Governance is, more than ever, in the spotlight, and while it may not be a particularly sexy topic, it is one that NFP organisations should not shy away from.
Governance is a big issue facing the NFP sector today. We know from conversations with our clients that organisations are often aware that more needs to be done in this space, but they are not sure where to begin. Sometimes they don’t understand that good governance should be a priority.
For NFP organisations operating in a fast-paced and dynamic environment, boards must be able to navigate the disruption, regulatory change, challenges, and opportunities to ensure sustainable growth of the organisation and to meet the needs of multiple stakeholders.
Boards and individual directors have a vital role to play in continually improving risk and strategy oversight of their organisation for long-term sustainable growth. Critically, the role extends to boards providing ongoing and effective cultural stewardship.
So, what is governance?
Governance involves systems by which an organisation is controlled and operates, including the mechanisms and tools by which it, and its people, are held to account.
There are several elements of governance, such as organisational culture, risk management, compliance, and administration. It’s important for organisations to understand that governance is not a ‘tick-the-box’ exercise. Good governance is much more than that and can be demonstrated in multiple ways.
For example, starting with identifying a vision and purpose, developing a strategy, selecting and supporting management to deliver that strategy, roles and responsibilities, composition of the board, and setting out clear processes and policies for risk management, reporting, compliance, culture and stakeholder management.
Is governance a handbrake or a combination of gears?
Embraced and viewed holistically, governance can be used as a combination of gears for an organisation to enable growth and sustainability. Good governance will create an environment to act in the best interests of the organisation, its people, and stakeholders.
It will also improve performance and productivity, mitigate risk, enhance brand and reputation. In simplistic terms, you can look at governance as the four ‘Ps’ purpose, people, process, and performance.
How does an organisation go about measuring governance?
Good governance can seem daunting and time consuming, and the best approach to begin measuring your organisation’s governance is not always clear.
Remember, not only is governance critical to an organisation, but it can also be your friend, who will guide, support, nurture and enable sustainable growth and success. Like a good friend, governance requires open, honest, robust, and transparent conversations.
Who is responsible for the process?
The board is responsible for oversight of the governance process. Management is responsible for providing the policies and procedures that govern the organisation.
The board, together with management, must establish reporting requirements and clear frameworks to monitor and measure the effectiveness and performance of governance.
What are practical steps you can take if your organisation needs a governance review?
The best place to start is with your board’s charter. Organisations striving for best practice in board leadership and good governance will have in place a board charter that all board members understand and formally commit to through the selection, induction, and annual review process.
Typically, a board charter would include a code of conduct, structure of the board and sub-committees, duties and responsibilities, composition of the board, risk management, conflict of interest, meeting requirements and performance management.
If you are unsure of the last time your board’s charter was reviewed, or have concerns, there are ways to sensitively bring this up with your board.
You could approach the chair, outside of a board meeting, to have a conversation to share your views and concerns. You could allocate time in a board meeting for the board to discuss governance, specifically looking at the current state and performance.
The board could also engage a governance expert to assist in exploring best practice, building capability, and improving your organisational governance.
Finally, you could undertake a board evaluation by an independent consultant who has strong NFP experience, to gain an objective review, benchmark and provide advice on where to lift performance.
Final thoughts
Governance for an organisation operating in a volatile, uncertain, complex, and ambiguous world, known as a VUCA world, is not enough. Good governance is absolutely critical for long-term sustainable growth.
Remember, governance is not a word to fear, it can be a good friend. The journey to strong governance frameworks is in fact exciting and valuable and should be embraced by board and management to ensure your organisation is best placed to achieve its vision and purpose.
Please contact Marlene Elliott marlene.elliott@vuca.com.au if you would like to discuss this article further.
Marlene Elliott
General Manager & Associate Director, VUCA Trusted Advisors