Governance #3: A Model Example- Fundamentals for Success
Building Blocks of a Governance Framework
The focus of this back to basics series is about ensuring good governance that is practical, business enhancing and fits the needs of an organisation.
This, the third article in our governance series, looks at the essential building blocks of a governance framework for an organisation. Whether you are a large or small organisation, a partnership or a charity there are some building blocks that will be similar for all. Requirements at higher a level will be necessarily different based on organisational size, complexity and need.
In our first article we discussed what we mean by governance and where to start in implementing or remedying a governance framework. Our second article looked at various governance codes and guides and discussed how you might apply one of them, if any, to support your organisation. The theme running through both these articles is that there is no ‘off the peg’ or ‘one size fits all’ framework.
Good governance helps organisations fulfill their purpose and meet obligations, whilst constantly challenging them and stretching them to do better. However, adopting a gold standard, such as with the 2018 Governance Code, may be too much of a stretch for your organisation, process may outweigh benefit and put an unnecessary burden on limited resources. While components will be similar across many organisation, it is the functional outcomes specific to you that are important.
Components of a Governance Framework
When we are asked to undertake due diligence or review governance requirements with our clients we start by looking for several key components to see if they exist and to what extent; to understand needs, if they are being met and how effectively. The diagram below describes what we look to identify as a first step.
The framework of an organisations governance. The management & control functions of board, management & if we have them committees. Their respective rules of operation, mandates, inter relationships and reporting requirements. How the internal structure relates to shareholder and stakeholder functions & structures.
B. Oversight Responsibilities
The required board, committee & management roles and functions, their authorities and accountabilities and success measures?
The information that needs to be passed outside and up and down the organisation and how effectively it’s done? Knowing who should have the authority to manage that information and who should have the authorities to make decisions relating to it?
C. Purpose, Culture & Talent
Ingraining governance as a core constituent of organisational purpose, operational and business principles and outcomes. Being able to articulate and demonstrate the core beliefs, culture, ethics and approach to risk of the organisation.
The development, retention, assessment and succession planning of leadership and the alignment of incentives and compensation with performance.
The alignment of technology and data outputs with governance. The frequency and type of reports and communications including scorecards, measures and KPI’s.
The organisations policies, procedures and operating principles.
In our next article we’ll be discussing the renewed focus on the statutory duties of directors since the introduction of reporting requirements to the Companies Act and UK Governance Code in 2018.
Governex is an ESG advisory business that helps businesses with corporate governance as well as answering the question of how they make positive contribution to the environment and social issues.
We help organisations implement the right shift in focus from a purely financial commitment to include environmental, social and governance commitments. All in the context of meeting business purpose, strategy, integrity and diversity.
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