Knowledge
Recent Developments in Governance
The past 15 years has seen ever-increasing interest in the integrity and effectiveness of corporate governance, firstly in the business sector with the Cadbury, Greenbury and Hampel reports, and in governmental organisations with the Nolan Committee amongst others. In the voluntary sector, organisations such as BoardSource in the US and NCVO in the UK picked up where these committees and reports left off. The National Housing Federation and the Housing Corporation have also done much work.
The emphasis has been on how to increase the effectiveness of boards and their crucial role in providing accountability and building and maintaining public trust.
The spotlight has been firmly placed on the performance of boards and therefore of individual board members, including the chair. Boards need to be able to demonstrate that they add value, that they have the skills and expertise to steer their organisations through a rapidly changing world and that they listen, understand and respond to all their stakeholders. Meanwhile, organisations are having to work harder to attract and keep good Board members, with the skills, commitment and time to devote to the increasingly complex job of governance.
Trends in governance
The nonprofit sector is diverse and the governance arrangements adopted by different organisations are therefore very varied. There is no one model that can be applied to all organisations. However, there have been some observable trends over recent years:
- Smaller Boards (12-18 people)
- Fewer formal sub-committees and more time limited working groups or advisory groups with clear remits
- Greater distinction between the job of governance and mechanisms for consulting members or other stakeholders
- Adoption of more rigorous processes for attracting and recruiting Board members
- Higher expectation around diversity and user involvement on Boards
- Increased attention to reviewing the performance of Boards and individual Board members
- Recognition of the importance of partnership and complementarity between the Chair and Chief Executive
- More codes of practice and written terms of reference.
Governance – theory and practice
Compass Partnership’s experience, both in practical work with voluntary boards and in developing policy thinking about governance, demonstrates that ‘models’ and ‘textbook solutions’ can prove very useful in enabling organisations to understand and develop their governance systems. However, every organisation and every Board also has its own unique characteristics and these are not always reflected in textbook models.
Many organisations experience a sense of frustration with their governance system and a realisation that there is a gap between the theoretical roles of boards and what happens in practice.
In seeking to improve existing governance arrangements, or develop new ones, experience tells us that as much time and effort should go into developing the processes, skills and shared understanding amongst board members and senior managers as is put into finding an appropriate governance structure.
Moreover, we have found that every individual brings their own particular beliefs or mental pictures about how Boards should work and what their roles are – and that it is critically important that these beliefs are brought to the surface.
To summarise, experience tells us that successful boards tend to:
- Clarify their critical functions
- Ensure that their role is strategic and outward-looking
- Create appropriate decision-making processes
- Choose their members for both skills and representation
- Manage their governance processes tightly
- Develop effective Chair - CEO relationships
- Develop the trust and respect that is necessary for constructive debate and creative tension
- Take responsibility for reviewing their own performance and developing their governance skills.