Definitions of Governance – most are no more than consultant speak or gobbledygook

This will be the first in a series of posts that I discuss governance.

I work with organisations on many levels. Very often I am working with a Board or a CEO, or working on helping the two work together, or I am facilitating leadership programs with people in these roles.

I do this in both the Not for Profit sector and the for profit sector.

The most common questions and comments (and probably confusion) I receive revolve around Governance.  Most of the so called definitions are more than consultant speak or gobbledygook. In my opinion there is no simple universal definition or formula for good governance.

The concept of corporate governance is difficult to define precisely, it covers a large number of concepts and interactions that affect many people at an array of levels.

The Organisation for Economic Co-operation and Development (OECD) has the following working definition of corporate governance:

“Corporate governance is the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as the Board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provides the structure through which the company objectives are set, and the means of attaining those objectives and monitoring performance.”

Gobbledygook if I ever read it.

In 1991 Lord Cadbury Report in the United Kingdom did a little better by defining governance as:

“The system by which organisations are controlled, governance, is concerned with structure and processes for decision making, accountability, control and behaviour at the top of an entity.  It influences how the objectives of an organisation are set and achieved, how risk is monitored and addressed and how performance is optimised.

• Boards of Directors are responsible for the governance of their companies
• Members’ role in governance is to appoint the Directors and the Auditors and to satisfy themselves that an appropriate governance structure is in place.”

This definition still doesn’t give me too much to inspire and relate to people what Governance really is. So let’s look at the characteristics of good governance. These are agreed to by most of the experts on governance.

Good governance consists of:

• Discipline – commitment by the organisation’s leadership to widely accepted standards of correct and proper behaviour.
• Transparency – the ease with which an outsider can meaningfully analyse the organisation’s actions and performance.
• Stewardship – being the current custodians.
• Integrity – others can rely upon what you say.
• Independence – the extent to which conflicts of interest are avoided so that the organisation’s best interests prevail.
• Accountability – addressing stakeholder/shareholder’s rights to receive and query information relating to the stewardship of the organisation.
• Responsibility – acceptance of all consequences of the organisation’s behaviour and actions and a commitment to improve.
• Fairness – acknowledgement of, respect for and balance between the rights and interests of all stakeholders.
• Social responsibility – the organisation’s commitment to ethical standards and its appreciation of the social, environmental and economic impact of its activities on the community.

For me the characteristics above are relevant to Not for Profits, SME’s and large listed public companies. As an organisation grows in size and influence, these issues become increasingly important. I also believe that politicians (at all levels) should use them as a guide fir decision making.

It is important to recognise that good governance is based on principles underpinned by continually developing notions of good practice. There are no absolute rules which must be adopted by all organisations.

Unfortunately there is no ‘one size fits all’ formula for good governance.

Advisors like me need to encourage organisations to give appropriate attention to the characteristics above and adopt approaches which are tailored to the specific needs of their organisation at that point in time. Remembering that what is relevant and appropriate today, maybe irrelevant and inappropriate in five years’ time.

So what do I say when asked what is the definition of good governance?

I say “Governance is a concept too difficult to define, because it covers:

• A large number of concepts
• Relationships that affect many people
• At an array of levels

A strong governance culture is about how the organisation is:

• Directed;
• Controlled;
• Held to account; and
• How those with responsibility to direct and control its affairs by embracing:
  • Authority;
  • Accountability;
  • Stewardship; and
  • Leadership.