Ethics, Culture, Rules and Governance

January 7, 2015

RulesFar too many governing bodies spend far too much time focused on rules, conformance and assurance.  While these factors are important they should be an outcome of good governance not the primary focus of the governors.

When an organisation sets high ethical standards and invests in building an executive management culture that supports those standards the need for ‘rules’ is minimised and the organisation as a whole focuses on doing ‘good business’ (see: Corporate Governance).

The order of the functions outlined in The Functions of Governance, places: ‘Determining the objectives of the organisation’, ‘Determining the ethics of the organisation’, and ‘Creating the culture of the organisation’ ahead of both assurance and conformance.  The rational being creating a culture of ‘doing the right thing’ that extends from the very top of the organisation to the very bottom, means most people most of the time will be doing the ‘right thing’ making assurance and conformance a relatively simple adjunct, there to catch the few errors and malpractices that will inevitably occur.

A very strong endorsement of this approach to governance has recently come from one of the world’s most successful business people, Warren Buffet.  His recent memo to the top management of his holding company, Berkshire Hathaway’s subsidiaries (his ‘All Stars’) emphasised that their top priority must be to ‘zealously guard Berkshire’s reputation’ (read act ethically). He also reminded his leadership team that ‘we can afford to lose money–even a lot of money. But we can’t afford to lose reputation–even a shred of reputation’.

His advice to managers also included this good advice ‘There’s plenty of money to be made in the centre of the court. If it’s questionable whether some action is close to the line, just assume its outside and forget it’. This is a simple ethical guideline that avoids the need for pages of precise ‘rules’ designed to map the edge of legality drafted by lawyers and argued over endlessly.  See more on Ethics. (http://www.mosaicprojects.com.au/WhitePapers/WP1001_Ethics.pdf)

Rule#1Reading the memo, its clear Buffet has built a massive organisation based on an ethical culture, employs executives that reinforce the culture, and still makes a very good profit. It’s a long term investment but infinitely preferable to the sort of issues that confronted Salomon Bros., 20 years ago (see: Warren Buffett’s Wild Ride at Salomon), the banks associated with the GFC, and the on-going damage continuing to be suffered by the Australian banks as more ethical failures come to light. I’m sure they all had hundreds of ‘rules’ some of which may even have been sensible.

A copy of Warren Buffet’s memo can be downloaded from:  http://www.mosaicprojects.com.au/pdf/Ethics_Culture_Rules-Buffet_Memo.pdf


The Functions of Governance

November 15, 2014

We have published 3 papers recently that clarify and differentiate the functions of management and the functions of governance.

The widely accepted ‘functions of management’ developed by Henri Fayol and published in his 1916 book Administration Industrielle et Generale, are summarised in: WP1094 The Functions of Management. Fayol’s ‘functions of management are:

  • M1 – To forecast and plan,
  • M2 – To organise
  • M3 – To command or direct (lead)
  • M4 – To coordinate
  • M5 – To control (French: contrôller: in the sense that a manager must receive feedback about a process in order to make necessary adjustments and must analyse the deviations.).

These functions are to be contrasted with my Six Functions of Governance:

  • G1 – Determining the objectives of the organisation
  • G2 – Determining the ethics of the organisation
  • G3 – Creating the culture of the organisation
  • G4 – Designing and implementing the governance framework for the organisation
  • G5 – Ensuring accountability by management
  • G6 – Ensuring compliance by the organisation

The mapping of the relationship between the functions of management and the functions of governance are set out below:

Mapping of the functions

Management functions are assumed to be hierarchal with the governance inputs cascading down to lower level functions.

Management functions are assumed to be hierarchal with the governance inputs cascading down to lower level functions.

These functions of governance were initially proposed in my ‘advisory article’: The Six Functions of Governance. Published in PM World Journal Vol. III, Issue XI – November 2014; download from here.

A more focused discussion paper has been published today in WP1096 The Functions of Governance.

Conclusion

Governance is the action of governing an organisation by using and regulating influence to direct and control the actions and affairs of management and others. It is the exclusive responsibility of the ‘governing body’, the person, or group accountable for the performance and conformance of the organisation (in a commercial organisation, the Board of Directors).

But in many situations, particularly associated with the governance of project and programs, the governing of organisations is far from effective. The amount of time and effort devoted by the ‘governing body’ to compliance and accountability, and the amount of resources wasted by ineffective and ‘competing’ management groups, can be significantly reduced if the organisation’s objectives, ethics and culture are sound.

Six core functions of governance are defined to bridge the gap between the ‘objectives of governance’ defined by Cadbury and others and the practices of governance defined by organisations such as the AICD. Hopefully discussion around the core functions of governance sparked by these papers will encourage improved governance performance.


The normalisation of deviant behaviours

June 27, 2014

Reputation-managementThe ‘surprise’ recorded in our local paper over the release of a Senate enquiry into the wealth management practices of the CBA (Commonwealth Bank of Australia) is itself rather surprising.  The systems developed by the CBA were effectively (even if unintentionally) designed to generate sub-optimal outcomes for people seeking advice from the CBA financial planning system. And whilst the CBA affair has a way to go, the three clear lessons for all governing bodies and managers should already be obvious; you get the behaviours you encourage (KPIs matter), the normalisation of deviance is a constant threat and focusing on shareholder value over stakeholder value will paradoxically always destroy shareholder value!  For non-Australian readers the executive summary of the Senate report makes chilling reading.

A few weeks back I published an article entitled ‘What you measure is what you get’   the core message in this article was that people will understand precisely what matters to their managers by observing the behaviours those managers incentivise and will adapt their behaviour to succeed in the ways defined by the incentive / KPI system.  The Senate report suggests the incentives paid to CBA financial planners actively encouraged them to sell high risk products. Additionally, the KPIs and bonuses paid to several layers of managers overseeing the planners were directly tied to the profits made by the planners under their control.  In short, the incentive system was designed to encourage the behaviours that occurred, placing the maximisation of bank profits ahead of good outcomes for their clients.  Whilst I’m sure there were countervailing policies within the CBA that talked about customer satisfaction, the strength of the message from the incentive / bonus / KPI system would be much stronger – actions really do speak louder than words.

The transgression from bad policy to bad behaviour, and possibly criminal behaviour, is a classic example of the ‘Normalization of Deviance’. The Normalization of Deviance is a social process that can affect any close knit group.  American sociologist Diane Vaughan describes the social normalization of deviance as meaning that the people within the organisation, or group, become so accustomed to a deviant behaviour that they don’t consider it as deviant, despite the fact that the behaviours far exceed their own ethical standards or ‘rules’.  I touch on this subject in Chapter 1 of my new book ‘Making Projects Work’ that will be published next year. A recent article by Jeffery Pinto highlights the critical linkages between governance, project management and the risk of the ‘Normalization of Deviance’ (see: Project Management, governance and the normalization of deviance). More on this important topic later.

The third lesson is possibly the most important.  The CBA financial planning system was designed to put shareholder value (bank profits) ahead of stakeholder value.  The stupidity of this short term view of the world has been demonstrated time after time with damaging headlines and the trashing of value caused by short term profit focus. A couple of examples include the damage caused to BP by the Deepwater Horizon disaster and the disastrous loss of reputation and the $1.2 billion fine suffered by Toyota caused by the Lexus ‘sticky accelerator’ tragedy.  I suspect the CBA will be added to this list soon.  As the ‘father of stakeholder theory’ Ed Freeman has been saying for more than 20 years, the creation of stakeholder value is the best way to create shareholder value. As I discovered a couple of weeks ago, his message is as compelling today as it ever was.

The reason I find this whole saga of interest is a direct personal experience. Quite a few years ago I took over the management of my mother’s finances. At the time her savings were invested in a product from a major commercial financial services organisation.  The structure of the package was very well crafted but we noticed over a couple of years how little savings had grown compared to my own. We transferred my mother’s funds into a different structure where we pay fees monthly up-front. The difference in the rate of growth of the funds was dramatic.  Whilst we see all of the fees being paid each month to our financial advisers (and they are much higher then the fees we could ‘see’ in the commercial package), the hidden fees must have been enormous and definitely included trailing commissions paid to the adviser that set up the scheme for my mother in the first place. There was no malpractice involved in my mother’s case but the net results were probably sub-optimal and certainly influenced by commissions paid to the adviser.

Which brings me to final thought focussed on how the Australian Government will deal with the recommendations arising from the Senate report over the coming months. Are they going to continue to look after their ‘shareholders’, the major banks and other contributors to the Liberal Party coffers or are they going to look after their stakeholder community?  The big difference between politics and business is it’s the shareholders who ultimately decide on the management of the business, it’s the stakeholders who decide on the next government.  It will be interesting to see if stakeholder management has made its way onto the government’s agenda.


Understanding Governance

April 29, 2014

My last post looked at developing a grounded definition for the governance of PPP based on established definitions for corporate governance (see: Defining Governance – What the Words Mean) .  This post looks at how the definition can be put into practice to govern an organisation doing projects and programs.

An organisation is governed by its ‘governing body’ which, depending on the nature of the organisation, may be an individual, a small group, a committee or a formally constituted board of directors.  Whilst this statement may seem obvious, it is vitally important! The governing bodies job is to represent the interests of the organisation’s owners and to appoint, direct and oversight the organisation’s management (see more on organisational governance).

Within the organisation, the workers are appointed, directed and overseen by management, management is appointed, directed and overseen by the executive and the executive is appointed, directed and overseen by the governing body. However, whilst the governing body has responsibilities and obligations to both the organisation’s owners and other external stakeholders, within the organisation, the governing body is self-governing and very often self-appointing (in practical effect if not always in theory). And unlike management which is hierarchal, within most Boards the legal assumption, and general practice, is that all of the members are equal .

Governance Structure

 

The key responsibilities of the governing body are:

  • Framing the values and ethics of the organisation
  • Appointing the CEO and other key executives
  • Developing and maintaining the organisation’s strategy in collaboration with the executive
  • Ensuring an appropriate management system is developed by the executive (see more on governance and management systems)
  • Surveillance of the performance of the organisation
  • Stewardship of the organisations resources and assets
  • Taking appropriate actions to support the needs of stakeholders and sustainability (CSR).

The ‘governing body’ cannot achieve these responsibilities alone, management support is essential. However whilst the governing body can and should delegate aspects of the organisation’s governance processes to management and should hold management accountable for their performance, the ‘governing body’ is ultimately responsible for the actions of the organisation it is governing, including the actions and failures of management.

 

A Governance Framework

The Australian Institute of Company Directors (AICD) has developed a comprehensive Corporate Governance Framework to help directors understand their responsibilities and develop the skills they need to serve effectively on a ‘governing body’.  The framework sums up the practices (skills, attributes and expertise) that comprise good director practice as demonstrated by responsible directors.

It is designed as a wheel that has four quadrants depicting the four key areas of focus and engagement applying to every individual director: individual, board, organisational and stakeholder. Each quadrant is divided into a number of slices representing director practices essential to the quadrant’s focus (the different sizes of the slices do not represent the relative importance of the topic).

AICD GovFramework

Together with the AICD’s Guide for Directors and Boards: delivering good corporate governance, which articulates a set of values and principles that underpin the behaviours and practices of sound directorship, the framework provides a solid basis for developing the skills needed to ‘govern’ an organisation.

 

Governing Projects, Programs and Portfolios (PPP)

Whilst the inclusion of stakeholders as one of the four focuses is something I strongly applaud, the governance of PPP is focused in the ‘green quadrant’ and really only connects directly into a couple of the sub-sectors, primarily, implementing the organisations strategy (3.3.1). Therefore, a different frame is needed to understand the governance of PPP in the overall context of governing an organisation.  This reframing consolidates many of the personal responsibilities highlighted in the AICD framework whilst retaining the core tenet that governance is a holistic process and a significant failure within the PPP domain can have ramifications across the entire organisation. The ‘petal diagram’ below is our attempt to reframe the concepts of governance is it is affected by, and affects the PPP domain.

 

The Governance ‘Petal Diagram’

The ‘petals’ seeks to aggregate the various functions of governing the organisation into the five main themes, whilst other aspects of governance such as the performance of the ‘governing body’ and of individual directors have been largely omitted for clarity. The importance of these ‘other’ functions from the AICD perspective of developing the competence of directors is crucially important; the ‘petal diagram’ assumes competent directors and an effectively functioning board and focuses on the board’s role in governing the organization.

The domain of PPP is focused on implementing the changes needed to fulfil the organisation’s strategy and therefore, the processes of PPP are grouped in the ‘Governing Change petal’.  The other ‘petals’ are aspects of governance and management that affect, or are affected by the change processes.

Governance Petal Diagram

This petal diagram is a synthesis of several sources focused on various aspects of governance that are associated with projects, programs and portfolios. The primary source is the AICD ‘Company Directors Corporate Governance Framework™’. discussed above.

Secondary sources are a series of Standards that focus on the governance of projects and ICT, including:

  • Directing change: A guide to governance of project management (APM, 2011) (download from here);
  • AS 8015-2005 corporate governance of information and communication technology (AS8015, 2005); and
  • AS/NZS 8016: 2010 corporate governance of projects involving information technology investments (AS8016, 2010).

Within the ‘petal diagram’ some of the specific references are:

Values — Yellow section

Vision

•   GoPM: Assure the continued development of the organization
•   AICD Value: Leadership

Values & ethics

•   AICD ‘Ethics’ are a key sub-set of values

Corporate social responsibility

•   AICD 4.4 Society and Community

Governing of the Board

•   AICD Segments 1 and 2

 

Principle functions of governance — ‘the petals’

Governing relationships

•   AICD Quadrant 4

Governing change

•   AICD 3.3.1 Strategy
•   GoPM (full document)
•   AS8016 (full document)

Governing the organizations’ people

•   AICD 3.2.1 Executive Team
•   AICD 3.1.3 Culture
•   AICD 3.1.2 Policies and Assurance

Financial governance

•   AICD 3.1.3 Corporate outcomes—financial

Governing viability and sustainability

•   AS8016 1.4.3 (e)
•   Cadbury and others

From within this overall governance framework, the more specific aspects of governing PPP can be established (see more on governing PPP).

 

The two key takeaways from this post should be:

  1. Governance is a holistic process, and the ‘governing body’ has exclusive accountability and responsibility for the effectiveness of the organisation’s governance.
  2. Governance and management are quite different functions.

For more posts on governance see: http://mosaicprojects.wordpress.com/category/governance/

 


Defining Governance – What the Words Mean

April 21, 2014

Origins

Governance is the act of governing. Originally the province of ‘rulers’ over the last century or so, as power and authority has devolved to various types of organisation, and the influence of organisations within society has grown, the concept of governance has become increasingly important to the people entrusted with leading these organisations and to the stakeholders who own or intact with the organisation, corporation or department.

At the most basic level:

  • To govern is to rule with authority…; to direct and control the actions and affairs of others… and
  • Governance is the controlling, directing or regulating influence.

Therefore organisational governance can be defined as the system by which organisations are directed and controlled. It involves a set of relationships between an organisation’s management, its board, its shareholders and other stakeholders and provides the structure through which the objectives of the organisation are set, and the means of attaining those objectives and monitoring performance.

Project, program and portfolio (PPP) governance
PPP Governance is a sub-set of and integral to organisational governance. Using the two most common definitions of ‘corporate governance’ (corporations being one form of organisation) it is possible to drill down to a meaningful definition of PPP governance as follows:

Definition

The original definitions

1. Sir Adrian Cadbury (1992):
Corporate governance is the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies. The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place. The responsibilities of the board include setting the company’s strategic aims, providing the leadership to put them into effect, supervising the management of the business and reporting to shareholders on their stewardship.

2. OECD (2004 p.11):
Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined. Good corporate governance should provide proper incentives for the board and management to pursue objectives that are in the interests of the company and its shareholders and should facilitate effective monitoring.

Converting the definitions to PPP governance:

3. Cadbury adapted to PPP governance:
PPP governance is the system by which an organisation directs and controls those aspects of its work that will be accomplished through the performance of projects or programs. Boards of directors (or their equivalent) are responsible for the governance of their organisation and for satisfying themselves that an appropriate PPP governance structure is in place. This includes understanding the organization’s strategic aims, providing the leadership to put them into effect, supervising the management of PPP and overseeing the stewardship of the resources used in PPP.

4. OECD adapted to PPP governance:
PPP governance involves a set of relationships between an organization’s board (or its equivalent), its executive management, its PPP management and other stakeholders. PPP governance also provides the structure through which the objectives of the organisation are refined, and the means of attaining those objectives and monitoring performance. Good PPP governance should provide proper incentives for management to pursue objectives that are in the interests of the organisation and its owners and should facilitate effective monitoring.

Distilling the essence of the definitions:

5. Combined elements of the adapted definitions:

  1. PPP governance is the system by which an organisation directs and controls those aspects of its work that will be accomplished through the performance of projects or programs. It involves a set of relationships between the organization’s board (or its equivalent), its executive management, its PPP management and other stakeholders.
  2. The board of directors (or their equivalent) are responsible for the governance of the organisation and for satisfying themselves that an appropriate PPP governance structure is in place.
  3. PPP governance provides the structure through which the strategic objectives of the organisation are refined and the means of attaining those objectives are implemented.
  4. PPP governance also includes understanding the organization’s strategic aims, providing the leadership to put them into effect, supervising the management of PPP, overseeing the stewardship of the resources used in PPP and monitoring performance.
  5. Good PPP governance should provide proper incentives for management to pursue objectives that are in the interests of the organisation and its owners and should facilitate effective monitoring.

6. Key components of the definitions:

  1. Creating the PPP management system including Portfolios / program / project management systems.
  2. Surveillance (PMOs etc., + accountability).
  3. Organisational support (HR, Finance, etc).
  4. Alignment with strategy to create value (primarily portfolio responsibility).
  5. Stewardship = the assignment and acceptance of responsibility for overseeing and protecting something considered worth caring for and preserving by shepherding and safeguarding the valuables of others (ie, the resources assigned by the organisation for use in PPP).
  6. Stakeholders and sustainability.

7. To derive a working PPP definition:

PPP Governance is the creation and implementation of the framework and principles by which the organization’s PPP activities are directed, supported, monitored and controlled.

Where:

  1. Framework = P + P + P management structures (see more on PDC).
  2. Principles = stewardship, sustainability, stakeholders, etc.
  3. Direction = alignment with strategic objectives, etc.
  4. Support = organisational systems, HR, finance, etc.
  5. Monitoring = surveillance, PMOs, etc (see more on surveillance).
  6. Control = tie back to organisational objectives.

Based on these definitions, in my next post the role of PPP Governance as a core component o organisational governance will be discussed.

For other posts on governance see: http://mosaicprojects.wordpress.com/category/governance/

For more Governance Papers see: http://www.mosaicprojects.com.au/PM-Knowledge_Index.html#OrgGov


The social dynamics of governance – Bullying and Pressure Projects

August 16, 2013

A number of current news items have highlighted the complexity and interconnectedness of governance in organisations. The blog post is going to draw together four elements – high pressure projects, bullying, the need for organisations to provide a safe workplace and the need to support people with mental illness; all of which have interconnected governance implications.

To lay the foundation for this post, the interconnected nature of governance has been discussed in our post Governance -v- Management: A Functional Perspective and is best displayed in this ‘petal diagram’

Petal Diagram Governance

The catalyst for this post are some recent changes in Australian workplace legislation that is forcing all types of organisations to consider how they manage the mental health of their paid and volunteer workforce.  In essence these codified requirements are no different to the pre-existing requirements to protect the physical wellbeing of the workforce and others interacting with the organisation, the only difference is mental heath and wellbeing are now overtly covered.

The new uniform national workplace health and safety laws require employers to ensure that workplaces are physically and mentally safe and healthy, and the work environment does not cause mental ill-health or aggravate existing conditions.  Under these harmonised laws ‘reckless conduct’ offences incur penalties of up to $3 million for corporations and $600,000 and/or 5 years jail for individuals.

 

These challenges cannot be avoided; it remains illegal to discriminate against individuals on the grounds of disability, including mental disability, in the same way it is illegal to discriminate on the grounds of age, sex, race, and religious and other beliefs.

These are not trivial issues as the  $230,000 penalty (fines and costs) awarded  by the Victorian Supreme Court against the former operator of a commercial laundry for ‘workplace abuse’ and the  reputations damage suffered by CSIRO (Australia’s premier scientific research organisation), over on-going bullying allegations demonstrate.

There is a growing awareness of psychological hazards in the workplace including bullying, harassment and fatigue; and the consequences of organisational failures in this area can extend well beyond the strict legal liabilities.  To avoid prosecution and reputational damage, organisations are increasingly being required to take proactive, preventative actions and implement a culture, reinforced by effectively implemented policies to manage these aspects of workplace health and safety. Attitudes are slow to change and creating a culture that properly respects and protects mental wellbeing will require a sustained focus at the governance levels of the organisation as well as in the day-to-day management of the work place.

The payback for good governance and effective management in this area is that organisations that promote good mental health in the workplace are seen as great places to work, and have higher levels of productivity, performance, creativity, and staff retention, and tend to financially outperform other less well governed organisations. These are very similar findings to organisations that actively support and embrace ‘Corporate Social Responsibility (CSR) – apparently the good guys finish first (not last)!!

However, managing this change is not going to be simple!  Organisations are under ever increasing pressure to adapt to a rapidly changing environment and to produce ‘more with less’ to survive. One of the key capabilities enabling quick and effective strategic change is the domain of project and program management. In response to these organisational pressures, project managers are increasingly being placed under stress to be faster, cheaper and better and to deliver the new capability or ‘thing’ in record time.  Couple this to the mistaken belief of some managers that setting ‘stretch targets’ is a way to motivate workers (even though sustained failure is known to be a major cause of stress and demotivation) and you end up with a classic governance dilemma.

Deciding how to best balance these competing demands require an overarching governance policy supported by a sympathetic implementation by management to achieve both a safe work environment and an effective management outcome.  In the absence of effective governance managers are left to sort out their own priorities and frequently are driven by short term KPIs focused on easy to measure cost and time performance criteria. In these circumstances concern for performance frequently outweighs concern for people.

These issues are compounded by the fact that far too many middle and project managers lack effective people skills and can easily drift from pushing for performance to micro management to outright bullying. The mental wellbeing risks include applying undue pressure to perform that induces stress leading to depression; as well as more overt acts of aggression and bullying. The Australian Fair Work Amendment Bill of 2013 defines workplace bullying as ‘repeated, unreasonable behaviour directed towards a worker or group of workers that creates a risk to health or safety’.

Unfortunately, at least in the Australian context, bullying is a major unreported problem. A recent survey by the University of Sydney (see the report summary) has found that workplace bullying tends to be peer-to-peer and occurs at all levels of organisations. Most incidents occur within the presence of one’s peers, including bullying in meetings and other managers are unlikely to intervene. The problem is insidious, nearly 50% of the survey respondents reported bullying in the last year, and only 16% organisation assisted the situation when the problem was reported. But, ignoring the issue is a high risk strategy.

All types of organisation need to develop focused strategies to reduce the opportunities for bullying to occur at every level from the board room table down to the shop floor; and to policies backed by procedures to deal with bullying effectively when it does occur, in ways that support the victims. Bullying is illegal, causing damage to a person’s mental health is illegal (and bullying is only one way this can occur) and failing to effectively manage the consequences of mental illness is illegal.

The ongoing damage being caused to CSIRO’s reputation by the publication of the report into bullying within the organisation demonstrates the way these problems can escalate into a major issue for the Board. The on-going publicity associated with potential litigation and prosecutions has a long way to run before the final wash up allows CSIRO to move forward with a clean slate. And, as the CSIRO report suggests, the consequences of breaking the law are likely to be a small part of the overall damage caused governance failures in this important area.

The reason this is primarily a governance issue is the challenge associated with developing a philosophy and culture that empowers management to resolve the dilemma associated with balancing commercial objectives against personal wellbeing objectives – there is no ‘right answer’.  It is all too easy for executives to decide the organisation needs a new capability, managers being tasked to deliver the required outcome with inadequate resources, and the project manager to be given an unreasonably short timeframe for delivery.  The pressure to ‘perform’ inevitably leading to increases in stress, conflict and potentially bulling. But whilst there are many questions, and decisions, there are few clear answers:

  • When does the need to perform and work extended hours slip into workplace fatigue and an unsafe work environment?
  • When does the project manager’s desire to push team members for maximum performance slip into bullying?
  • Who is responsible for creating the unsafe work environment:
    –  The PM operating at the tactical level?
    –  The managers that set the strategic objectives?
    –  The executives who created the overall environment?
    –  The ‘governors’ who failed to offer appropriate leadership?

Good management can certainly alleviate some of the symptoms, but good governance is needed to eliminate the root cause and promote mental wellbeing in the workplace. At least in Australia there are now effective laws to help and the data shows improving this aspect of an organisation is good for business, and of course excellent stakeholder management.


Defining Governance

April 4, 2013

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.

Tripple bottom line

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