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How do boards get to ‘know what they don’t know’ about the organisation’s governance framework?

When asked, many directors say that they feel comfortable that their company’s governance systems and processes are solid and fit-for-purpose.  They often acknowledge that there might be one or two things that could be improved, but that they are ok.

In continued discussion, some directors make comments which suggest that they, or their fellow directors, aren’t as familiar with the role of a board as they may think – and their stakeholders may want.  For example, they:

  • are told by the CEO that the issues they raise are too operational;
  • find that the board struggles to deal with conflicts of interest;
  • are unsure of the meaning of terminology such as risk appetite or stakeholder engagement;
  • they can’t remember ever seeing compliance or risk registers in their board packs; and
  • their board has never undertaken a performance evaluation.

If any of the above are the case, then its likely also the case that these directors aren’t necessarily in the best position to judge whether the company’s governance framework is up to scratch.  In fact, its probably not.

So, how does a director find out whether they actually know or not?

They start by engaging a specialist governance adviser to review their governance documentation (charters, policies, strategy, delegations) to get assurance that they have policies in all the critical governance areas – and that they have been recently reviewed and are up to date.  If gaps are identified, they can be promptly addressed by developing the requisite documentation and then scheduling it for regular review.

Then they should consider undertaking a Board Maturity Benchmark Assessment (BMBA).  A BMBA is a comprehensive review which assesses 20 dimensions of governance and allows the board to nominate the level of maturity it wants the organisation to work towards in each dimension.  It provides assurance to the board that it understands the breadth and depth of its role and responsibilities and that the current governance processes reflect leading practice - or if they don’t, a BMBA gives the board and management team a roadmap to get there.

So, directors, if you think you ‘know’, ask yourselves, ‘how do I know’?  You know?
 

Authors
Melissa Grundy
Senior Advisor
Melissa is a Senior Advisor with Effective Governance, a governance consultant, accountant, former company secretary and market supervisor. Melissa’s focus is on corporate and regulatory governance stemming from her strong background in the...

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