In a previous post, we defined management; this post seeks to achieve a similar definition of governance.
Governance is the act of governing. It is the way rules are set and implemented, and relates to the way decisions are made that define expectations, grant power, and verify the performance of people within the entity being governed.
To distinguish the term governance from government, governance is what a governing body does. It might be the governing body of a geo-political entity (nation-state – typically referred to as the government), a corporate entity (typically the Board of Directors), or another type of organisation. When looking at organisations and corporations (Corporate Governance), the governing body may be the individual that owns an organisation, but more typically is a small group of people at the apex of the organisation’s hierarchy.
Sir Adrian Cadbury (2002) defined the aim of corporate governance as aligning as nearly as possible the interests of individuals, organisations and society. Corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. It is the system by which business corporations are directed and controlled.
Stewardship is an important governance concept. It includes:
– Fealty: A propensity to view the assets at ones command as trust for future generations rather than available for selfish exploitation.
– Charity: A willingness to put the interests of others ahead of ones own.
– Prudence: A commitment to safeguard the future even as one takes advantage of the present.
The governance framework, set by the governing body, 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 defines the means of attaining those objectives and of monitoring performance.
The Functions of Governance
The governance function has two key aspects; the first is deciding what the organisation should be and how it should function. These governance decisions are communicated to management for implementation and the primary outputs from this part of the governance system are:
- The strategic objectives of the organisation framed within its mission, values and ethical framework.
- The policy framework the organisation is expected to operate within.
- The appointment of key managers to manage the organisation.
These aspects are best developed using a principle-based approach that recognises and encourages entrepreneurial responses from all levels of management.
The second aspect of the governance system is oversight and assurance. The governing body should pro-actively seek assurance from its management that the strategic objectives and policies are being correctly achieved or implemented. The assurance and oversight functions include:
- Agreeing the organisations current strategic plan (in conjunction with executive management). The strategic plan describes how the strategic objectives will be achieved.
- Suggesting or approving changes to the strategic plan to respond to changing circumstances.
- Requiring effective assurance from management that the organisations policy framework is being adhered to.
- Requiring effective assurance from management that the organisations resources are being used as efficiently as practical in pursuit of its strategic objectives.
- Communicating the relevant elements of the assurances received from management to appropriate external stakeholders.
- Assurance to the organisation’s owners the strategy and policies are being adhered to by management and the organisation as a whole.
- Assurance to a wider stakeholder community (including regulatory authorities) the organisation is operating properly.
The role of management is the mirror image of governance:
- Providing input to develop the strategic plan
- Implementing the approved strategic plan within the policy guidelines set by the governing body.
- Providing assurance to the governing body that the management structure is:
- Operating ethically and accountably
- Providing effective stewardship of the resources available to the organisation
- Providing timely and accurate information on achievements and issues.
Managing the organisation and making the executive level and operational level decisions needed to implement the agreed strategy and run the organisation within the ethical and policy framework set by the governing body are the core skills and responsibility of management.
Governance and sustainability
The key challenge for the governing body is balancing the competing needs of the organisations stakeholders, including but not limited to its owners, employees, suppliers, customers and society at large, so as to align as nearly as possible the interests of each stakeholder, the organisation and ‘society’ in a sustainable way.
The four elements of sustainability are the three depicted above plus time. The current governors of an organisation need to be cognisant of sustaining the organisation into the future and governing so that the organisation can continue as a valuable contributor to the needs of its stakeholders in the medium and long term, as well as the current short term.
The Governance of PPP
Within this overall framework, the governance of project, program and portfolio management (PPP) is simply an integral part of the overall governance process. Whilst there are specific skills and elements associated with governing PPP these are governance requirements, the responsibility of the governing body.
Similarly the management of the organisation’s portfolios, programs and projects at both the overall enterprise level and the operational level is an integral part of the management process. So whilst there are specific skills and elements associated with the overarching management of the PPP domain at the enterprise level, these are management skills, and are the responsibility of the management team. In short, Governors govern, Managers manage.
To access our other papers looking at different aspects of governance see: http://www.mosaicprojects.com.au/PM-Knowledge_Index.html#OrgGov