The IoD has continued its work to raise governance standards and awareness with the publication of its second annual Good Governance Report this month. The report ranks FTSE 100 companies on their governance and will stir up a whirlwind of debate on which companies rank where and why. But if that’s the only question being asked then sadly we’ll have missed the point.
Why is it important to understand and measure good governance?
The UK has a reputation as a global leader in good governance, making it an attractive centre for investors and businesses alike. But we don’t yet have a clear view on which best practices will sustain and build on that leading position. And with the constant concern that the next Libor, BHS or Sports Direct scandal is just around the corner, raising governance standards is one area where we need to work together.
Measuring the governance health of our largest organisations is a step in the right direction. And, whilst the IoD’s intentions are spot on with its Report, we should note its limitations. One thing the Report makes clear is that we don’t know enough about how to get under the skin of an organisation to take a true temperature of its governance health. The measurements taken are nothing more than what’s publicly available, which gives little clue as to what’s really going on under the surface. What we need are new ways to measure and encourage the systems, cultures and behaviours that will result in marked improvement in governance.
So, what can we do to measure and improve governance?
It’s important that best practices are shared and that organisations of all shapes and sizes can benchmark performance against the highest standards. Establishing, measuring and improving those best practices will be a long journey. But, in the spirit of setting off on the right foot, here are three measurable things that the best boards do, that your organisation can do too. We’ll be examining each in more detail in future posts.
1. A Clear Board Mandate
Companies Act and legalese aside, too many boards aren’t clear on their mandate - and by that we mean their practical role and purpose, their priorities and the value they will bring to the organisation. Unsurprisingly, the boards which have a clearly defined and widely articulated board mandate are likely to operate effectively and achieve their goals. It increases transparency and accountability to employees and investors alike, and leading boards review these on an annual basis to ensure it aligns with the organisation’s priorities.
2. A Focused Agenda
One of the most common complaints we hear from board members and company secretaries is that their agenda is too long and not focused on what matters. But how should a board spend its time? The answer will vary depending on the organisation's needs and a great way to start thinking about this is by using our 6 conversations model. Consider the priorities of your business and ensure the agenda and annual calendar reflects this, allowing the board enough time to focus on the conversations that matter.
3. The Right Information
High quality information is critical for making high quality decisions. The board pack sets the tone and stimulates the conversation at each board meeting, and it’s a key determinant of the quality of the boardroom debate. We recommend regularly evaluating board papers against best practice and investing in training for report writers to ensure they’re equipping their board with clear, concise and compelling board reports.
If you’re passionate about improving governance standards and board effectiveness, please get in touch with your thoughts. We’ll be sharing practical advice on each of the steps outlined above and more in future posts, so subscribe here if you would like to hear more.
Jonathan Knight is associate director at Board Intelligence heading up our technology arm. He is a member of the advisory panel the IoD put together for the 2016 Good Governance Report.