Organisational effectiveness from better governance

This paper looks to challenge any perception that New Zealand has an effective and efficient approach to governance practices and suggests that a review is long overdue.  The paper outlines new approaches that will challenge organisations and directors to step outside current paradigms and those of the past.  More importantly, it addresses the direct linkages between board competence and organisational results.

There can be no denying that the cost of ineffective organisational governance is immense and, in small economies like New Zealand, crippling to overall development and economic viability.  We are seeing this on a global scale in 2009 as the world faces recessionary conditions.

There is limited literary work on the subject of governance practices in New Zealand. Instead more focus has been placed on the role of the Chief Executive (CEO) within organisational delivery frameworks.  This is indicative of the almost “taboo” from performance scrutiny status afforded Boards.

Under current New Zealand Employment Law it is more critical than ever before, that poor performing CEO’s are provided with objective feedback on their performance, up-skilling and support in order to ensure that they achieve the required results.  However Boards are seldom afforded the same considerations.  Generally poor performing Boards are replaced rather than reviewed to see how maximum performance can be achieved.  Worse, poor performing Boards are visited, by the principal stakeholders of the organisation, on CEOs whose efforts, on behalf of organisation owners and staff, are frustrated by poor Board performance.

The reason is simple, little or no consideration is given to applying the following structured approach when the development of any governing body is being considered.

“Ends” – who is the Board operating on behalf of and what do those stakeholders/owners wish to see achieved?  What is the organisation’s contribution to the community, to society, to employees.

While theoretically simple in nature, the application of such an outcome is not always easy to achieve.

The first stage is undoubtedly the most difficult.  Generally it will be argued that it is the Board’s role to define these parameters. This is not so and, while consistently normal practice, such an approach inevitably ensures there will be a range of disenchanted stakeholders.  From the beginning the Board’s energy is then distracted to minimising the potential outfall.

To achieve better governance and therefore more effective outcomes for the organisaton this process must be independently undertaken.

Appointment process for Boards

The second most crucial area of failure is the Board appointment process.  Too often appointments are made for the wrong reason:

• The appointee would make a good figurehead;
• Political expediency;
• Close associate:
• Need to have majority stakeholder control (indicator of poor governance)
• Unwitting volunteer (generally the case in non-profit organisations)

Yet the real questions that should be addressed are sadly often overlooked

• What skills will the particular person bring to the organisation
• What experience do they have
• Will independence be required

John Carver once described in his best seller “Boards that make a difference” that unfortunately Governing bodies are generally “incompetent groups of competent people”.  This can largely be attributed to poor governance and not identifying, seeking and using the skills of individuals that best suit the organisational structure.

Defining Roles and Strategic Direction

Having disciplined the development by the above principles then once established the Board’s focus can automatically turn to defining its core role and the overall strategic direction of the organisation.  At this point it is important to ensure mixing of the Board’s core role with strategic direction does not occur.

The core role of the Board is a simple one

1. To develop strategic direction to meet the outcomes/objectives sought by the stakeholder and give clear direction to its CEO
2. Establish operational governing policies for the CEO to work within
3. Appoint and monitor the performance of the CEO against the overall strategic direction and job requirements.
4. Monitor that the Board’s Strategic Direction still matches the stakeholder objectives and make changes where required.

Responsibility Framework

“Ends”             (Stakeholders)

Strategic Direction        (Governing Body)

Policy Governance    (Governng Body)

Appoint CEO        (Governing Body)

Delivery            (CEO)