The effective governance of an organisation relies on effective communication between the organisation’s ‘governors’ and ‘managers’. If the communication fails, governance fails!
Governance is the exclusive role and responsibility of the governing body, in a commercial corporation this is the board of directors, and is their equivalents in other types of organisation. The role of governance is a subtle balancing of competing interests to optimise the long-term value of the organisation (see more on corporate governance). The outcomes from governance decisions are policies and strategies designed to guide the development of the organisation and balance the interests of its various stakeholder groups.
Management’s role is to implement the strategy within the policy framework defined by the ‘governors’ and to assure the governing body their policies are effective and are being implemented properly to achieve the organisation’s strategic objectives (or highlight issues).
The governance communication loop starts with the governing body communicating its strategy and policy decisions to management and is closed once the governing body receives assurance that this has occurred and is satisfied with the feedback. This process is not a one-off loop; continual adjustments are needed to the strategy, the policy, and their implementation to deal with changes in the environment, learned experience and the actual effects of the work undertaken.
The communication challenge is dealing with shades of opinion and expectation in areas where there are very few empirical measures. Let’s look at one practical policy area to demonstrate the challenge: optimising risk.
The role of the governing body is to develop a policy that defines the optimum risk profile for the projects and programs the organisation intends to undertake. Accepting too little risk leads to stagnation, too much risk may lead to failure. What is needed is a policy that accepts some long term, high risk projects in the expectation of higher rewards, and some low risk lower return projects that keep current operations functioning. The risk policy would also need to consider different classes of risk including safety, reputational and financial risks as a minimum.
Good practice suggests the best approach to governance is principles based rather than rules based so the policy should define the principles that management will apply in the management of risk.
Communication challenge #1 – this policy needs to be meaningful and then communicated to management in a way that can be implemented!
Having understood the policy intent, management then have to create the management systems to implement the policy by developing processes, procedures and guidelines that are capable of effectively delivering the policy objectives and communicate these systems to all levels of the management structure.
Communication challenge #2 – communicating the existence of the systems and way it is to be interpreted and implemented to other levels of management!
Ultimately individual managers (or committees) have to make decisions about specific projects and programs to implement the policy. Some of the decision points include:
- Deciding which project and programs to select for investment at the portfolio level.
- Deciding what risks can be accepted, and which risks require either contingencies to be created or the project changed to mitigate the risk at the project oversight level (sponsor or PCB).
- Deciding what emerging risks need escalation to more senior management, and how quickly, at the project management level.
Communication challenge #3, – communicating the decisions correctly so they are properly implemented.
Each of the specific management decisions made within the policy framework will have an effect. Assurance systems need to be in place to observe the outcomes of these decisions, with two primary objectives, firstly by observing the outcomes identify ways to improve the current practices and enhance the implementation of the current policy. Secondly to feed back to the governing body information on how the current policy is being implemented and suggestions for improvement.
Communication challenge #4 – understanding exactly what is occurring as a result of the management decisions (at all levels – this is a multi-faceted challenge).
Communication challenge #5 – providing effective feedback and recommendations to both senior management and the governing body.
None of these communications are simple. Decisions need to be made about what’s significant and what’s business as usual in an environment where very few of the matters under consideration have simple yes/no, right/wrong answers. An assessment of ‘significant’ depends on the perspective on the observer, not an empirical value. $500 may be significant to one manager $50,000 significant to another.
Given risk is only one facet of governance and similar communication loops are needed for all of the different facets of the governance framework, the magnitude of the communication challenge can begin to be understood. It therefor follows that it is a governance responsibility to ensure these critical communication channels are working effectively, which in turn requires a communication focused strategic intent, appropriate policies and for management to allocate adequate resources to achieve the intent.