Governance failures can have far-reaching consequences for organisations, from reputational damage to regulatory breaches and strategic derailment. While governance is often viewed through a compliance lens, effective governance is fundamentally about achievement of purpose and performance – and prevention is key.
From our experience facilitating hundreds of board evaluations and advisory engagements, it’s clear that nearly all governance failures come down to one or more of five reasons. Those are:
- lack of role clarity
- lack of authority clarity
- poor communication
- absence of a clear plan, and
- poor culture.
This article explores how boards can proactively address each of these areas for better governance.
Role clarity: Define responsibilities clearly
Effective governance begins with clarity of roles. Boards should establish:
- a board charter that outlines the board’s role, responsibilities, and operating principles
- charters for each of the board’s committees
- position descriptions for non-executive directors including the chair and deputy chair, and
- a position description for the CEO to delineate executive responsibilities.
These documents help prevent overlap, confusion, and misalignment between governance and management functions.
Authority clarity: Know who decides what
In nearly all organisations the constitution will provide the board with a wide array of powers such as the power to raise and borrow money, enter into contracts, employ the CEO and company secretary.
For an organisation to function effectively, the board must decide what decisions it reserves for itself and what decisions it delegates to the CEO. A well-maintained delegation of authority (DOA) policy is essential in this regard. It should:
- set out principles on which delegated authority can be exercised
- cover both financial and non-financial matters, and
- be regularly reviewed by the board to remain current.
Without clarity, authority gaps or overreach can emerge – often unnoticed until a crisis occurs.
Communication protocols: Foster transparency and trust
Open and transparent communication is the backbone of effective governance. Boards should agree to protocols for:
- reporting between management and the board, including in between board meetings
- engagement between directors and employees, and vice versa, and
- the role of the board collectively and directors individually in stakeholder engagement, and what messages are to be conveyed by directors in stakeholder engagement.
Regular Chair and CEO communication between meetings is also important to ensure open and transparent communication.
Discussing and agreeing to these matters engenders trust, reduces misunderstandings, and enables informed decision-making.
Planning: Align strategy and execution
The board’s role is fundamentally to ensure that the organisation’s purpose is achieved and, hence, approving a strategic plan aligned to that purpose is critical. The CEO is responsible for implementation of that plan consistent with the board-approved desired culture.
A clear and actionable strategic plan not only gives effect to the organisation’s purpose but also:
- provides a framework for organisational performance monitoring by the board and management
- provides a framework for the organisation’s workforce strategy and remuneration framework, and
- enables the board to assess progress and recalibrate as needed.
Planning is not a one-off exercise – it must be dynamic and integrated into board processes.
Culture: Make it intentional and measurable
Culture underpins every aspect of governance and, as the saying goes, ‘culture eats strategy for breakfast’.
While role clarity, authority, communication, and planning contribute to a healthy culture, boards must also:
- be explicit about the desired organisational culture, and appoint a CEO who displays behaviours consistent with that culture
- monitor cultural indicators and behaviours
- lead by example in fostering ethical, inclusive, and performance-oriented environments.
Culture is not intangible – it can and should be shaped intentionally.
How Directors Australia can assist
Directors Australia works with boards across sectors to embed governance structures, systems and processes that enhance performance. Through our board and governance advisory services, we help boards:
- define and document roles and authorities. and
- engender positive dynamics within the board, and between the board and management.
Our proprietary Governing for Performance® framework, supports boards in achieving governance that is fit-for-purpose and future-ready.
Directors Australia’s team of governance specialists brings deep expertise and practical insight to every engagement.
Directors Australia works with the boards of publicly listed, government, private, APRA-regulated and for-purpose organisations to achieve ‘best fit’ corporate governance appropriate to the organisation’s nature, and thus enhance board and organisational performance.
For further information or to discuss how we can help, contact us here.
**Nothing in this article should be construed in any way whatsoever as legal advice. It is the reader’s responsibility to obtain expert legal advice on any issue which requires a professional legal opinion.
