Thinking about one of the ‘golden rules’ of governance

It’s a long way from done but it’s already been an interesting year – by which we mean “interesting” in the sense of the curse “may you live in interesting times”!  Frankly, for our taste the last 12 or 18 months has been just a little bit too interesting!

Looking back a bit further, though, one of things that has not changed in all the years of our work together is that the same lessons tend to pop up for our clients no matter what sort of organisations they may be.

As long ago as the 2008 GFC, for example, when so many were bemoaning the financial situation, we had franchise groups and not-for-profits, tiny start ups and big commercial groups, all asking how to handle the growth that had surprisingly come their way and learning the lesson that growth can be a great deal harder to manage than decline.

On a much more routine basis, we get asked the same few handfuls of questions about good governance and effective decision-making – lessons we are very happy to share so that boards and executives can save themselves the tears already shed in the hard experiences of others.

That’s why we have regularly added to the materials available here as background reading – a cup of coffee and a bit of a ramble through a couple of those and clients are well on the way to asking better questions which will help them to get to the heart of their issues.

Most frequently requested?  There’s only a short half head between our wee summaries which help defuse the arguments about what governance is or why the board is always reading plans or what the board should be worrying about anyhow!

The moral of the story is that while the unique details of each organisation matter for finding an appropriate answer to their questions, no organisation is entirely unique – so the overarching elements of governance are very nearly always relevant, even if how they play out is tailored to the circumstances.  That starts with remembering that the board is there to govern, and not to manage, even though so many boards are made up of people who are accomplished executives in their own field.

On that note, and at a time when everyone from banks to the UN to movie-makers to churches are being named and shamed for what they failed to govern, and then failed to fix when the failure of governance came to light, our thought for the week is from our ‘golden rules’ of governance – guides for boards and executives that, from our experience, are almost ubiquitously applicable:

Do or review, but not both. 

Reviewing your own decision is a conflict of interests.

No matter what the organisation does, who owns it, or how it is set up to operate, sound supervision is the bedrock of realising good governance.  We need to trust the decision-makers that we appoint, but the wisdom of ‘trust, but verify’ never gets old.*

For a typical example, that sort of supervision means that a regime for ensuring decisions are reviewed is always appropriate, and the more qualitative the judgments involved in the decision, the more it usually warrants a review.

That much said, a review won’t achieve much unless it is separated from the original decision-maker.  In many cases, a review will need to hear from those accountable for the decision and those affected by it, but the review itself should not involve them as such.  Put another way, being involved in making a decision gives you an interest in it, being involved in a review of that decision is an interest in that – ergo, doing both means you have a conflict of these interests.

This does represent some challenges in a micro-business, but, in anything bigger, this should be a particular consideration in structuring the roles and responsibilities of everyone from the board room to the shop floor.

Sad to say, even in well-governed organisations serious problems do bob up – so if they do, the more egregious the situation, the further away from those involved the review needs to be.  That is why we never hesitate to recommend involving the police if there is any allegation of unlawful conduct, to ensure that there is no possibility of sweeping things under the carpet – or indeed, just being seen to do so.

On a lighter note, a thoughtful allocation of ‘doing’ decision-making and ‘reviewing’ decision-making not only gets you a long way towards good governance, it often clears up workload by the process of being clear about who really needs to be involved in a decision, and who is playing some other role – this readily becomes visible when the purpose of the decision is picked apart in more detail. In the same vein, one form of supervision is reporting, which works very well if the decision-maker who wants the report remembers to define what it is that they want to review.  More on those two another day.

 

 

*Not without a truckload of irony, thanks to (ex-USA President) Richard Nixon for that one.