Governance Q&A
Earlier this month, I was invited to do a series of board and governance Q&A sessions with various groups of business leaders. It was an open forum for these leaders to ask me anything about boards, governance, and all things related. Some bought along their board problems to seek my perspective on things, and some bought along common questions that many people have about boards and governance.
I selected a handful of these common board and governance questions to answer in this article, because if some of the best business brains in South Australia had these questions, chances are you have them too! Let’s start with one of the most common questions I received…
What is a board?
Usually what we think of when we talk about a ‘board’ is a ‘governance’ board. It is the collective term that we give to the company directors of a corporation. The company directors are appointed or elected to their position by the members (shareholders) of the corporation. Therefore, the company directors are there to manage the corporation and to make decisions that are in the interests of shareholders and in the best interests of the corporation. Company directors are responsible for the actions (and inactions) of the corporation and ensuring these comply with the laws and other requirements of the corporation. These vary greatly depending on the industry, size of the corporation, activities of the corporation, and other things.
You may have noticed that I have only really talked about the responsibilities of the company directors. That’s because corporations don’t have to have a ‘board’. They DO, however, have to have company directors (and the number of those required varies based on certain organisation factors, but will be specified in the corporation’s constitution).
In incorporated associations there is often a requirement to have a committee (or management committee, depending on the State or Territory where the association is incorporated) and sometimes a minimum number of members is specified. These groups are similar to a ‘board’ in a corporation and its members bear similar duties and responsibilities.
Sometimes a board can also have another name. These can include Council, Board of Trustees, Governing Board, or Board of Governors.
What isn’t a board?
The most common non-Board group is an Advisory Board. This type of board is not intended to (or meant to) have a governance role in an organisation. The members of this type of group are usually engaged by the business leader (generally the business owner or founder, and sometimes the chief executive officer or similar position) and are selected based on their experience, network, investment, or a combination of those. The purpose of this group is to provide the business leader with suggestions (‘advice’) on what the business leader could do within the business across a wide range of situations and circumstances. It is then up to the business leader whether they act on these suggestions or do their own thing. The advisory board members do not hold the business leader accountable to follow their suggestions (like a Board of Directors would in governance board context).
Advisory Board members need to be careful that they do not behave as a governance board. The line can be thin, so it is critical it is not crossed.
What is the difference between a board and a committee?
We saw in question one that a Board and a Committee can mean a very similar thing, albeit one is within a corporation context and another is in an association context.
However, a Board of a corporation may have committees. These are small groups of board members (and sometimes external people) who come together regularly to work on specific areas of governance. These can include risk management, audit, governance, nominations, remuneration, and other types of working groups valuable to a particular Board and organisation. They do the detailed work on behalf of the Board, bringing recommendations to the Board for ratification. Committees in this context usually do NOT have decision-making authority.
In associations, the primary Committee (or Management Committee) can also have similar working groups to those listed above. However, because the main Committee is referred to as a ‘Committee’, these working groups are called Sub-Committees. They function in much the same way, they are just called something a little different due to the vernacular used to describe the main governing body.
What is a high-performing board? How do you measure that?
At its heart, a high-performance board is one that knows its purpose and reason for being and has set up systems and processes to achieve that purpose. It knows the right people needed to achieve that purpose and has proactively engaged those people onto the Board and into their role. Those people know what they are there for and the expectations placed on them so that they can contribute to achieving the purpose of the Board. The Board’s performance – and that of individual Board Members – is measured against this purpose using relevant metrics and measures.
A webinar I hosted with BoardPro – Creating and Sustaining a High Performing Board – walks through the four pillars of a high-performing Board (people, information architecture, structures and processes, and group dynamics and Board culture) based on Didier Cossin’s book High Performance Boards: Improving and Energizing Your Governance.
What can go wrong with boards?
As we can see, a large proportion of a Board’s success (or not) comes down to the people around the table. After all, that’s all a Board is, individuals around a table. Added to this dynamic is the fact that the Board comes together intermittently, and usually to address high-level, intense, and important issues, and do so as a cohesive unit. I’m sure you can see, that without strong leadership, this can derail quickly and regularly.
Most of the troubles that Boards experience can be tracked back to ‘people issues’. We can’t rely on individuals to come together in this fashion and be able to work as a conducive unit without proactive leadership and systems. Even really smart people on Boards need these factors in the Board environment to thrive. When the people stuff is managed well, the governance stuff will easily get done.
It’s all about the people.
How does the board get involved with strategy and tactics, and how does this work with the management team?
Some of the best boards I’ve worked with and been on have approached strategic planning as a group effort with the Board and management involved in ensuring the best (in whichever way that is measured) strategy is set and everyone has buy in. The Board Members bring their expertise and the ambition to challenge management to bring the best ideas and recommendations to the strategy planning process. Management brings the day-to-day understanding of the capabilities and potential of the organisation, and ideas from their on-the-ground experience and engagement within their area of the business.
The Board will give final approval to the strategy and will ensure it is successfully implemented by appropriately allocating sufficient resources to strategic imperatives, ensure ethical and risk-appropriate behaviours, and maintain oversight of this implementation to ensure the organisation is recognising its strategic ambitions.
Management will bring real-time data and information to the Board for the Board to make the changes necessary to adapt strategic implementation based on progress, results, or shifts in the environment requiring a change in strategic activity. Whilst the Board won’t get overly caught up in the tactical aspects of the strategy, they will be interested – at a macro level – how the strategy is being implemented.
When does management need to ask permission to do things?
The Board usually allocates responsibilities and thresholds of these responsibilities to management through a Delegation of Authority policy and schedule. This outlines the responsibilities being delegated, to whom they are delegated to, and the extent of the delegation. A common example is a financial delegation, such as spending on a particular budget line item. A delegation will be given to a delegate, say, the CEO, enabling them to spend up to the budgeted amount on that particular budget item. Any spending required above that delegation will require Board approval. Any spending below the delegated level can be done without Board permission for each transaction. Even with certain delegations, if it related to something significant – for example, the CEO travelling internationally for work purposes – it may be worthwhile running this past the Chair in the first instance, just to make sure the CEO’s absence won’t interfere with other business activities.
I hope that has helped to deepen your board and governance knowledge. If you have a burning board question that I haven’t answered, please reach out using the contact form below.