Poor Governance…The 8 Danger Signs!

There are many definitions of ‘Good governance’, but for me it’s really about the leadership (Board and senior management), ensuring that the organisation acts in a legal and ethical manner..and remains solvent!

My experience in working with numerous not-for-profit organisations over many years suggests that there are a small number of very clear indicators and predictors of poor governance. Do any of these apply to your organisation? I hope not.

Here they are:

1. The board is incompetent or disengaged The board should be comprised of some people with solid commercial skills and others with an expert knowledge of the field in which the organisation operates. In addition board members should be engaged. This means they are willing to take on various assignments and board meeting attendance levels will be high.

2. The board focusses on management rather than on strategy It is important that the board focusses on vision, mission and medium/long term strategy. It should also be in broad agreement with the CEO about how the strategic plan will be actioned but in general should pay attention to the results rather than how they are achieved. Allow the managers to manage!

3. Oversight of the CEO is poor The board should establish annual Key Performance Indicators for the CEO and these should be regularly monitored as part of ongoing performance management. It is also important that the CEO feels supported by the board. Members of the board should regularly ask the CEO what they can do to help.

4. Documentation provided to the board is inadequate or too voluminous Boards need appropriate information in order to make decisions and judgements. The quantity, type of information required by the board and presentation should be a matter for discussion reviewed at least annually. Providing too much documentation is just as bad as providing too little.

5. There is no adequate strategic plan or if there is, it is not followed The old adage ‘if you fail to plan you plan to fail’ is so true! Every organisation should have a 3 – 5 year strategic plan that answers just 3 questions. Where are we now as an organisation? What do we want to look like in 3 – 5 years? What strategies are needed to enable us to make the transition? Once completed it should guide the decisions and work of the entire organisation. Consider adding a regular board meeting agenda item called ‘Progress toward strategic objectives’. This will help keep the board and senior management focused on the important things!

6. The board is too small, or too large Boards should be large enough to be ensure a breadth and depth of required skills and knowledge but not so big that people get lost or don’t feel engaged. In my view a board numbering between 7 and 9 people is about right.

7. Policies and procedures do not exist or have not been properly reviewed and approved These guide the way in which the organisation operates on a day by day basis and provide structure. So they are important and inadequacies in this area expose the organisation to risk. Boards should ensure that the organisation has an up-to-date suite of administrative, financial and human resource management policies and procedures in place that are reviewed regularly. Amendments to policies should always be approved by the board.

8. Risk is ignored or not managed Every organisation is vulnerable to events that may have an adverse impact. Good organisations understand the need to identify potential risks and then develop strategies to either eliminate or reduce them and their consequences. I suggest developing a matrix where risks are rated in terms of the likelihood of them happening and the consequences that may result. Those risks that have a high likelihood of occurring and substantial consequences require most attention.