Boards have a responsibility to represent their shareholders’ interests at all times. In doing so, they need to demonstrate the attitudes and possess the skills which ensure good governance of the organisation on behalf of those shareholders.
Good governance of organisations results in significant benefits. Poor governance results in significant detriments.
Searching the media through the internet reveals thousands of stories of poor governance of organisations. The spectacular stories often result from overt wrongful acts. However, in my experience, most boards have room for improvement in their governance capability, committing one or more of these seven deadly sins of board governance.
There is a lack of clarity regarding individual director responsibilities and the expectations of the organisation. There is overlap between the role directors play and the role the management play, often resulting in inappropriate micromanagement of the management team. There is no charter of expectations which clearly describes what the board will manage and what they will delegate to the management team.
The board does not have the skills required to effectively manage the risks for which they have accepted responsibility. They do not have the experience to challenge the plans of the management team. Or the board has the skills knowledge and experience required, but individual board members do not respect the skills and experience of other board members. There is little team work.
The vision and mission of the organisation are not deliberately set by the board and it has a laissez-faire approach to developing strategy, leaving it to the management team. The board has little impact on the setting of policies to reflect the mission of the organisation, again leaving it to the management team to create policy.
The board does not drive the assessment and evaluation of risks impacting the organisation and do not (through a charter of expectations) make it clear what risks it will manage and, therefore, what risks they are delegating to the management team.
Assessing the organisation’s ability to deliver on its mission is left to adhoc anecdotal analysis rather than setting indicators for specific performance categories or key result areas.
Board meeting are adhoc, with a meeting plan developed at the beginning of the year quickly becoming unrealised as directors’ availability emerges as an ongoing issue. Board performance and director performance is not assessed regularly to determine gaps in performance to be closed. The board does not have a succession plan, nor a view of the ideal competences of replacement directors. Sub-committees are used in name only, with little delegated power. Or in some cases, the opposite occurs where the sub-committees become all-powerful and the full board receives little of the detail needed to understand the sub-committees’ position on issues.
Information flow between the management team, the board and stakeholders is not managed in a systematic manner, with clarity regarding what needs to be communicated to whom, when and how.
The processes for making decisions is not clear to all involved in the process. The criteria by which decisions will be made is not documented in a statement of ethics for the organisation.
Information regarding decisions is closely guarded – to the point of ambiguity.
The board does not take an active role in communicating with stakeholders and ensuring that the broader organisation has the capacity and capability to engage and measure the effectiveness of that engagement.