Governance

Governance has a purpose

Effective governance flows from the need to balance stakeholder expectations. Most stakeholders care about short-term financial results. But building a strong organization is not all about the short-term. To effectively pursue the mission, the organization usualliy needs to grow and develop its capabilities over the long term. And that requires funding which can eat into short-term profits.

At its most basic, balance this is the role of governance.

For the typical company, they need to be profitable while also:

Without that balance, the organization may indeed ‘win’ by posting exceptional profits next quarter. But if it pays out those profits rather than investing in itself, it can find trouble when it’s outclassed by competitors. Or if it pursues profits at all costs, it can be hit by regulatory fines or employee backlash due to poor working conditions.

Governance, then, is judged over the long term. It’s the consistency of ‘wins’ that matter more than generating fabulous short-term results.

Good governance keeps people focused on the right things over the long term. This leads to more relevant strategies focused on the mission; strategies that incorporate an appropriate level of risk. And when executive leaders actively monitor these strategies as part of their oversight activities, they are defining the key metrics that they are using to define organizational progress.

When the organization emphasizes clear responsibilities that are backed by transparent oversight, then accountability is naturally embedded into the organization’s performance culture.

If you combine responsibility, transparency, and accountability you are more likely to get ethical decision-making at every level of the organization. Personal success gets aligned with organizational success. And that assures that decisions will be based on what’s best for the organization over the long term.