Guest blogger: Mark Johnson is a solicitor and company secretary helping charities, social enterprises and SME businesses to flourish. His company Elderflower Legal offers a range of support packages to help organisations with legal compliance, managing risk and good governance.
Corporate governance has received increased attention in recent years as a result of high-profile scandals involving abuse of corporate power and, in some cases, unlawful activity by corporate officers. Governance is all about the way the organisations are directed, controlled and held accountable to deliver their purpose over the long-term. The organisation’s practices and procedures should be organised so that the organisation achieves its mission and goals, whilst complying with the law and sound ethical practice.
Putting in place a well-defined and enforced governance structure can provide a structure which works for the benefit of everyone concerned, by ensuring that your organisation adheres to accepted ethical standards and best practices, as well as formal laws. However, it is important that the systems are proportionate to the size of the organisation and the risks it faces. We set out below our ten top tips for effective governance.
Positive benefits of good governance include:
- People will trust your organisation (including members, service users, funders, suppliers and the public), leading to improved trading terms
- The organisation will know where it is going
- The board will be fully connected with members and wider stakeholders
- Good and timely decisions will be made
- The Board will be better able to identify and manage risks
- The organisation will have greater resilience to cope with problems
- The organisation should enjoy improved financial stability
In our experience, there are common areas that often cause difficulties for organisations. Here are our ten top tips for effective governance.
- Mistakes at the start
When setting up a new organisation it is important to have a clear shared view of the vision and mission for the organisation. It is important to plan ahead and bring your supporters with you. Think carefully about your strategy from the start and articulate the vision continually to all your stakeholders. (A stakeholder is any individual or group who depends on the organisation to fulfil their needs and on whom the organisation depends).
- Choose the right legal format and corporate structure
Think about what you want your organisation to achieve and choose the right format. Take professional advice and learn from what others have done. Don’t let the tail wag the dog. When selecting a legal format, form should follow function, structure follows strategy. First decide what you want to do, then choose the right structure which facilitates this. Don’t rush into setting up one particular format without understanding what the choices and implications are. It can be expensive to unravel the wrong choice. Professional advice is a sound investment.
- Clarity of roles
There may be many roles in a complex organisation. It is important to have clarity about the responsibilities of the Board, individual directors, officers and managers. Write down the key responsibilities and draw up a structure chart and scheme of delegation so that everyone knows who is responsible for what and who has the authority to take decisions. Role descriptions should be easy to understand and new joiners to the organisation should be offered an induction. Roles and responsibilities should be reviewed annually, perhaps as part of an individual appraisal.
- Poor Board performance
Board members may fail to perform effectively unless they have the right training and skills and a proper understanding of what their role is (in a documented role description). This can have a knock-on effect on the rest of the organisation, if it is not tackled effectively. There should be regular skills audits of the Board to ensure they are performing well. Group training session can be run to remind the Board of their role and continually improve their skills. A regular formal review of the Board’s effectiveness facilitated by an independent observer can be a useful tool for improvement
- Recruitment and succession planning
You need to attract good people onto your board with a wide range of skills. If you have skills gaps and vacancies this can lead to ineffective performance or lack of scrutiny. Cast the net wide in looking for new and diverse talent and plan ahead to refresh the Board at regular intervals. Proper training and induction should be provided to would-be recruits to the Board. Allow them to attend a few meetings as an observer before taking the plunge.
- Ineffective meetings
Regular meetings to enable a proper exchange of views are very important to good governance. In a fast world, where digital communication is becoming the norm, some of the nuances of physical meetings, body language and interaction can be lost. Meetings need to be properly run, with a clear agenda and board papers circulated in advance, at regular times and accessible venues. Attendees should not leave feeling unclear about what has been decided; concise minutes should be prepared and circulated promptly after the meeting. The Chair plays a vital role in running effective meetings, supported by a good company secretary.
- Dominant founders
Sometimes the original founder of the organisation, a long-serving Chief Executive or Chair may have undue power or influence. Sometimes they may take on too much responsibility and spread themselves too thin. It is important to document the roles and responsibilities of key officers, including the limits on any delegated authority to make decisions (e.g. financial limits on payments, requirements for second signature etc). It is a good idea to write into the constitution a requirement for certain appointments to be refreshed every few years.
- Mission drift
If an organisation starts to drift away from its core mission or principles, this can cause a sense of confusion and disengagement for board members, employees, members and customers. There could be a variety of reasons for this. Funding streams or contracts may encourage managers to move into new areas of activity. It is important for the Board to continually review whether the organisation is still fulfilling the objectives written into its constitution. The constitution may need to be reviewed and refreshed to cater for change and this will usually require the members to vote in favour of the change.
- Engagement with members and stakeholders
Members and stakeholders need to feel that their voice counts and need to be kept regularly informed about the organisation’s activities. The board must be accountable to and represent the interests of the membership and service users effectively, otherwise a division can arise. This relies on transparent rules and reporting lines, as well as effective regular communication by the Board to keep all stakeholders informed. Members’ meetings should be appealing and easy to attend – think about possible incentives to get people to attend. Cadburys used to give away free chocolate to shareholders who attended its AGM!
- Deal with conflict swiftly and decisively
Conflicts occur in most organisations from time to time. Unfortunately, disagreements can quickly escalate and cause rifts within the organisation as positions become entrenched. Conflicts are not always a bad thing- they can help to bring issues to the fore and lead to better debate. The Board, usually through the Chair, needs to deal with conflicts diplomatically, mediating between the different parties to achieve a positive outcome.