glossary
Governance
Governance GlossaryPublished: March 8, 2023
Governance is how organisations are run by their board. It refers to the systems, structures, processes, and practices through which organisations are directed and controlled by their board of directors. It encompasses a variety of areas including decision-making, policy setting, risk, assurance and strategic allocation of resources to achieve the organisation’s objectives effectively. Good governance is essential for the success of an organisations and ensuring it flourishes in the future. It ensures that an organisation operates transparently, accountably, and in the best interests of their stakeholders.
Effective governance brings a range of benefits to an organisation. The main aim of implementing better governance is improved success in the organisation’s endeavours. This success might be measured in profit or in how many people the organisation has helped or how it has improved society if it is a not-for-profit or charity.
Some of the things implementing Good governance practices help with are:
- enhancing an organisation’s efficiency and minimise resource waste
- increasing productivity and profitability
- making the organisation more stable and resilient
- increasing trust and transparency
- to make the job of directors and executives easier
- providing stakeholders with confidence that the organisation will deliver on its mission
- reducing risk
A major step in establishing good governance is setting clear roles and responsibilities. Effective governance typically minimises conflicts and confusion and promotes a sense of stability within the organisation. This stability can help the organisation weather challenges and changes in the external environment, enabling it to adapt and remain competitive.
Good governance can also unlock new opportunities for organisations. By operating transparently and accountably, organisations can attract new investor, new donors (if a not-for-profit or charity) or customers, as well as new partnerships and collaborations. Effective governance can also enable organisations to innovate and explore new markets, expanding their reach and impact.
Another significant advantage of good governance is the reduction of risks. By establishing clear policies and procedures, effective governance can minimise the risk of errors, fraud, and other forms of misconduct. It can also ensure that the organisation complies with legal and regulatory requirements, reducing the risk of penalties and reputational damage.
By creating clear decision-making processes and ensuring accountability, organisations can make more informed and strategic decisions, enabling them to grow and expand in a sustainable manner.
The United Nations Human Rights Council has identifies the following attributes as constituting good governance.
Transparency
The openness and accessibility of information used in decision-making processes, ensuring that stakeholders can monitor and evaluate organisational performance.
Responsibility
The clear allocation of roles and responsibilities, ensuring that individuals are held accountable for their actions and decisions.
Accountability
Answering to stakeholders, both internally and externally. This ensures that decisions are made in the best interests of the organisation and its stakeholders, and that the organisation is answerable for its actions and decisions.
Participation
Involving all stakeholders in decision-making processes, ensuring that all voices are heard, and that decisions are made with the input of diverse perspectives. Part of Participation is Inclusiveness. Involving marginalised groups and individuals in decision-making processes, promoting fairness and equity.
Responsiveness
The organisation’s ability to adapt and respond to the changing needs of its stakeholders. This involves monitoring and evaluating stakeholder needs and preferences, and adjusting the organisation’s policies and practices accordingly.
By implementing good governance practices that incorporate these attributes, organisations can establish a culture of ethical and responsible decision-making. This can help build trust and confidence among stakeholders, promoting a positive reputation and strengthening relationships with customers, employees, investors, and the wider community.
Governance is an ongoing and continuous process. It is not set and forget and good or effective governance requires continual monitoring and evaluation to ensure that it continues to be effective, especially in todays dynamic business environment.
What is an example of governance?
The board of directors of an organisation is an example of governance. They are responsible for overseeing the management of an organisation. Activities a board of directors undertakes include setting strategic objectives and making major decisions that affect the organisation's future direction and performance. A board of directors should include individuals with a diverse set of skills, knowledge, backgrounds and expertise. Directors should be chosen based on their ability to provide guidance and oversight to the organisation and its management. Most boards meet on a regular (monthly or bi-monthly) basis to discuss and make decisions on a variety of issues related to the organisation current and future state. All directors have a duty to act in the best interests of the organisation. This duty includes the tasks of monitoring the performance of the organisation's management team, ensuring that the organisation complies with legal and regulatory requirements, and promoting a culture of ethical and responsible decision-making. In addition to a board of directors, other examples of governance include governments, government boards and in some cases online communities. Each of these entities has its unique governance structures, but they all share the common goal of ensuring that they operate effectively, transparently, and in the best interests of their stakeholders.
What is another word for governance?
A synonym for governance is 'administration'. Administration is the process of overseeing or guiding the affairs of an organisation, government, or other entity. Common Administration activities include implementing policies and procedures, managing resources, and making decisions to ensure that the organisation operates effectively and is positioned to achieve its goals.
What is the actual meaning of governance?
The term governance is derived from the Latin word 'gubernare' and Greek word 'kubernaein' which mean 'to steer'. The captaining or steering of a ship is an apt metaphor for helping to understand governance. The concept of governance can be traced back to ancient civilisations, where leaders used various mechanisms to govern their societies (such as rules, laws, customs, and codes of conduct). Today, governance in the business world encompasses a range of elements, including clear roles and responsibilities, transparency, accountability, participation, and inclusiveness.
What is the difference between leadership and governance?
Leadership and governance are connected, but they refer to different aspects of running organisations. Leaders can govern, and those who govern can be leaders. Leadership refers to the ability to inspire and guide individuals or groups towards a common goal, while governance is concerned with establishing and enforcing rules and policies that guide the behaviour of individuals and organisations. Leadership is often associated with the personal qualities of an individual, such as charisma, vision, and communication skills. Leaders inspire and motivate others by setting an example, creating a sense of purpose, and empowering others to achieve their full potential. Leadership can be exercised at all levels of an organisation, from frontline workers to senior executives. While governance is typically a formal system of rules and procedures that govern the behaviour of individuals and organisations. Governance involves establishing policies, procedures, and regulations that guide the behaviour of individuals and organisations, as well as enforcing those policies through oversight, monitoring, and enforcement mechanisms.
Further Resources
The Path to Effective NFP Board and Director Evaluations
The Fundamentals of Good Governance, Post-Hayne
The Multiplier Effect of Better Governance
Pulling in the Same Direction – How to be an Effective Board
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Better Boards connects the leaders of Australasian non-profit organisations to the knowledge and networks necessary to grow and develop their leadership skills and build a strong governance framework for their organisation.
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