Master Yoda shares, “Always pass on what you have learned.” While we may hope the boardroom is full of Yodas, the reality is that the boardroom is always changing and there are best practices around boardroom governance for a reason. There is a constant balance that governing bodies face in pursuing business opportunities while maintaining accountability and ethical integrity. In 2007-2008, the global financial crisis put a heightened sense of urgency on the needs for improved ethical frameworks and governance for businesses. Good governance is the heart of any successful company. Enterprise governance needs to balance the economic and social pressures as well as take into consideration the viewpoints of different stakeholders from individuals to collective groups. A governance framework is utilized to support the efficient use of resources as well as to formalize accountability for the stewardship of those resources. The goal of enterprise governance is to help align the interests of individuals, businesses, and society in achieving business objectives. Ethical considerations are important for enterprises not only because of negative pressures from situations like the 2007-2008 global financial crisis, but also because ethical behavior and corporate social responsibilities can bring significant benefits to organizations. Three examples that show how governance can impact organizations include:
• The Passenger Rail Agency of South Africa had a situation where the acting CEO was fired by the board, and then the Minister of Transport dissolved the board. The reports said that this was an issue where the board was undermined and not accountable to the shareholders.
• In another example, Innovations Theatre, which has been in operation for two decades, had a very large board that was focused on board development and future visioning. The board consisted of “white-skin and white-collar” board members representing lots of corporate sponsors. Parallel to this governance board, there was another corporate board that represented even more businesses.
• A third example includes the Foster Dance Troup that teaches dance in the inner city. The Dance Troup had a founder in charge for two decades but died a few years ago. The board was faced with more responsibility, and the current structure included an emphasis on committee reports.
In the first example provided, there was a political issue where the shareholders did not seem to be involved in the governance process. In the second example, the board’s lack of diversity may raise some eyebrows as it relates to community support. Also, the size of the board was too large, with over-dependence on one leader. In the last example with the Dance Troop, the board was in early development stages since it lost the founder which refocused the mission, as well as the structure of the organization. This is a situation where the board had an opportunity to define more clear roles and responsibilities, as well as the distinction between board and staff.
These examples have common themes that are essential to board effectiveness including having a strong board chair, clear roles and responsibilities of board members, CEO that acts as and is treated like a partner, and a board that can confront big questions. It is important for organizations to have strong governance systems because it increases the accountability of organizations, helps avoid disasters before they happen, and moves businesses towards their mission, while maintaining critical legal and ethical standing.
Have you been involved in any similar experiences? How did you deal with the complex situation? What do you think is critical for good governance?