Corporate Governance can sometimes be likened to a mad hatters’ tea party.
Good governance models are relatively straight forward so why is it often poorly applied? The shareholders/owners elect the Board which provides the corporate directives to the CEO/Management. The performance framework and corporate risk analysis provide the foundation for reporting back. What could be difficult about this and why do organisations have difficulty in applying such a simple but absolutely crucial model?
While we find a number of commercial organisations, including listed entities, have challenges applying and maintaining good corporate governance principles, spare a thought for the member-based organisations, cooperatives, smaller family based companies as well as the not-for-profit support and research organisations, all where the Board members have to wear multiple hats and making decisions in extremely difficult situations that can have direct impact on themselves or other associates.
When you are working with these co-operatives or not-for-profit organisations you quickly realise the complexities of these organisations and the critical need for good governance procedures as the responsibilities can be enormous. Whether you are a commercial cooperative like fruit packing or dairy product manufacture, a not for profit providing services to specialised groups using government funding or a member organisation providing services to a range of member interests good governance is as important in these organisations as it is in any large commercial entity.
Take for example, a Supplier Board Member in a co-operative; they are an owner/shareholder receiving a dividend, a supplier receiving payments and a part of the Board ensuring commercial sustainability of the cooperative. During any Board meeting they might be involved in decisions involving shareholder dividend payments, supply rates and decisions involving the sustainability of the co-operative organisation, like capital expenditure that in the short term might reduce dividends or supply rates. This is a massive ask of a supplier shareholder appointed to the Board when compared to the other non-supplier independent shareholders or say the CEO as an executive director. It is also an observation that while there may be a Board member’s induction program it is often the non-supplier Board Members that get sent off to the formal good governance training courses.
Family business companies are similar to co-operatives but the decisions are usually much “closer to the bone” impacting directly on family members. To add to the complexities some cultures have order in the family members usually starting with the eldest male adding additional complexities but not necessarily changing the legal liabilities. Due to the complexities the family company businesses need to apply good governance principles as much as any other business – we would say the relative impact of not doing it is probably greater than the co-operatives or other companies. Why? Well with the co-operative or commercial companies the impact of the decisions are usually absorbed by multiple shareholders or members. In family companies the decisions made today by one family member or a group can impact directly on others, even on the next generation. As generations of family members come through the business some will work in the business and some will not but could still be on the Board making decisions. These family business companies are right across the sectors from trade services, retail, farming of all types, building and construction, financial services, care services just to mention a few. These companies need to plan for the future with a strategic plan projecting out especially when generational changes are on the horizon. Poor or unplanned decision making can result in run down assets/business which younger family members do not want anything to do with. They can also create financial commitments that can be disastrous for other family members even the next generation of “beneficiaries”.
While the need for good governance and best management practice in the not-for-profit service and research groups is as important as any organisation and they may even come under the additional scrutiny of specific government controls. Not-for-profit organisations often have Board members that are unpaid volunteers who commit enormous amounts of time to the cause. Commonly we find representatives from two (2) groups:
- Those with a personal interest as “client representatives” say the particular disability or research group, and;
- Those well-meaning “charitable” volunteers keen to get involved especially in the day to day operations and have a “network to address any need that arises”.
The issues of good governance can quickly became a club of well-meaning people with personal interest and agendas. Unfortunately, all too often we see calls for favours in return for this commitment. While this sounds critical we stress that we acknowledge that we cannot do without these well-meaning volunteers. It is generally not the fault of the volunteer Board members but often a lack of direction and structure from the Chairperson that allows these situations to arise. Unpaid Board or advisory members of not-for-profit organisations make enormous commitment and are rarely recognised as real Board members. Rest assured the volunteers have accountability and are often working in extremely difficult environments where decisions based on sustainability may impact on their personal costs even to the extent of a family member continuing to receive assistance. This is a multiple hat situation again.
Having worked with a cross section of organisations we find that a number of the straight forward commercial entities have room for improvement. A major component of this is firstly the lack of a forward looking strategic direction. Secondly there are no or poorly defines performance measures to guide both the managements and Board performance. We take our hats off to the co-operatives, family companies and not-for-profit organisations where Board members sitting around that table having to making decisions in the best interest of the entity while knowing that it may disadvantage them and their next door neighbour who they represent. The support resources available to these Board members is usually minimal when compared to the large commercial entities that have support and advisory assistance on tap.
So, spare a thought for those that take up good governance roles in co-operatives and not-for-profit organisations (whether they are a support services group, member services or research group) and think about the challenges they face and the multiple hats they need to wear. Also the family businesses where the decision making can have a different impact on different family members but possibly less impact than if no decision was made at all which unfortunately is often the case and opens the door for failure.
While there are great good governance programs and support through a number of institutions it is the smaller business and the member-based organisations that seem to be less well catered for in good governance training and support.
If your organisation needs assistance in the area of good governance practices, contact:
Maxumise Consulting Pty Ltd