Members Of The Governance Board?
Board members can come from a variety of backgrounds. In fact, the most successful boards include a diverse range of experience, wisdom, and expertise.
Some may be retired professionals in your industry. Others will be successful executives in related sectors. And some board members will be academics, lawyers, or accountants.
Board meetings shouldn’t be about rubber-stamping senior management’s decisions. You want the board to drive strategy, broaden your horizons and ensure the organization is held accountable to shareholders and stakeholders.
Here are some key principles to help guide you when appointing a board of directors.
- Look for a range of different perspectives. Often someone from outside your industry can offer fresh insights that become game-changers. Diversity is critical for effective governance models. So recruit board members with a breadth of expertise and from a variety of backgrounds.
- Avoid yes people. Ideally, you want members with the courage and confidence to challenge your assumptions. Board decisions are often difficult and can involve forging a new path. Make sure you have experienced and committed directors who can support and guide your organization.
- Experience counts. Now’s not the time to select a rookie who may be ill-equipped for the challenges – even more so if your business is a startup or small enterprise. Governance and accountability are huge responsibilities. You need experience and expertise behind you.
What Is Board Governance vs Operational?
When it comes to corporate governance, board processes are usually focused on high-level strategy, risk management, and compliance. They don’t get involved in everyday operational issues. That’s firmly the responsibility of management. But there is an exception.
A working board is a standard governance structure in organizations with few staff and tight budgets. You see them most frequently in startups or not-for-profits. Alongside strategic oversight, working boards also have responsibility for operations.
In working boards, the directors set the governance framework to guide the CEO and management in supervising daily operations. The board provides support on various aspects, including company culture, internal processes, and practices. In short, working boards set the operational framework, and management does the managing.
This type of organizational structure requires careful thought and construction. Clear lines of responsibility are necessary if directors and management are to perform their responsibilities effectively.
What Are The Responsibilities Of Board Governance?
The primary focus of board governance is to help the organization achieve its business goals, create value, and respond to changing environments. Boards are responsible for ensuring that companies are well-run, accountable, and transparent.
Let’s break down what that means in practice. Board members’ responsibilities include the following:
- Safeguarding the organization’s financial stability
- Reviewing and approving the strategic plan
- Monitoring and evaluating the performance of the organization and its executive team
- Establishing and maintaining ethical standards and compliance processes
- Recruitment, appointment, and oversight of the CEO
- Developing and supporting strong relationships with major shareholders, stakeholders, regulators, employees, and customers
- Ensuring a diverse group of board members with representation across different cultures, genders, and backgrounds
- Advising and supporting the CEO and executives in making important decisions and developing business strategies
What Is Good Board Governance?
The likes of McKinsey and Harvard Business Review have researched what makes for good board governance. Reflecting on the latest best practice, here’s our take on the vital characteristics of an effective board structure.
Board Composition
It’s crucial to get the right mix of people. Ideally, you want a diverse range of skills, experience, and backgrounds. That way, the board can effectively fulfill its responsibilities and add value to the organization.
Clear Roles And Responsibilities
Board members must clearly understand their obligations and those of the CEO and leadership team. The organization’s purpose, mission, and values are well understood, and the board ensures close alignment with company strategies.
Policy Oversight
Board processes are in place to give the board oversight of key policies and procedures, including ethics and compliance. Risks are identified, and opportunities are seized after thoughtful evaluation.
High-Impact Board Meetings
Board meetings are efficient and effective and focus on strategic issues. The board receives timely, accurate data to support its decision-making responsibilities. Board members ask insightful questions and are prepared to challenge the status quo.
Teamwork
Board members, the CEO, and company executives work well together as a team. There’s mutual respect, trust, and a shared commitment to achieving company objectives.
Review
Good board governance involves self-reflection and review. Board members understand that there’s always room for improvement. The board regularly evaluates its performance and effectiveness and takes steps to improve. It also keeps a close watch on the performance of individual company directors and executives.
What Good Corporate Governance Is Not
Effective board governance is not about micromanagement. Boards shouldn’t get involved in day-to-day operations. With the exception of an executive board – more on that later – daily operations are strictly within the remit of company management.
Remember, the board’s primary focus is strategy and the long-term future of the company. Boards shouldn’t concern themselves with the minutiae of staff activities or find themselves line managing directors.
What Is Effective Board Governance?
Today’s organizations are held to very high standards by investors, stakeholders, and customers alike. Businesses have greater accountability for their actions and behavior than ever. And effective board governance ensures that companies are operating with integrity and transparency.
A strong governance framework organizes risk management, compliance, and financial procedures to keep boards updated. Clear rules and processes give the governance structure clout and drive strategic decision-making.
The Corporate Governance Institute has identified the following main principles to guide any governance structure. Use these as a starting point, and you will be on the way to achieving a solid governance structure.
1. Responsibility
Ultimately, boards are answerable to shareholders. Their role is to steer the organization away from risk and towards success while ensuring it operates within the law.
2. Accountability
Boards are accountable for the decisions they make. And so, all decisions should be data-driven and carefully considered. That way, if internal or external stakeholders challenge decision-making, there’s a clear paper trail.
3. Awareness
The board should have the necessary insight and awareness of the landscape within which the organization operates. This can only come from years of experience and accumulated expertise. It’s a delicate balancing act deciding between risks to avoid and opportunities worth taking.
4. Impartiality
It’s crucial that the board approaches every decision-making responsibility with an impartial, objective mindset. Conflicts of interest must be declared. And personal interests and beliefs should be left outside the boardroom.
5. Transparency
Paperwork is critical to good governance. Boards are responsible for documenting and reporting on their decisions and not just concerning financial compliance. All discussions, including any disagreements over strategy or risks, should be recorded for full transparency.
Companies know they have good practice corporate governance in place when they can tick the following checklist:
- Boards make considered data-driven and evidence-based decisions
- Organizations’ gaps and weaknesses are identified, and processes are put in place to address them
- Management is supported and enabled to deliver effective leadership
- Boards provide robust oversight and accountability for financial and compliance responsibilities and risk management
It’s best practice to review your governance framework from time to time. You want to ensure it’s still fit for purpose and meets rising shareholder and investor expectations.
For example, climate change has shone a spotlight on the environmental credentials of organizations worldwide. With increasing expectations come increased responsibilities. Companies need to ensure board procedures consider the current and future impact of business activities on global issues of concern like climate change.
How Can Board Software Support Corporate Governance?
While there’s no substitute for sound policies and processes, good administration is also critical. That’s where board governance software comes in handy. Technology plays a massive part in reducing the admin burden. It helps make the lives of company administrators, directors, and boards that bit simpler. And that means companies’ leaders can get on with the crucial job of governing.
Here are some of the tasks technology can streamline:
- Automated board meeting schedules
- Agenda builder – create timed agendas and assign ownership of items
- Centralized storage of board papers – meeting agendas, reports, and minutes are located in a central, searchable hub
- In-meeting minute-taking
- Document collaboration – real-time collaboration and commenting on documents and reports
- Secure voting on resolutions
- Task tracking – assign and track the board of directors tasks and meeting action points
Best of all, board software goes a long way to ensuring governance is transparent, efficient, and accountable.
How Do You Develop A Governance Framework?
One of the most critical tasks for any board is regulatory compliance. So, the starting point for developing a governance framework has to be the legal landscape within which the business operates. It could be federal or local regulations. Whatever the case, a company has to work within those legal boundaries.
Here are other aspects companies need to establish when developing governance structures.
- Identify the senior executives in the business and their information requirements
- Set out the organization’s reporting responsibilities and how information needs to flow around the company
- Establish how risk is managed within the business
- Make clear the relationships between stakeholders, shareholders, directors, and management
Once you have identified the overall framework for the board’s work, it’s time to get into the detail. The following tips will help you get this crucial step right.
- Work up clearly defined roles and responsibilities for board directors and management
- Ensure these responsibilities are carried out by the right people and at the right time
- Develop data governance and information security policies so the board makes data-driven, evidence-based decisions, and company data is kept safe and secure
- Maintain an up-to-date conflict of interest register
- Develop processes for managing and resolving conflict
- Focus on transparency by documenting board decisions and discussions in formal minutes
Our final tip is perhaps the most important. Regularly review your governance framework to ensure it remains fit for purpose.
The Role Of Technology In Governance Structures
Technology has a massive role to play in supporting a governance framework. Nowadays, many board directors are working remotely. Digitized board processes and governance systems are now mission-critical.
And the company intranet has much to offer. The intranet acts as a central hub for all the board’s information requirements, including the following:
- Automated board meeting schedules
- Easily searchable meeting minutes and agendas
- Real-time document collaboration with embedded Google Workspace or Microsoft 365 apps
- Assignment and tracking of board tasks
- Automated processes and procedures to monitor compliance requirements
- Easy sharing of information to support data-based decision-making
- Private project spaces where members of the board can brainstorm, share insights and information
- Instant messaging for swift resolution of queries between the board directors and management
The bottom line is intranets help boards govern more efficiently and effectively in today’s fast-paced digital workspaces. See the 12 best board governance software solutions.
Boardroom Or Bored Room? Tips To Make Your Boardroom More Effective
Is your boardroom a hub of dynamism, creativity and energy? Or are the only actions taking place the stifled yawn or clock watching varieties? Corporate governance continues to be a big issue for companies of all sizes. And so, finding ways to make your boardroom as productive as possible should be a priority for every business. Of course, thorough planning, agenda preparation and meeting management are at the heart of an efficient boardroom functioning as they are with any meeting. On top of this though is the management of the boardroom’s big personalities which also plays a part in ensuring its cohesiveness and effectiveness. And so just like the light-hearted take on the characters in the video below, no doubt everyone has had experience of Chuck the Controller, Carina the Critic and even Timmy the Timekeeper. So how do you make this mix work effectively? Well, in this article we share some tips on how to get the most out of your boardroom.
What Makes For An Effective Boardroom?
A recent KPMG / Forbes Insight survey asked respondents to identify their greatest challenges to the board’s effectiveness. Unsurprisingly top of the list of challenges included factors such as conflicts of interest and budget and resource constraints. In addition, there were a number of easily remedied administration and management issues such as lack of formal structure and irregular meeting calendars.
Other barriers to effective boardroom functioning include a lack of openness and trust among board members. To really make progress on important issues there needs to be an environment of honesty and mutual trust. In these conditions, members can really engage in spirited debate without fear of recrimination and in a genuine attempt to take the business forward.
What’s more, the strong personalities in the boardroom can mean that debate is often dominated by the loudest voices and the largest egos rather than a genuine consensus approach. It’s not uncommon for some boardroom meetings to degenerate into destructive political in-fights or power games to the detriment of addressing strategic issues and problems.
And, finally, perhaps the barrier with the biggest impact on boardroom effectiveness is the absence of clear outcomes and accountable actions. Yes, it’s that old, familiar problem of the talking shop – where there’s plenty said but very little action and few measurable deliverables. Now, this may well be a common problem relating to meetings generally, but when it is apparent at the highest strategic level, it effectively stifles and disables the development of the business making it a critical issue.
Action Plan To Improve Boardroom Effectiveness
So now that we have identified some of the factors that impact on the board’s performance let’s take a look at steps you can take to improve all round functioning.
Pre-meeting Research And Preparation
This aspect is essential to the boardroom’s effectiveness. Well-structured, timed agendas with concise reports and supporting papers make for more informed debate and better decision-making processes. The emphasis here is on conciseness as often the tendency is to include too much information and very detailed reports that go on for far too many pages. Given that the average boardroom meeting agenda is likely to include a dozen or more items, supporting papers that run into hundreds of pages are simply just a time waster. No one gets beyond the executive summary, which means that critical aspects of the issue can easily go unnoticed or slip through in the mass of detail.
Trust And Mutual Respect Among Board Members
Fostering a sense of mutual support and respect in the boardroom, not only between board members but also other staff in attendance, is critical to ensuring effectiveness. How the meeting is chaired will be critical to this process, but setting ground rules and mutually agreed standards of behavior in advance will help support the desired culture. Team bonding exercises and board away days can also help to promote a common sense of purpose and mutual respect.
Effective Chairing
We’ve touched on this already, but the weight of all the many demands and expectations on the board, plus all those big personalities in the room requires a strong chair to manage the meeting. The chair will have to handle the controlling Chucks of this world, along with the critics like Carina and will also need to keep things moving along to satisfy Timmy the Timekeeper. In addition, they need to ensure that all board members have an opportunity to contribute, even the more reticent ones. And they must also take charge of stamping out any rogue behavior in the form of an unwillingness to listen or inflexibility in considering other options – even fidgeting and yawning!
Accountable Actions And Clear Outcomes
Now, all the aspects we’ve looked at above count for nothing if the boardroom fails to deliver accountable actions and clear outcomes. The most effective boards are those with minutes that have clear individual accountabilities for each board member along with due dates and measurable deliverables. In this way, board members can be held accountable for their actions.
Use Your Intranet To Achieve Results
The company intranet is a great tool to help put the action plan into place. Here are three easy ways in which your intranet can support the boardroom’s effective functioning:
1. Dissemination Of Information
The intranet is the perfect vehicle for disseminating background papers and supporting information in advance of the meeting. Set up a shared project space on the intranet and restrict access to only those personnel that need it through the intranet’s rules and controls function. Board members know that all the documentation is located on the intranet and so there’s no need to send out emails every time there’s a revision to a paper or an amendment made to the agenda. This will save on time and resources for the board and the organization as a whole.
2. Keep An Access Log
The intranet can also log and notify you when a board member has read the latest updated agenda or that revised background paper. Those that haven’t done so can be chased up prior to the meeting. This helps to ensure that when the boardroom sits down for business, all participants are fully prepared and are ready to contribute.
3. Record Of Key Actions And Outcomes
Use your intranet to record and disseminate the key action points and outcomes for each boardroom meeting and to follow-up on progress. A great way to do so is by embedding a Google Sheet or Excel spreadsheet directly in the intranet after each meeting. Board members can then update and report back on their action points directly and in real-time and the information is then automatically updated in the source document for all members to view.
What’s more, feeding back to the broader workforce on the work of the board is made easy with the intranet’s news pages. All staff members can be kept up to speed with relevant company news and updates with the same timely corporate messages.
Board Or Bored? Quick Recap:
So what’s it to be – does your organization want an efficient and high performing board or is it satisfied with an under-achieving, stagnant bored version?
Here’s a handy summary of what you need to know.
- Board governance ensures that organizations are compliant, transparent and accountable to shareholders.
- There are four main types of corporate boards: governance, advisory, executive, and working board.
- Board responsibilities vary but include financial stability, compliance, risk management, and overseeing corporate strategies.
- Effective governance means a diverse board of directors is in place. Roles and responsibilities are clearly defined. And robust governance arrangements are set up.
- Board governance software streamlines administration and supports effective governance.
- Use our six-step process to create a best-practice corporate governance structure.
About MyHub
We are a leading provider of cloud intranet software. Simple to use and manage, our platform is designed by experts for non-experts. And it comes pre-loaded with all the tools you need to support corporate governance. In-built communication, automated workflows, document storage, and collaboration tools will streamline the work of any board of directors. Even better, MyHub’s intranets make for more efficient and effective work across the entire organization.
Find out more with a free demo or 14-day trial.
