Has governance become too much of a burden? It's time for directors to get back to the basics of providing strong oversight and strategic support with a focus on culture.
To build a strong culture, boards need to get back to basics — minimal viable governance (MVG) — regularly referring back to why the organisation exists. It is the role of the board to ensure the organisations’ systems and processes align with that purpose — outwards from purpose at the centre. Systems and processes should be then be customised to support achieving the purpose, not “tick and flick” checklists, quickly relegated to the bottom drawer.
Governance needs a makeover
Corporates, even NFPs and government departments have hungrily looked to startups for the seeming simplicity (lack of bureaucracy) that can generate innovative thinking. Startups nod in agreement, regarding governance as the antithesis of innovation, yet their notorious high failure rate is often attributed to lack of core guide rails.
The board’s mission is to provide oversight and strategic support for management’s efforts to create long-term value. Yet, too often, the board is viewed as an unnecessary and expensive overhead that interferes rather than value-adds. Governance is translated as compliance — an end in itself — dissatisfying all.
To truly add value, governance needs a Marie Kondo-style makeover. Whether an established listed organisation, a NFP or a board in startup mode, directors need to take time to de-clutter and get back to how they can set the right tone and add real value. So what should the board focus on after stripping away the often overwhelming and counterproductive complexity?
What every organisation and board needs
In the startup world, MVP (minimal viable product) is a version of a product with just enough features to be usable by early customers who can then provide feedback for future product development in an ongoing cycle of “build, measure, learn”.
Minimal viable governance is about boards focusing on what matters. Boards need to step back from the good governance manual, and refocus on their core mission — to provide strong oversight and strategic support for management’s efforts to create long-term value.
Boards need to nail four key things, and ensure their alignment: Set, Shape, Monitor, Model.
When the four foundations of minimal viable governance are aligned and reflected in the behaviours and the organisation’s systems and processes, a strong culture can emerge. With solid foundations of agreed purpose and values, less resources are needed to tell employees how to deliver on the strategy and enforce compliance. Where the purpose is aspirational — not just a PR exercise — it can create the basis for innovative thinking by highlighting the gap between an ideal and reality, hinting at new offerings, markets and/or channels that could be invented to bridge that gap. Getting back to the essence of governance, directors can embody MVG and directly influence culture, right now, in four ways.
SET: purpose, values, stakeholders and strategy
Directors must have a shared understanding of — and also own — the foundations. What is the organisation’s purpose, why does it exist? This purpose needs to be regularly evaluated with a stakeholder-centric critical eye.
Who are the wider stakeholders and what do they value? What values does the organisation strive for, desire and seek to protect? What standards does it uphold? What does success look like?
- Devote time and effort to assessing the organisation’s long-term strategy. Strategy is the fundamental challenge of the organisation and should engage the entire board. Are we clear on where we “play” and how we succeed?
- Be “sensemakers” — have site visits, understand the competitive landscape and operating environment, bring the helicopter perspective across the horizon.
- Routinely discuss, set and adjust the organisation’s risk appetite aligned to strategy — encouraging risk-taking and challenging the status quo.
SHAPE: systems and processes
Ensure the DNA of what is formally espoused infiltrates every system and process.
- Create a single page for the front of every board paper that summarises the vision, purpose, values, strategic pillars and core KPIs (including stakeholder KPIs). Use this to calibrate all discussion, decisions and behaviours.
- Select the right people who buy into the purpose and values. Recruit for diverse perspectives, deep functional knowledge, independent mindsets and emotional intelligence.
- Ensure reward and recognition design is in line with the priorities and values, including non-financial outcomes.
- Delineate boundaries — make delegations and accountabilities clear and empower fast decision-making.
73% of directors say they continue to see risk-averse decision-making culture on Australian boards
86% feel their board is trying to effect culture change within their organisation
68% say their board has sufficient oversight of the culture of their organisation
Source: AICD 2020 Director Sentiment Index (second half 2020)
MONITOR: reporting and communication
Boards are collectively accountable for their decisions. Good decision-making relies on receiving quality (not quantity) insights and open, honest communication.
- Risk-management systems need to be fit for purpose. Ensure they provide sufficient information on existing risks and raise new or evolving risks — for example, cyber, climate, human. Get responses to “what keeps you up at night?” and be reassured they are being effectively managed and controlled — show me, don’t tell me.
- Get insights from multiple sources, independent of management — for example, be a customer, read social media commentary, review exit interviews, ring the helpline.
- Frame reports around “what does the board need to know?” — succinct, concise and restricted in length (maximum five pages for any one report).
- Expect data-powered insights, not information dumps.
- Report on SPIs not just KPIs. The more your company’s attention is focused on outcomes important to key stakeholders (SPIs) — for example, customers, workforce, community — the better your company will likely perform on outcomes important to the business (KPIs).
MODEL: the tone from the top
The board sets the tone for the rest of the organisation through what employees see is done and not done, what is “walked past”, and what is really rewarded — not what is said or put in glossy publicity brochures.
- Live the values inside and outside the boardroom, and have the courage to question sacred cows, taken-for-granted assumptions and “‘shadow values”.
- Ask curious, challenging questions — role model “learn-it-alls” not “know-it-alls”. Open questions, not answers, build trust.
- Ensure diverse voices are present and included.
- Be adaptable and build resilience — personal and organisational. Be willing to change ecosystems and consider non-traditional collaborations and cooperation.
Dr Judith MacCormick FAICD is a director of Skin Check Champions and sits on the advisory boards of Lineaire, Western Sydney University Business School and Incept Labs.
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