Notions of Governance
Different men seek after happiness in different ways and by different means, and so make for themselves different modes of life and forms of government.—Aristotle
You can only govern men by serving them.—Victor Cousin
A Short History of Corporate Governance
Whenever an institution malfunctions as consistently as boards of directors have in nearly every major fiasco of the last forty or fifty years it is futile to blame men. It is the institution that malfunctions.—Peter Drucker
Transparency is often just as effective as a rigidly applied rule book and is usually more flexible and less expensive to administer.—Gary Hamel
A Scrapbook Collection of Gremlins
The difficulty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds.—John Maynard Keynes
• Cognitive dissonance about the mission of the organization | • Cognitive dissonance about its vision | • High turnover of the board of directors and chief executive officer |
• Cognitive dissonance about the role of the board of directors | • Insufficient understanding by board members of duties and liabilities | • Tenuous understanding of financial statements |
• Unresolved conflicts between board members or between the board of directors and the chief executive officer | • Insufficient understanding of roles of officers or how one becomes one | • The current practice or structure of the board of directors do not match the by-laws |
• Confusion over conflicts of interest | • A superfluous number of committees | • Committees that are not engaged in inconsequential work |
• A board of directors that is primarily run by the chief executive officer | • Rubber-stamping by the board of directors | • Micromanagement by the board of directors |
• Analysis paralysis | • Insufficient strategic vista and competing priorities for the board of directors | • A board of directors that works well but focuses on unimportant issues |
• Lack of unity once board members leave the board room | • Low attendance at board or committee meetings | • Ineffective board or committee meetings |
• Information that is inopportunely or inaccurately presented to the board of directors | • Lack of clarity on role of the board of directors vis-à-vis staff | • Poor relationships with shareholders and stakeholders |
• Insufficient involvement of or consultation with members of the organization | • Staff burnout or volunteer fatigue |
Building Better Governance in the Public Sector
Sourcing and Inducting Directors
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The core competencies of directors Concern for both conformance and performance requires, respectively, that directors be equipped with short-term organizational efficiency and long-term organizational effectiveness competencies. The conformance-related functions of boards of directors demand abilities in supervision of management and accountability. Their performance-related functions call for aptitudes in policy formulation and foresight as well as strategic thinking. To help boards of directors become more effective, the Institute of Directors (2002) has suggested what personal attributes directors may need (i) strategic perception, (ii) decision-making, (iii) analyzing and using information, (iv) communication, (v) interacting with others, and (vi) achievement of results. The areas of knowledge it recommends directors be learned in are (i) the role of company director and the board, (ii) strategic business direction, (iii) basic principles and practice of finance and accounting, (iv) effective marketing strategy, (v) human resource direction, (vi) improving business performance, and (vii) organizing for tomorrow.
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Induction of new directors New directors must also be given the right preparation to do their job. A principle of the UK Corporate Governance Code is that all directors should receive induction on joining the board. (They should also regularly update and refresh their skills and knowledge). The objective of induction is to inform an individual in such ways that he or she can become as effective as possible in the new role as soon as possible. Obviously, directors vary in the extent of their preparedness. The essential point is that their induction should be planned with care, with a program of site visits and meetings with both major shareholders and management. (The UK Corporate Governance Code gives the chair of the board of directors responsibility for agreeing and reviewing a learning and development plan for each director.) New directors must be thoroughly conversant and competent in their knowledge of the organization, its business, and associated financials.