The Magic of Governance

Sometimes it is easy to overlook what the magic of governance is. At its best, governance is capable of playing the pivotal role in delivering an organisation’s sustainable success.

Simplistically, governance provides a structured framework for effective leadership, clarity, transparency, decision-making, accountability, and ethical conduct. When the practice of governance is done well, it creates an open environment that promotes structure and operational cohesiveness, whilst allowing for an agility in execution and innovation to deliver successes.

Governance is an embedded part of an organisation’s DNA. It is this DNA that can directly impact the integrity of behaviours and myriad decision-making.

Some Magical Governance Components

In unpacking this governance magic, what is revealed are the key contributors that operate for the benefit of an organisation’s long-term success. Some of these are:

1. Strategic Intent
   • ensures there is alignment between the organisation’s strategies and its mission, vision, and long-term goals.
2. Financial Integrity
   • maintains the financial integrity by ensuring accurate financial reporting and compliance with accounting standards safeguarding an organisation’s financial stability.
3. Risk & Compliance Management
   • contributes to the identification, assessment, and management of risk & regulatory issues that may impact an organisation’s success and resilience.
4. Values & Ethics
   • embedded values which guide an organisation’s behaviours and practices, facilitating a positive reputation and strengthening stakeholder relationships.
5. Transparency
   • encourage clarity of reporting and widespread accountability that ensures stakeholders are confident in an organisation’s public statements and commitments.
6. Stakeholders
   • establish effective communications with stakeholders that directly contributes to improved understanding and a fostering of positive relationships.
7. Value Creation
   • commitment to creating sustainable and long-term mutually beneficial relationships that feed into an organisation’s resilience and long-term success.

Why Governance Matters?

It is now generally acknowledged that governance plays an important role in an organisation’s performance. This role is linked with:

1. better strategy and operational plans
2. greater confidence in financial reporting
3. more timely & accurate risk management
4. improved operational efficiencies
5. better process effectiveness
6. more reliable regulatory compliance
7. promoting of greater accountability
8. encouragement of openness and transparency
9. strengthened stakeholder engagement
10. positioning the organisation to respond to its changing environment

Boards Owning their Succession Planning

Board composition is a critical factor in how effective a board’s operations are. Many boards are facing the difficult situation of too often failing to attract the necessary numbers of members to volunteer their time to join a board. This is creating a new challenge that has to be addressed in a prudent and considered manner.

As a consequence, many boards are facing being under-prepared to objectively identify what are the gaps that need to be filled in their board’s composition. Most recognise the importance for having the right people around the board table and its contribution to an organisation’s success.

It is clear that there is no one-size-fits-all solution for reviewing and staffing the board. Each board needs to undertake a robust and objectively based examination of the make-up of today’s board together with what are its needs for the short and longer-term.

One aspect that needs to be front and centre in any board composition considerations includes that of diversity. In other words, seeking to have a breadth of directors with different backgrounds including demographics – age, race, ethnicity, gender and education, as this supports richer perspectives to be discussed and better decision-making.

Ultimately boards are asked to now step up and own the management of their refreshment and succession planning agenda.

Elements Worth Consideration

When appointing a new director, the following factors may be taken into account:

1. person’s track record
2. level and breadth of expertise
3. experience in a particular sector
4. ability to work effectively within a team
5. fit for strategic goals
6. person’s expected contribution to organisation’s success
7. person’s independence
8. commitment to organisation’s purpose, mission, and values
9. matters of director remuneration
10. in kind benefits offered to directors

Established Policy

Ideally, every organisation is in the position where it can turn to an existing approved policy with an articulated process for appointing directors.

The purpose of any policy is to establish transparency and a clear outline around the following:

1. process for appointing new directors
2. criteria for selecting candidates
3. selection’s decision-making process
4. roles and responsibilities of the board and individual directors
5. confirm fiduciary duties and obligations to the entity
6. address the issue of board diversity
7. confirm commitment to having a diverse range of perspectives and experiences represented
8. identify how individual directors’ performance is evaluated
9. identify how board’s performance is evaluated
10. set out succession planning and commitment to a refreshment plan

NFP Board Remuneration

Enterprise Care’s FY24 NFP Remuneration Portal reveals that 28% of NFP Boards are now receiving remuneration. This shows a marked increase over the recent generally publicised 21 to 23% figure for paid directors.

Like CEO and other senior executive positions, variations do occur across the various NFP sectors for board remuneration. While often an argument is presented that being paid is unlikely to be a consideration in a Charity board appointment, nevertheless this is changing especially for those boards that involve more complexity and greater risks.

The trend appears to be on the increase as more and more boards are forced to not only consider but introduce remuneration for their directors.

Chairs of NFP/For Purpose boards earnt between $3,885 and $176,691 and directors earnt from as little as $2,220 to as much as $106,014.

In 2023, NFP/For Purpose boards are, maybe reluctantly, needing to entertain director remuneration as part of enhancing their succession planning and attracting a broader cross-section of potential quality directors.

Conclusion  

In summary, the magic of governance, driven by your board, is its contribution to an organisation’s resilience, continuing and consistent future successes. Governance creates an effective foundation that sets an organisation up for long-term and sustainable success.