The Drawing Board: Design and build governance

Governance is about translating owners’, shareholders’ and stakeholders’ expectations into performance while, at the same time, ensuring trusteeship for the capital and resources they provide.
The clear leadership role of directors and trustees is to overview the strategic and visionary side of the business and, the appointment, support and monitoring of the chief executive’s performance. But board focus and activity varies, and no one governance model fits all. Boards that try to shoehorn their mode of operation into particular governance format without taking account of the organisation’s stage of growth and circumstance can cause stress and unintended consequences.
Ljiljana Erakivic and Judith McMorland of the University of Auckland Business School have completed some interesting work on governance in the not-for-profit sector. They looked at five different levels of management and governance required as an organisation grows; from hands on and direct involvement at start-up (level one), through to the strategic governance of large complex and level five organisation. Different types of governance, from working committee through to the establishment of board, and the eventual creation of chief executive role, occupy levels two to four of their scale.
Different skills (and possibly different people) are required as the organisation progresses through its various stages, and governance and management separate. As an organisation grows, the vision and mission and strategic direction needed to determine its long-term sustainability become the focus. Appropriate skills are then needed around the board table. At the executive level, volunteers give way to paid executive, and the remaining volunteers (who can be on the board) are responsible to the CEO. It’s important to maintain the passion for the purpose of the organisation through this process.
Premature governance structures can inhibit growing organisation. The need to service board at an early stage of development can consume time and resource that the organisation doesn’t have, and shift focus away from the strategic and operational sides of the business.
David Irving, co-founder of the Icehouse and honorary professor of the Auckland University Business School, and Darl Kilb, Deborah Shepherd and Christine Woods, also of the Business School, talk of similar process in the governance of small to medium enterprises (SMEs) in their book Changing Gears.
The founder takes the business from kitchen table, through part-time adviser/mentor, to full-time adviser/director to board of directors. The growing business needs wisdom to complement growth. The characteristics of wise advisers are, the authors say, knowledge, judgement, empathy and influence. The new model requires the founder to accommodate the advisers and simultaneously change his or her role.
Whether it’s business or not-for-profit, there is gradual demarcation between governance and management designed to ensure clear accountability and responsibility. It is not so much line as an interface which varies according to the age and stage of the organisation. Growing organisations change and morph, like living entity, while retaining purpose and values at the core. This transition only occurs if the right leaders, doing the right things, are securely in place.
Initially the founders are vital. However, the successful transition from one phase to the next requires open and trusting conversations, and measure of humility as people take on new roles and step aside for others with the expertise and skills needed to grow the enterprise.
The most successful level four and five boards are anchored by strong partnership between the chair and the CEO, the organisation’s two key leaders. When this works well, they jointly set the tone and underpin the organisation’s culture. Ideally, they model the positive interaction needed between the board and executive team. They should be clear about the mission, vision and values of the organisation and be focused on achieving them.
The chair and CEO must be clear about their respective roles and work together where there is overlap. They should jointly ensure there is:
• succession plan
• continuous learning at both executive and board level
• diversity on both the executive team and the board, thereby encouraging new lenses and creativity.
They should both master the art of listening, not judging, to ensure open, positive and, when necessary tough, conversations. The chair should mentor and support the CEO, particularly when he or she is new and inexperienced. Later in the relationship, honest two-way feedback is important. The relationship must be underpinned by professionalism, integrity and trust.
Governance models change to reflect the evolution of the enterprise. But whatever an organisation’s life stage, its progress depends on the skills and personal qualities of its leaders and their ability to lead change while ensuring ongoing success. People, not structures, make organisations successful.
While I have focused on the traditional concept of governance and management, Irving and his co-authors suggest the benefit of board lies in the wisdom that its members bring to achieve the organisation’s mission. There are other models. less formal advisory board can be used to provide expertise, advice and access to relationships. group of young Australian entrepreneurs have, they told me, established “board of mentors”, allowing “wise heads” to provide wisdom while remaining free of any responsibility for business outcomes.
Governance is challenging and dynamic environment, and all organisations have slightly different governance needs. There is, however, one common requirement whatever the model. Good leaders must create and work together in trusting environment to drive success. If your governance model isn’t working, start changing it now.

Jo Brosnahan is chair of Leadership New Zealand and professional director.

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