We often see corporate governance discussed in the context of codes for large listed companies. But there are many different codes, and many aspects of governance are appropriate to all organisations: large and small, whether for-profit, private sector or public sector. Here are six common principles that can guide any board of directors or trustees.
1. Understand the mission of the organisation
Your role as a director is to ensure that the organisation fulfils its mission. For corporates, this will most likely be about long-term profitability. Other bodies might have a specific mission, or a set of stakeholders they support. You should be very clear about the organisation’s purpose and how it will be achieved.
It should go without saying that the long-term development of a business means paying attention to the needs of, for example, customers and employees. (Indeed, this is required of directors by the UK Companies Act 2006). But think too about instances where the mission of the organisation requires consideration of specific groups, such as beneficiaries or patients.
Consider also the special case of family businesses. Here, ‘governance’ must deal not only with how the business operates, but also how the family relates to the business, and the changing relationships between management and shareholders.
3. Understand your own role on the board
As a director or a trustee you have clear legal responsibilities. You also have a role defined in terms of how this particular board works. Make sure that you are fully au fait with both.
As part of this, you should do due diligence on the organisation before joining the board, and then expect a good induction once you become a director or trustee. It’s also important to keep up to date, so take regular opportunities for industry updates and professional development.
4. Contribute to an effective board
Good governance needs an effective board. There is little point in being good at your own job if the structures around you don’t work properly.
It is particularly the role of the Chair to ensure that the board has the right mix of skills, is properly informed and operates effectively. Having said that, every member of the board is there for a purpose, and as an NED or trustee you need to establish how best you can contribute. Just being a board member does not count as a contribution, you need to actually do something.
5. Accept responsibility for values and culture
A couple of decades ago, when we discussed ‘governance’ we largely meant process and having the right committee structures. Since then, expectations have grown and boards have to accept a significant responsibility to set ‘tone from the top’.
The values of the organisation need to be clarified by the board. More importantly they need to be lived by the board and by management. That sometimes means being prepared to dig in to understand just how profit is being made and sometimes to make difficult decisions about different aspects of the operation.
6. Ensure that you don’t run out of money
It should go without saying that one responsibility of an effective board is to sustain the ongoing work of the organisation in a responsible way. This means having good systems in place to safeguard assets, control liabilities and record transactions.
It also means that the whole board is responsible for ensuring financial probity, which is the situation under UK law. As a board member you don’t have to be a finance expert, but you are expected to understand enough to contribute to financial discussions and decisions.