Promising Practices in Governance

Promising practices for Boards that will benefit every organization:

• Nose in, hands off
• Build a robust and qualified board of directors and evaluate the performance
• Define roles and responsibilities
• Emphasize integrity and ethical dealing
• Evaluate performance and make principled compensation decisions
• Engage in effective risk management

Nose in, hands off

This is not an invitation for the Board to micromanage staff. It is proper governance role for the Board. Except in circumstances in which a committee or task force of the Board assigns itself a role, leave the execution to management and staff.

Build a robust and qualified board of directors and check the performance

Have eligible directors who are knowledgeable. have ability relevant to the business are competent, have strong ethics and integrity, diverse backgrounds and skill sets, and enough time to commit to their duties.

• Regularly review Board and Board Committee mandates
• Assess whether Directors are fulfilling their duties, and undertake meaningful evaluations of their performance
• Identify gaps in the current director complement and the ideal qualities and characteristics
• Keep an “ever-green” list of suitable candidates to fill Board vacancies
• Majority of directors are independent
• Develop an engaged Board where directors ask questions and challenge management and do not just “rubber-stamp” management’s recommendations
• Educate directors. Give new directors an orientation to familiarize them with the business, their duties and the Board’s expectations; reserve time in Board meetings for on-going education about the business and governance matters

Define roles and responsibilities

Establish clear lines of accountability among the Board, Chair, CEO, Officers and management:

• The Board sets the tone at the top, emphasizing the need for sound governance, compliance, and risk management
• Delegate certain responsibilities to Board committees include: audit, nominating, compensation and governance committees
• Develop written position descriptions for the Board Chair, Board committees, the CEO and officers
• The Chair leads the Board and ensures it’s acting in the organization’s long-term best interests
• The CEO leads management, develops and implements business strategy and reports to the Board

Emphasize integrity and ethical dealing.

Directors must declare conflicts of interest and refrain from voting on matters in which they have an interest. Create and cultivate a culture of integrity in business dealing and of respect and compliance with laws and policies without fear of recrimination is critical.

• Adopt a conflict of interest policy, a code of business conduct setting out the organization’s requirements and process to report and deal with non-compliance, and a Whistleblower policy
• Monitor these policies and procedures

Evaluate performance and make principled compensation decisions. The Board should:

• Set directors’ fees that will attract suitable candidates, but small enough to avoid conflicts in a director’s independence or discharge of her duties
• Establish measurable performance targets for officers (including the CEO), regularly assess and evaluate their performance against them and tie compensation to performance
• Compensation Committee composed of independent directors to develop and oversee executive compensation plans (including equity-based ones like stock option plans)

Engage in effective risk management.

Regularly find and assess the risks they face, including financial, operational, reputational, environmental, industry-related, and legal risks:

• The Board must ensure that the staff has a risk management process in place
• The Board is responsible for strategic leadership in establishing the organization’s risk tolerance and developing a framework and clear accountabilities for managing risk
• Maintain a risk register and list the adequacy of the systems and controls management puts in place to identify, assess, mitigate and monitor risk
• Directors are responsible for understanding the current and emerging short and long-term risks the organization faces and the performance implications
• Challenge management’s assumptions and the adequacy of the organization’s risk management processes and procedures, If you answer “no” to any of the following questions, consider changing your ways.

Questions to ask:

• Have you determined whether your organization has a risk management process?
• Do you have a risk register? Is it up to date?
• Do you review and evaluate the organization’s most significant threats and opportunities periodically?
• Do you expressly set and model a tone of compliance and stewardship for the organization?

Our governance alignment program is essential to ongoing good governance at your organization. Our post Goal Alignment Program – A Breakthrough in Governance Analytics provides you with insights on GAP and how it can optimize your organization.