Off the Press
Good governance arrangements are necessary to ensure an organization functions properly. That's true in all sectors - public, private and not for profit.
Well over a decade of management consulting experience has given us some unqiue insights into governance issues across a wide variety of different organizations.
In the course of our advisory work we have reviewed a wide range of governance systems across a number of different organizations - from small specialised companies to large corporations. Through this work we have developed a sound understanding as to why governance systems fail.
Our experience is that the occasional (and some one would say, inevitable) misstep within an organization does not necessarily indicate a failure of governance. There are many forces at work within a governance system and the points of exposure within that system are almost infinite. The implication is that a fail proof governance system cannot be designed. In fact, we suggest an important role of any governance system is to help reveal and pose corrective action on the "missteps" and to make sure the organization internalizes the lessons from that experience.
One particular issue of relevance to public sector organizations is the lack of clarity as to what constitutes a failure of governance in that sector. Our work in the public sector suggests different stakeholders can hold markedly divergent views on whether there has been a governance failure and the materiality of the failure. In contrast, it is generally clear as to what constitutes a failure of governance in private sector organizations and how that failure might be measured.
From our field experience in client organizations we conclude the most significant contributing factors to failures in governance systems are:
- A lack of clarity about the purpose and scope of governance - Detailed governance arrangements often look promising when shown in diagrammatic form, but are far less convincing when tested with some simple questions like: What is the objective of this particular governance group? What business is it to consider? How will it be supported? How does its work relate to other governance groups in the organization? A frequent conclusion we reach is that organizations often do not have a comprehensive and shared understanding as to what its governance arrangements are there to do.
- A failure to regularly and purposefully assess the performance of the governing body and its supporting structures - The performance of the governing body (whether that be the board of directors, the executive board, the leadership team etc) is frequently not critically evaluated. Yet the governing body is one of the most important work groups within the organization. Similarly the performance of the supporting structures (such as committees and the performance of the individuals who sit on them) is often not properly scrutinized.
- Inappropriate interpersonal relationships - More than any other system within an organization, governance is about people. When relationships are overly competitive, inappropriate or otherwise in conflict for any number of reasons, governance systems are more likely to fail.
- Adverse organizational culture - Inwardly focused cultures which regard those outside the organization with suspicion are more susceptible to failure. Successful governance is, in large part, a cooperative effort and governance is sustained by a cultural willingness to listen to and to learn from one another.
- The inability to adapt - A failure to learn and to adapt quickly to changed circumstances, including poor risk management and contingency planning procedures dramatically raises the exposure to governance failure.
If we were asked to choose just one contributing factor from the above list it would be the existence of an adverse organizational culture. In our view good governance requires an organizational culture that promotes openness, clarity, unity, competence, diligence and ethics. Without that good governance is going to be problematic at best.
If you would like to drop us a note sharing your thoughts, or to ask about implications of the above for your organization then please Ask Arrowhead or contact either dean@arrowhead.co.nz or our colleagues at The Enterprise Group LLC (jim.hines@tegonline.com).