Governance Framework

For many years, we work on a framework, still under construction. We are not preoccupied with codes. Codes are artificial and not relevant considering the diversity of situations as emphasized by the rule “comply or explain”. We try to understand in depth why good practices are indeed good. This is not quantitative science as we don’t believe that equations are applicable to governance, which is an art. This is, at best, a qualitative attempt to define useful concepts linked to educated proven practices.

  • An institution (corporation, nonprofit or factual) is driven by a set of talents, financial resources, and know-how, provided by the primary stakeholders and aimed at delivering a project.
  • Governance is the art to set up and maintain this set effectively while management is the art to use it effectively. Governance fails when the set disappears because primary stakeholders end the cooperation.
  • The chair and the board members are the bridge between the primary stakeholders’ ambitions and the management technical possibilities to realize these ambitions. The main role of a board is to define directions and appoint/remove management.
  • Governance intensity change during the lifecycle of the institution.
  • Governance is a function within the institution, while management is another function. Sub functions of the governance function are, among others, the general secretary, the relations with investors and regulators and the independent functions (audit, compliance, risk etc.). The sub functions of the management function are, among others, the functions related to the business (front office, middle office, back office) and general support functions like finance, organization, legal, strategy, HR, risk management.
  • The governance function is managed by the chair of the board and the governance committee. The management function is managed by the CEO and the executive committee.
  • Requirements for the governance function and for the management functions are different. A good manager is not per se a good non-executive director.
  • Governance decisions are related to dilemmas that the company faces. Dilemmas are almost always with an ethical dimension (i.e. allocation, scope…). Diversity of conceptions is key to feed the debate while virtuous behaviours are key to avoid polarization of the debate.
  • Managerial decisions are related to the technical issues that the company faces like marketing, operations, legal or financial issues. Complementary of talents is a key success factor for management while virtuous behaviours are key to ensure the right level of cooperation.
  • On a high level, participants to both functions needs to commit to the project, possess the required knowledge and the appropriate skills, develop the required virtuous behaviors. By requirement, it is meant that what is required by the specific project and by the specific moment as there is not one size that fits all.

The above is a synthesis of some of the ideas that we play with in our consulting work.  Original papers are protected by copyright. Some of the papers are freely downloadable by clicking here if the reference to the authors and to Effectiveboards is clearly mentioned.