Is your organisation in the governance ‘sweet spot’?
A new report prepared for the launch of the AICD’s Advisory business unit sheds fresh light on the link between governance and performance across a range of organisations.
It is taken for granted that well run organisations and high calibre boards will lead to organisations meeting their goals and achieving their mission.
And it seems like common sense that boards with experience and expertise will lead to organisations that more efficiently deliver services.
But in looking at the link between good governance and performance, research has often neglected to focus on all sectors – government, privately-held businesses and not-for-profits – focusing instead on the listed sector because of the availability of data.
A new report, From blind-spots to sweet spot by Dr Robert Kay and Dr Chris Goldspink of Incept Labs, supported by the Australian Institute of Company Directors (AICD), takes a different tack.
The research goes back to square one, putting aside pre-conceived ideas about the role of the board and executive, and how they are related to performance. The report was prepared for the launch of the AICD’s Advisory business unit, a new service providing consulting services and in-house professional development for the ‘Governing Team’ which includes the CEO, executive team and the board.
The report includes a much wider range of views, taking in the perspectives of one hundred chairs of a gamut of organisations, including government, listed, private and not-for-profit boards.
The chairs were asked to examine their beliefs around governance, performance and decision-making.
Good governance is particularly important in managing biases inherent in the decision-making process, according to the report. Psychology research has shown that the natural state of human decision-making is subject to errors and omissions. Good governance compensates for these limitations.
In the view of the chairs, better decision making was exhibited when the organisation’s Governing Team displayed:
- Diversity of experience
- Independence of mind
- Openness to alternatives.
Bringing together a team with these attributes requires high levels of trust among the Governing Team, the chairs said. However, in some instances over the long-term, theory suggests that high levels of trust can lead to biases, such as group think.
This means that social dynamics affecting the quality of governance operate on a continuum. There are dynamics that minimise bias but the same dynamics at an extreme can introduce bias.
The chairs interviewed spoke of a ‘sweet spot’ where the social dynamic created by the combination of personalities, experience and circumstance resulted in the quality of decision-making being superior. The whole was greater than the sum of the parts.
Maintaining this dynamic is very difficult. A highly-delicate balance exists between the ability to critically evaluate decisions, while also maintaining trust among the Governing Team. Chairs spoke of this balance being rare and, when it did occur, transient.
Listed, private and not-for-profit chairs were most alike in how they conceptualised performance. For positive performance chairs of these types of organisation took a multifactorial approach looking at an organisation’s finances, resilience, impact and stakeholder relationships, whereas in assessing negative outcomes finances and stakeholders were much more important.
Interestingly, the factors that chairs of government boards looked at when assessing the performance of their organisations were quite different from those used by their counterparts.
There was a stronger emphasis on the relational aspects of performance for government sector chairs than there was for the business chairs. That is, a key performance indicator for government organisations is how they relate to their stakeholders. Further, resilience of the organisation was seen as being one of the key challenges for government organisations. As budgets come and go with changes to government and policy, performance in the government sector was more closely tied to surviving these vicissitudes than it was for listed or private companies that have more direct control over their own finances.
Whatever the objectives of your organisation, the AICD’s Advisory team can help your Governing Team reach the good governance ‘sweet spot’. The Board Advisory practice provides tailored advice to help boards solve challenging issues and improve governance arrangements to standards of best practice.
The AICD’s services draw on its research, data, extensive knowledge and expertise to give organisations the latest insights that will help them respond to social, economic and political trends.
For more information on how you can enhance your organisation’s governance performance, visit our Advisory page.
The AICD regularly runs courses and events for directors, aspiring directors and executives, covering governance and business best practice. Click here to see our upcoming courses in Western Australia.