Governance has been a concept that has captivated us for centuries. From the governance of nations to the governance of corporations, to this day we still seek to better understand the critical components that allow people to govern better. In this blog, we will discuss the concept of organisational governance, the warning signs of poor governance and the seven critical components that make up successful organisational governance.
What is Organisational Governance?
Also known as corporate governance, organisational governance is the underlying approach that defines how an organisation makes decisions and how those decisions are implemented.
It aims to answer two critical questions for an organisation – ‘What needs to be achieved by the organisation’ and ‘why this is important to the organisation’.
The OECD has an extensive definition for organisational governance as:
“ the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provides the structure through which the company objectives are set and the means of attaining those objectives and monitoring performance.”
In the project management world, governance is often discussed in terms of project governance. However, decisions are not only being made at a project level but across all levels of an organisation. As a result, the limiting view of governance as being a project-based mechanism fails to recognize that it is first, a subset of organisational governance, and second, that it can only truly be effective when applied on an enterprise scale. Organisational governance helps form the backbone of how all decisions are made consistently and promptly within an organisation.
Read more: Organisational Governance
Good Organisational Governance starts from Good Governance
For there to be good organisational governance, an organisation must first secure the foundations of good governance.
In our previous post, we identify eight essential elements of good governance that are enshrined within the eight characteristics of good governance determined by the United Nations.
Good governance needs to be:
- Effective and efficient
- Equitable and Inclusive
- Follows the rule of law
You will find that many of these core elements are translated and embedded into the critical components of successful organisational governance.
Read More: The 8 Elements of Good Governance
The 7 Critical Components of Good Organisational Governance
So what constitutes good organisational governance? Though not limited to these components alone, we have identified 7 critical components that make up good organisational governance
1. Establish a competent board
While organisations often have separate governance committees and bodies, board members often make up the large majority of those seats and are ultimately the key decision-makers. Establishing a competent board enables organisations to foster long-term vision and ensure the long-term interest of stakeholders are always taken into account. Having a diverse and equitable board that represents different stakeholders is critical.
Additionally, it is not only important to establish the board but to also make sure all their roles, responsibilities and accountabilities are clearly defined to not only abide by legal regulations but to also ensure there is clarity throughout the entire organisation.
2. Ensure board independence
While the board should represent a diversity of voices, it must also remain objective and impartial to external influences. This not only reduces conflict but ensures that decisions are being made without excessive bias. At times, the longer the individual has been on the board the harder it may be for them to be completely unbiased due to the relationships and dynamics they have built over the years that can influence their decisions.
3. Enforce regular performance reviews and self-evaluation
Establishing good governance is not a simple one and done activity and requires continual evaluation and adaptation to achieve its full potential. In order to achieve good organisational governance, organisations must have robust learning and evaluation frameworks that ensure opportunities for improvement are easily identified and properly actioned upon.
The board is most definitely not excluded in these reviews and must also go through continual assessment of their performance as a body and as individuals to ensure there is the appropriate mix of background and experience to make objective collective decisions. Self-evaluation activities are also critical to strengthening the ethics of the board and the greater organisation.
4. Encourage greater transparency
Transparency is one of the most fundamental elements of good governance. To achieve true organisational governance there needs to be a clear disclosure of policies and procedures to not only meet compliances but to also ensure organisational unity. When all employees are aware of the rules and regulations everyone must abide by as well as their own position within the organisation’s strategy, they are more likely to commit to their roles as they are aware of their unique role within the greater scheme of the organisation.
Introducing external auditors and ensuring their independence is a critical way to help maintain transparency and integrity within the organisation as well as instil greater trust in the board and their strategic direction. Additionally, in a time when environmental and social responsibility are critical factors to success, introducing non-financial and sustainability reporting and evaluation methods are critical to appealing to stakeholders.
Read more: Sustainable project management
5. Strengthen enterprise risk management
Ensuring integrity and transparency can only truly be achieved with effective internal control systems and an appropriate risk management framework. Even with the greatest policies in place, organisations cannot truly govern their projects and broader activities if there is no clear framework for identifying, addressing and escalating potential issues and risks in a practical and efficient manner.
With our increasingly fast-paced and turbulent economic environment, strengthening enterprise risk management with clear systems like RAID logs as well as implementing improvements on internal control systems will make sure organisations can brace for and adapt to inevitable changes that occur without sacrificing their integrity and responsibilities to stakeholders.
6. Promote diversity and inclusivity in shareholders and stakeholders
While we have mentioned the importance of diversity in the board, promoting diversity and inclusivity within the shareholders and key stakeholders is also a critical component to good organisational governance. This can be done by making shareholders aware of their rights and encouraging them to use their rights to voice their opinions, concerns and perspectives regarding the ongoing practices of the organisation.
Encouraging employee participation is also critical as it promotes a symbiotic environment through which the board and employees can cultivate the right environment and conditions that enable them to achieve the organisation’s strategic objectives through the participative construction of their organisational governance processes.
7. Designs governance for all levels – Portfolio, Program and Project
One of the biggest challenges to achieving successful organisational governance is the lack of consistency in practices and processes across different levels of the organisation. If project managers are expected to abide by extended protocols and practices that are not properly valued or utilized higher up in the organisation, the added task merely becomes wasted time and effort with little to no strategic value-added.
Additionally, different practices and policies across different levels can make maintaining clear chains of accountability and responsibility a challenge. This can impact the overall agility and flexibility of the organisation as decisions will go through unclear chains of command, wasting valuable time and resources in the process.
Signs of Poor Organisational Governance
Now that we know the key components to good organisational governance, there are also warning signs that your organisational governance may not be as healthy as you would like.
Some signs of poor organisational include:
- Minimal board involvement in governance processes
- Lack of effective control factors
- Lack of independent auditors
- Minimal shareholder involvement in governance processes
- Lack of proper accountability measures
- The dominance of a single person over governance activities
- Misleading accounts and information
Take your governance activities to the next level with pmo365
Learning about governance is pointless if it does not translate into action. At pmo365, we are all advocates for good governance and want to help you take the next steps in making your governance activities a breeze with our innovative PPM system.
If you want to find out more about how we can help take your governance activities to the next level, make sure to read up more here or book a free trial with our PPM experts to see our governance frameworks in action!