Simply put, governance is the term for the system or processes a business, organisation, or group do things.
Your business, organisation or group needs to achieve its objectives and maintain legal and ethical standing in the eyes of shareholders, regulators, and the wider community.
A governance operating model is used to explain the governance framework and policies and put these into practices, procedures, and job responsibilities within the business, organisation or group. It directs how people interact with the business, organisation or group.
Governance frameworks are in place to ensure your business, orgnaisation or group remains in compliance and operates within legal boundaries. This means that any governance framework must take into account the local regulations. The governance framework then directs the governance operating model appropriate to your business, organisation or group.
To start building your own governance framework, aim to answer these questions:
- Who are the people with authority in your business, organisation or group?
- What information do those people need to access, and when?
- What does the business, organisation or group’s structure look like?
- How does the structure influence how decisions are made?
- What are the business, organisation or group’s reporting obligations?
- How does information need to flow around the business, organisation or group?
- How does the business, organisation or group manage compliance risk?
An example of some Governance principles that you incorporate into your framework:
Purpose and strategy
- Set a clear purpose and strategy that aligns with the businesses, organisation, or group activities to achieve its purpose.
Roles and responsibilities
- Provide clarity on the roles, responsibilities and relationships within the business, organisation or group.
- Provide duties under the law.
- Delegate of authority.
Risk management
- Ensure that decision making is informed by understanding risk and how that risk is managed.
Performance
- Annual budgets are approved.
- Financial and solvency is monitored.
- Performance is evaluated against the strategic business plan.
Accountability and transparency
- Declaration of conflict of interest
- Reporting of the business, organisation or group’s performance and financial positions.
Stakeholder engagement
- Undertake meaningful engagement of stakeholders.
- Develop a process for gathering and responding to complaints and feedback from stakeholders.
Conduct and compliance
- The business, organisation or group articulates its expectations of conduct, the consequences for misconduct for staff, and a process for investigating misconduct is in place.
- Conflicts of interest are identified, disclosed and managed.
- The business, organisation or group oversees compliance with relevant laws, regulations and internal policies.
Culture
- A defined culture model is developed that aligns with the business, organisation, or group’s purpose and strategy.
- Reward and recognition of staff.
A strong governance framework is developed to guide a business, organisation or group on achieving accountability, authority and sound decision-making. By contrast, a weak governance framework will cause a breakdown in the stages of the investment process and affect overall economic growth.