Business

What is governance anyway?

By: Jenny Brown, Head of Housing at Grant Thornton UK LLP
Published: Wednesday, April 22, 2015 - 10:09 GMT Jump to Comments

When you hear the word governance what do you think of?

Do you see rules and regulations? Do you automatically think of the individual in your organisation with governance in their job description? Or does your stomach lurch as you think of a recent downgrade?

Working with many different types of organisations, I see that governance is a concept that people tend to interpret very differently. No matter how many checklists are completed it can still go wrong. 

Governance is at the centre of a Venn diagram where strong controls and processes, good communication and a strong board and executive operating effectively together all overlap. 

Whenever issues are experienced in an organisation, somewhere in the 'lessons learned' review, governance is highlighted as a key factor in how it all went wrong. Governance sits across everything – so if it doesn’t work, nothing else will.

Because governance is so central to every part of an organisation, it can be quite difficult to know exactly how to measure it. But there are certain indicators that can used by organisations to ensure governance is operating effectively.

These should be reported in the financial statements, on websites and in other corporate documents.

It is these indicators that Grant Thornton assesses in our annual social housing governance report.  Our 2015 report, 'Eyes on the Horizon', was based on a review of the top 60 housing associations, looking at the information contained within their financial statements on governance and building on the findings from last year's report.

The key indicators of good governance

Board skills: A key area of the financial statements which demonstrates the effectiveness of governance is the disclosure about who is on the board and what makes them the right people for the job. 

Our review found that whilst 42% mentioned board skills on their websites (up from 18% in 2014), 53% of the top 60 housing providers provided only the names of their board members in their financial statements, making it difficult to assess a member's suitability for the role. 

Board diversity Diversity of board membership is increasingly being seen in both corporate and not-for-profit organisations as vital for sustainability as it allows different view-points to come together.

Diversity ensures that the Board does not become overly biased towards a particular way of working and that a wide range of views are taken in to account. 

Diversity of personality, skills and style are vital, but difficult to measure and articulate. The more obvious measures are found in traditional areas of diversity such as gender.

Our review showed that 34% of board members were female (up from 28% in 2014), which is second only to the NHS sector at 40% (based on Grant Thornton's other sector governance reviews). 

Also of note is that in the top 60 organisations, 30% of Chairs are now female, compared to only 14% in the charity sector.

Performance evaluation: Evaluation of the performance of board members is also vital in measuring the effectiveness of governance, both for compliance with the code, and to demonstrate how the organisation ensures that their governance structures continue to be the most appropriate.

75% of the top 60 providers did not mention board evaluation at all, and 17% simply mentioned that it happened and how often. 

Only 1% talked about the issues identified in the evaluation and the actions that were to be put in place to address any concerns. Furthermore, only 57% explained how they provide training and an induction for board members. 

Training and induction is vital. It is very easy to assume as a non-executive that experience from other organisations means that training and induction is not necessary, but each organisation is different.

The role of a non-executive and the demands that an organisation may have are specific, so bespoke training and a well-structured induction can allow non-executives to focus their efforts in the right way.

We know that many organisations spend a considerable amount of time trying to get governance right, responding to changes in the sector and developments in the wider business world. 

It is true that financial statements continue to get longer and longer as more compliance requirements are included. Yet the financial statement is still the most obvious place for an organisation to showcase the way in which it considers its governance.

For an organisation to be able to demonstrate its continued sustainability in an environment where there are more and more risks, providing clear evidence of excellent governance is vital.

The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the official policy or position of The Information Daily, its parent company or any associated businesses.

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