What is Governance?

“Governance” is an overused and misunderstood word.  More importantly, governance has become a billion-dollar industry, although with questionable value and outcomes.  Unfortunately, lawmakers and that industry have imposed more and more obligations upon those that govern, to such an extent that the task is now onerously process-driven, rather than value-adding.

So what is Governance? Simply, it is the system and associated processes by which leaders (of government, corporations and not-for-profit organisations) accept responsibility and authority for making significant decisions that affect those they represent, be that citizens, shareholders or members of charities.

Usually, those leaders are elected and make decisions in line with a constitution – the document that sets out the organisation’s values, purpose and members rights, and the responsibilities and accountabilities of elected leaders.  Depending upon the circumstances, constitutions are similar  to, and in some instances are, law – the Australian Constitution is an example.

In business and not-for-profit organisations, the word governance usually refers to the activities of the Board of Directors or Management Committee.  Once elected, those Directors or Management Committee members have strict legal and ethical obligations to fulfil and can be prosecuted both criminally and civilly for failure to do so (see Duties of Board Members).

Poor Governance

“Poor governance” describes the inappropriate or inadequate action by those leaders elected to govern.  This can include elected leaders not operating under the terms of the constitution, or for the benefit of those who elected them.  Such actions can range from poor (or no) oversight of an organisation’s management, to not properly assessing the financial viability of the organisation to not ensuring compliance with the law.

However, the term is also sometimes used to describe inappropriate or inadequate organisational cultural leadership.  With values, ethics and concepts of fairness being inherent to the culture of an organisation, if the organisation’s elected leaders do not personally role-model those characteristics, the governance of the organisation may be considered sub-optimal.   So while elected leaders may comply with the letter of the law, if their intent is not equitable or transparent, and they seek to avoid personal accountability, they may be considered poor governors.

Contact Faileen James for professional assistance with understanding and becoming involved in Governance.

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