Understanding Board Governance: How to Optimize the Strategic Potential of the Board

Editor's Note: Take a look at our featured best practice, Governance Review Template (1-page PDF document). Governance Infographic designed for a major client summarises the Governance Review process and is applicable to various Boards including Public Sector, State Bodies, NGO's and not-for-profits. Board members should be thoroughly conversant with the key issues schematised, cognisant of their [read more]

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Board Governance is frequently discussed and often misunderstood. Yet, companies must have a good handle about Board Governance. The Board plays a critical role in the success of the company. They set the strategic direction that companies must take.  However, companies must understand that the Board’s role is grounded in its governing role.

Great Boards don’t just happen. Great Boards are strategically structured and carefully nurtured to greatness.

Definition and Importance of Board Governance

Governance is the combination of policies, systems, structure, and a strategic/operational framework which the governing body puts in place. The model of Governance represents an approach to the combination of these policies and systems. Having a good grasp of Board Governance can lead to clarity of purpose and objectives of the company.

Companies must optimize each role in the Board. An effective Board Governance can direct companies to achieve corporate management excellence and global competitiveness. This can only be achieved if there is clarity of strategy and goal.

The 4 Board Governance Models

One’s perspective of Board Governance is dependent on where one sits. Looking through the eyes of each of the position in the Board will enable companies to nurture an effective Board Governance.

Taking a look at the 4 Board Governance Models will enable companies to better manage the Board and nurture them to greatness.

The Independent Director

Independent Directors are truly independent of the companies they serve. Having limited engagement with the company and the Board, Independent Directors lack the wealth of knowledge about the industry and the business that the company is in.

Nevertheless, Independent Directors have large windows of opportunities to be of value to the companies they serve.

1. Independent Directors can be an advocate for sound Governance.
2. They are in the position to plan for Leadership succession.
3. They are effective in leading the company in times of crisis.

Independent Directors, when effectively managed and nurtured, can be someone companies can depend on to step up in times of crisis. The real test of a Board of Directors comes when the company is in crisis.

The CEO with Non-executive Chair

CEOs with Non-executive Chair often faces the challenge of a dual structure. A dual structure distinguishes the role of Management (to lead the company) from the Board Chair (to take responsibility for the Board and Governance.

While this may be a preferred structure by Governance experts and regulators, no research has proven its effectiveness in achieving superior performance. The opposite is often the case. In practice, the effectiveness of the CEO with Non-executive Chair model depends on the relationship between the 2 individuals in these roles.

The Dual Mandate

A dual mandate CEO takes the responsibility of the lead director of the Board. This is often preferred by North American CEOs. A dual mandate position puts CEOs squarely in charge and avoids the likelihood of conflict or power struggle within the Board.

However, like Yin Yang, a dual mandate can also have its downside. This may lead to a Board that is complacent and a Board that is not willing to be deeply involved in issues that the company faces. When they do, it is already too late.

The Non-CEO Chair

A Non-CEO Chair is often the previous CEO. They have the wealth of experience and the legacy to nourish and maintain. New CEOs may face a bit of a challenge from Old CEOs. They have the tendency to be overshadowed by the Old CEOs. In this case, old CEOs must learn to let go and retrain themselves to become effective Board Chairs.

The Board Governance Guidelines

The different perspectives that Board Members bring to the role can be a considerable strength to the Board and the companies they serve. This can be achieved if the Board focuses on following through established guidelines that have been proven to create effective Board Governance.

1. The need to acknowledge that no single structure works in all cases.
2. The importance of acknowledging different points of view in the Board and the need to manage conflicts effectively.
3. The benefit of holding different positions.
4. The need to encourage CEOs to serve on at least one outside Board.

Achieving effective Board Governance requires going through the process of understanding each role and learning to overcome any animosity that may arise. For in the end, regardless who hold the position, companies must ensure that a “solid” Board Governance is achieved. This is achievable but it takes work to do it.

Interested in gaining more understanding on how to achieve an effective Board Governance? You can learn more and download an editable PowerPoint about Board Governance Model here on the Flevy documents marketplace.

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