What Is Governance Anyway?

Lyn McDonell CAE, C. Dir.

Accountability Group Inc. and Senior Consultant-Governance, Leader Quest Inc.
© Leader Quest and Lyn McDonell

I was leading a group of enthusiastic corporate volunteers in a workshop recently helping them to learn what governance is all about. They were there because, to an individual, they were contemplating joining a board, and in this case charity boards. I realized how confusing it can be these days with all the talk about governance and governance models. Although we weren’t fully able to explore all the ins and outs of the topic that morning, it got me thinking about what governance is to the true neophyte:

Who Makes Decisions About What

Governance is about how direction is set and control is exercised. In other words, “who makes decisions about what.” It can be argued that every organizational member – whether volunteer, board member or employee – makes decisions about something. However what particularly distinguishes governance from all other decision-making is that governance is about the largest strategic questions of the organization such as its purposes and objectives.

Working within the Given Charter and Laws of the Organization

There are some givens in governance already through the very existence of the organization, if it is incorporated. A board must respect these fundamentals. Recently I came across a group (albeit a fairly young organization) that believed the board could declare and pursue new purposes without much process. Organizational purpose is more fixed than that. There are “constating” documents of any organization – the articles of incorporation, letters patent or a charter (different names can apply). These identify the name, purpose, head office location, fiscal year and terms of the initial directors of an organization. Many directors serving on boards are not familiar with their content yet a board must abide by their parameters. Board directors must also be aware of the requirements of the by-laws. Formal steps (including approvals from members and applicable jurisdictional authorities) are needed to change all of these documents.

Structuring the Organization

Governance is also high-level decisions about how the organization will be managed -- the fundamental divisions of labour in an organization and the delegation of authority. For operational management of the organization, the board delegates this to the chief staff officer but the degree and scope of this delegation is usually at issue. How is authority circumscribed? How does the board exercise its direction and ensure oversight of operations while unleashing staff to get things done? As the board considers structure, this is especially where the question of “which governance model” arises. The challenge is to create an optimum relationship between the full time professional operators empowered to get things done and part-timers who do not concentrate on the business with the same intensity but who have valuable perspectives, often more objectivity, and who are ultimately-accountable. Governance models, in part, describe ways to manage that interface. And according to many staff and board members both, this is not an insignificant factor. It can affect organizational performance – for good or for ill. Hence the intense interest in finding the right “governance model” for the organization.

Board Legal Responsibilities

Governance is a verb, a dynamic obligation. There are distinct board responsibilities it must not shirk:

  • setting direction

  • monitoring organizational performance

  • stewarding assets and managing risk

  • ensuring board succession and renewal

  • hiring and evaluating the chief staff officer

  • accounting to owners/members/stakeholders

The Board may use committees to aid it in its own work -- for example Finance and Audit, Human Resources/Compensation and Nominating/Governance committees.

Accounting to Stakeholders

The overall accountability relationship with members or organizational owners is part of the governance system. The board acts on behalf of these members/ owners and draws its authority from them. It must also “render account” to them regarding how organizational purposes have been achieved. Because governance is “where the buck stops” (the board is the ultimate body held accountable for the corporation – not for profit and for profit) then governance is about oversight and stewardship, and accounting to stakeholders. At a minimum, annual meetings are held, reports are made, and the board is elected.

More than the Board, and More than Theory

Governance is more than “the board”. It is an entire system or web of promise, of organization of responsibility and accountability.

However one last point. Governance is real life not theory or “models”.

Those young corporate professionals learned a little about the concepts of governance that day in the classroom. However, that is not what grabbed them. It turned out to be the case studies I had developed of “typical board conversations” –organizing a performance review of the executive director, facing a shortfall in funding, considering program expansion to meet needs with constrained resources, and thinking about how to do a strategic plan. Through these cases, they learned the most. These case studies were only simulations. Yet, through them, these corporate volunteers got a taste of the true and nuanced dimensions of governance that is in real life. And that is just the beginning.

Lyn McDonell leads the association governance consulting practice at Leader Quest and she can be reached at (905) 405-6215.