Eight signs of good governance

In my opinion, good governance is all about sound board and senior management. This involves leadership strategies that ensure an organisation acts in a legal and ethical manner, and remains solvent. Here are my eight indicators of good governance:

1. The board is competent and engaged
The board should be comprised of some people with solid commercial skills and others with an expert knowledge of the field in which the organisation operates. In addition, board members should be engaged. This means that they are willing to take on various assignments and board meeting attendance levels will be high.

2. The board focuses on strategy, rather than management
It is important that the board focuses on vision, mission and medium to long term strategy. The board should also be in broad agreement with the CEO about how the strategic plan will be actioned but in general should pay attention to the results rather than how they are achieved. Allow the managers to manage!

3. Oversight of the CEO is sound
The board should establish annual Key Performance Indicators for the CEO and these should be regularly monitored as part of ongoing performance management. It is also important that the CEO feels supported by the board. Members of the board should regularly ask the CEO what they can do to help.

4. Documentation provided to the board is adequate and not excessive
Boards need appropriate information in order to make decisions and judgements. The quantity, type of information required by the board and presentation should be a matter for discussion reviewed at least annually. Providing too much documentation is just as bad as providing too little.

5. There is an adequate strategic plan
The old adage ‘if you fail to plan you plan to fail’ is so true! Every organisation should have a 3 – 5 year strategic plan that answers just three vital questions.

• Where are we now as an organisation?
• What do we want to look like in 3 – 5 years?
• What strategies are needed to enable us to make the transition?

Once completed it should guide the decisions and work of the entire organisation. Consider adding a regular board meeting agenda item called ‘Progress toward strategic objectives’. This will help keep the board and senior management focused on the important things!

6. The board is not too small, or too large
Boards should be large enough to be ensure a breadth and depth of required skills and knowledge but not so big that people get lost or don’t feel engaged. In my view, a board numbering between 7 and 9 people is about right.

7. Policies and procedures are in place and are properly reviewed and approved
These guide the way in which the organisation operates on a day by day basis and provide structure. So they are important and inadequacies in this area expose the organisation to risk.
Boards should ensure that the organisation has an up-to-date suite of administrative, financial and human resource management policies and procedures in place that are reviewed regularly. Amendments to policies should always be approved by the board.

8. Risk is being managed
Every organisation is vulnerable to events that may have an adverse impact. Good organisations understand the need to identify potential risks and then develop strategies to either eliminate or reduce them and their consequences.

I suggest developing a matrix where risks are rated in terms of the likelihood of them happening and the consequences that may result. Those risks that have a high likelihood of occurring and substantial consequences require most attention.

Julian McGrath

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