What is Good Corporate Governance and Why Does it Matter? Canadian Police College Andrew Graham Andrew Graham
Today's Governance Trends Reflect Theory and Tradition nStrong interest in corporate governance driven by recent high
profile has scandals: Enron, World Com, BreX, Royal Trust and many more n If you enter Corporate Governance into Google.ca, you
20,500,000 hits nBut good governance been a longstanding issue in both the
private and public sector
"Board governance is an invisible function. It is only when problems appear that people ask: Where was the Board?" CAPB report on board governance entitled, "Putting the Tools in Place"
Today's Governance Trends Reflect Theory and Tradition nPeter Drucker (1992): “In every single business
failure of a large company in the last few decades, the board was the last to realize that things were going wrong.” nMany reports and legislation: Cadbury (UK
1992), Dey (Canada 1994) and SarbanesOxley Act (US 2002)
Not Just Businesses that suffer from poor governance n Public sector examples abound: n Canadian Red Cross Blood Service n National Arts Centre n B.C. Fast Ferries n International Olympic Committee n And, a few Police Boards have received some
bad publicity along these lines too……
Governance has changed in ways directly affecting Police Services n More visibility n More risk n More regulations: rules versus principles n More public awareness and expectations
Corporate Governance Is … … the system by which organizations are directed and controlled. Cadbury Committee Report (UK 1992)
Corporate Governance Is … Boards of Directors are responsible for the governance of their organizations
Cadbury Committee Report (UK 1992)
Corporate Governance Is … n The exercise of authority, direction and
control of an organization n Why? To ensure that its purpose is achieved n Good governance is about safeguarding the mission of the organization, establishing a values framework, ensuring sound management and risk practices are in place, holding those under oversight to account and accounting to the broader public interest
Corporate Governance Is … n Governance addresses questions such as: n Who is in charge of what n Who sets the direction and the parameter
within which the direction is to be pursed n Who makes decision about what n Who sets performance indictors n Who monitors process and evaluates results n Who is accountable to whom for what
Corporate Governance Is … n Tools of governance: n Structures n Responsibilities n Processes and practices n Policies n Reporting mechanisms n Decisionmaking protocols n Hiring practices of the Board n Informal relationships and culture
Governance is built on the notion of Agency Theory
Owners Leader
Reporter Board
Steward
Agents
Monitor
A Spectrum of Governance Models n Right "model" depends on underlying cause n One extreme is lack of active oversight: n Cadbury, TSE, Blue Ribbon models address n Select and empower independentthinking
overseers and stewards n Active role in strategic direction and stewardship for leaders n Use of committees and working together vertically n More information flow, checks and controls
A Spectrum of Governance Models n Other extreme is "micromanagement": n Carver, Turnbull models address getting
leaders out of management and operations n Governance through setting policy and then standing back: let managers manage n Accountability model resultsbased n Right model strikes right balance, while drawing best aspects of each extreme
Management Theory n “Control” has been
ceded to a professional class of management n Board’s role is mainly to open doors, to advocate on behalf of corporation, to ensure stable flow of resources n The postwar model and still in Japan
Stakeholder Theory n Board represents interests of all
stakeholder groups: n employees n lenders n unions n communities n and owners n Issues resolved around boardroom table n Board mirrors diversity of stakeholders
Stewardship Theory n Board members and
management are stewards of the organization n Board’s role is to support and assist management n Professional directors: skilled, experienced, committed, connected
Democratic Theory n Owners openly and
democratically elect representative directors from among their number n Board’s role is to act in owners’ interests n “Lay” board: key competency is membership as owner
Police Services and Governance n "Governance" means different things to different
people n Not all "buy in to" or tie in the practical benefits of "good governance" n Key is practice, not theory ... n To succeed, governance must be "winwin", must serve individual's, team's and organization's performance
Police Services and Governance n Highly political environment n Many stakeholders n Some roles clear (hiring the Chief), some are
not n Legislation can be ambiguous n Who is the Board itself accountable to exactly and how?
Police Services Board Governance Functions Representation Function
Monitoring and Evaluation Function
Identification and Performance
Management of Chief Policy Review Board and Service Performance Audits Program Evaluation
Governance Functions Are:
Representation of Community Needs through community consultation, business planning and deputations Advocacy
Leadership Function Prioritizing what
needs to respond to. Policy Development and Adoption by thoughtful and deliberate decision making
Fred Kaustinen and Barbara HumeWright, CAPB Annual Conference, August, 2005
What is the point? n Accountability: being counted on n Working together: relationships n Mandate accomplishment: results
The Principle of Intention … a key to building the role Board of Directors should explicitly assume responsibility for developing the organization’s approach to governance issues Toronto Stock Exchange and Treasury Board Guidelines
The bar keeps getting higher (or) …. welcome to the fishbowl! n Online realtime everystakeholder
transparent certified disclosure? n Skilled, independent, powerful, prescient, accountable Audit Committees? n Boardled enterprise risk approach to a sound internal control system? n Mandatory corporate social responsibility and social audits? And what does SOx mean to you?
Begin with the End in Mind Stephen Covey
n The End: an effective, cohesive, active,
independent board n The Means: building competencies n The Beginning: what kind of board are we? What are our roles? Our competencies? n Distinct models of governance based on distinct cultures, traditions and legal systems
Agency Theory
Owners Leader
Reporter Board
Steward
Agents
Monitor
Board Roles n Leader: n setting the strategic direction and empowering management n Steward: n shepherding resources of others n Monitor: n evaluating performance measures and holding management accountable n Reporter: n to the members and beyond
Secondary Roles of Board Members n
Advocacy role: n speaking on behalf of corporation, to
shareholder and/or public n prior agreement among board/ management as to what/when said n may involve fundraising and promotion of corporate interests/goals n Mentoring role: n individuals may "coach" senior
management and/or others
Responsibilities of Directors
Leadership . . . yes 4 Stewardship . . . yes 4 Management . . . no 7
Responsibilities of CEO/Chief Leadership . . . yes 4 (shared) Stewardship . . . yes 4 (shared) Management . . . yes 4
Governance versus Management Governance n n n n n n
Vision/values Destination/ outcomes Resources/inputs Monitoring and holding to account Policy framework Accountability to stakeholders
Management n Piloting/steering/driving n Knowing through expertise, day n n n n n n n
today insight and link to vision Selecting course from alternative routes Assessing need for policy guidance: knowing the boundaries Ensuring efficient and effective use of resources Good organizational functioning Assessing progress and conditions Reporting Holding subordinates to account
Relationship of Management and Leadership Functions Management: Task/Result Orientation Evaluation, Research, Decision making, Planning systems, Problem solving, Administering policy, Specifying procedures, DaytoDay operations, Data based decisions.
Leadership: People/Process Orientation Creatively applying research information, Motivating and rewarding others, Team building, Creative planning, Performance management.
Role of the Chair n Set agenda, in conjunction with CEO
and Committee Chairs n Chair meeting: orderly deliberation of
items n Build consensus, propose solutions, call
for vote or tabling n Promote unity of Board and organization
after decisions reached
Strategic Planning Key Tool n Important tool of good governance: n n n n
Affirms longterm direction Identifies plans and priorities Offers expected outcome state Offers measures for assessing performance both for internal and external use.
n Board & CEO develop vision and direction together n Senior management involved often n CEO and senior management initiate, identify, and implement
approaches and strategy n Board approves the plan/direction with CEO
Planning To Prevail Goals Mission Objectives Strategies & Actions Measures Values
Planning: Goals n Answers the question where are we going
long term? Goals Purpose
Planning: Objectives Answers the question: n where are we going shorter term? n These are milestones along the way to reaching our goals n Objectives should be attainable and measurable
Goals Purpose Objectives
Planning: Strategies & Actions Answers questions like: n How will we get there? n What exactly will we do? n What will we do? n When will we do this? n How will we proceed?
Goals Purpose Objectives Strategies & Actions
Planning: Closing the Loop
Answers the question: How will we know when we have succeeded ?
Goals Purpose Objectives Strategies & Actions Measures Values
Family of Balanced Performance Measures Organizational Performance
Value
Cost
Service
Quality
Time
Balancing Act
Accountability: what are the tools? n Formal:
Performance agreements n Measures built into plans n Formal evaluation processes n Audits and evaluations n Complaints and investigation systems n Informal n Monitoring events and keeping informed n Ongoing reporting on important issues n Incident briefing n Meetings with stakeholders, unions, interest groups n Show and tell/ walking around n
Accountability – what about external stakeholder accountability? n Annual reports n Regular information sessions n Public meetings n Use of all media including websites n Posting minutes of meetings, etc.
What are the Impediments and Barriers to Good Police Governance? Power of the Chief Ambiguity of roles Lack of clarity in legislation Rapid turnover of members Insufficient turnover of members Role switching: not really on the Board – just representing other interests n Inattention to the ‘work’ of governance n Lack of internal cohesion: differing basis for appointment n Lack of ‘composite skill set’ – the right combination of backgrounds and skills n n n n n n
How Do I Spell …. n Trust n Integrity n Respect n Loyalty
Trust … n Is built through relationship n Allows the work of the mission to be
done n Destroys an atmosphere of control n Creates an air of tolerance n Allows leaders to lead
Good Governance Built on Principles – Enabled by Process n Good governance is work in itself that
just doesn’t happen. It is built on: n Culture n Respect n Common vision n Common rules of the games n Evaluation and holding the right people to account n Adaptation and change
Success and Failure Signs of a Board in Trouble Signs of a Board in Trouble : •excessive turnover of CEO’s or board members; •Difficulty recruiting credible board members; •rapid depletion of reserve funds; •chronic unplanned or unmanaged deficits; •role confusion between board and CEO; •low attendance or participation in meetings; •stakeholders.
Success and Failure n poor management of meetings; n factionalism; n underground communications; n Unresolved conflicts; n failure to address conflicts of interest; n decision deadlock; n disrespect for organizational norms and policies; n poor communication with funders and other key
Success and Failure Keys to Success: Strong board and staff leadership A positive working relationship between board and CEO Role clarity Strong agreement of key stakeholders on organizational values, mission and objectives n Respect for organizational norms, board policies and decisions n Good board development practices and teamwork n n n n
Success and Failure n Regular, objective assessment of board, CEO and n n n n n
organizational performance High levels of trust and low levels of conflict Constructive resolution of conflicts and ‘conflicts of interest’ A good balance between organizational stability, flexibility, innovation and enterprise Consensus or ‘nearconsensus’ decisionmaking Effective management of meetings and board work
More to follow on assessing Board performance………..