Guest writer

Chris Wright – Senior Associate, Hall & Wilcox

Defining ‘governance’ in a way that is useful can be hard.

Governance is the internal rules, practices and processes that govern the operation and performance of an organisation. Organisations are complex enterprises, and how they are run is equally so. It can help to think of governance as a bundle of components, including the organisation’s leadership, decision making and responsibility frameworks, risk identification and management, and relationships both within the organisation and between the organisation and its stakeholders.

Instilling a culture of good governance is usually harder.

The primary force that influences governance is the board or the committee. They set and maintain the standard for the organisation.

Regular evaluation also helps to ensure your organisation is on the right track. Boards and committees should be aware of their own strengths and weaknesses and implement and monitor any agreed actions that come out of any evaluation.

The benefits of good governance are much easier to explain.

Good governance creates transparent rules and controls; guides leadership of the organisation; and aligns the interests of members, directors/committee members, management, and employees. It reduces the potential for financial loss, waste, risks, conflict and fraud or corruption, and builds for resilience and long term success.

Bad governance has the opposite effect. Lack of clear processes means organisations can be ineffective. Insufficient risk management practices lead to a failure to identify, assess and mitigate risks effectively which can lead to excessive risk-taking, financial losses, and damage to the organisation’s reputation. Bad governance casts doubt on an organisation’s reliability and integrity, and impacts the health of the organisation, and often (unfortunately) results in scandal and the end of the organisation’s operations.

So, how do you achieve good governance? While there is no ‘silver bullet’ solution, some core themes to consider are:

  • Leadership – Leadership both benefits from and is responsible for influencing governance. Strong leadership that is committed to good governance inspires and motivates the rest of the organisation.
  • Setting rules – Setting clear rules for the organisation, and making sure these are followed, is a hallmark of good governance.
  • Understanding applicable laws – Understanding the laws that apply to your organisation (and how those laws change from time to time) is very important. This will help to make sure the organisation is run in accordance with the requirements of those laws. It is also important to make certain that any newcomers to the organisation are quickly brought up to speed on the applicable requirements.
  • Transparency and accountability – Are both important. You may often find that members are less concerned with exactly what decision has been made, as with knowing why the decision was made and that it was done in accordance with your organisation’s established rules and processes.
  • Stakeholder engagement – Provides valuable feedback and accountability, supporting the organisation in making informed decisions that are in the best interests of all stakeholders

Often the appropriate approach to governance needs to be considered on an entity-by-entity basis. For example, the size of an organisation makes a big difference to how its governance will most effectively work. In small entities with very little funding and few liquid assets (and hence little capacity for excessive red tape), simple and otherwise informal arrangements can work well (subject to meeting any legal requirements). On the other hand, for larger entities such as medium to large corporations, there is a definite need to formalise and document practices if the entity is to survive and be successful.

Some things to think about to aid in ensuring good governance, many of which will be explored in greater detail in future editions of On Board and our related training events, include:

  • Does your organisation have clear and agreed goals?
  • Does your organisation have a clear and agreed governance framework?
  • Is your register of members/shareholders up to date?
  • Are member meetings held regularly (and at least as often as legally required)?
  • Are meetings conducted in accordance with any requirements, and clearly minuted?
  • Does everyone within the entity know and understand their role, authorities, obligations and responsibilities? Are these clearly documented?
  • Do you frequently have to deal with conflicts of interest?
  • Do you directors/committee members communicate with members regularly, in a way that members understand?
  • Are plans, policies and decisions transparent and clearly documented? Are they followed?
  • How are newcomers (such as directors, employees and volunteers) made aware of any legal requirements the organisation is subject to?
  • Do you have a good understanding of your entity’s assets?
  • Have you thought about succession planning?
25 June 2024
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