We all like to feel we are in control, don’t we? Especially when we have been told that there will be consequences according to how well we deliver the task we have agreed to do. We feel pretty confident in our own ability to do the job – probably we would not have agreed to take it on otherwise – but what if we can’t do it on our own? I remember the first time I had to promise to deliver something knowing that I would have to rely on other people to do substantial parts of it. While I still felt the confidence of youth that it would all work out, I also remember the frustration and discomfort of finding my instructions were misunderstood or ignored; of having to let someone else try, and sometimes fail; of not being able to control all the details. As managers, we all find our own ways to deal with this; at the company level, we need to be a bit more formal. This article is about where to start to build internal governance to address this need.

It all starts with the Board

The Board is accountable to the shareholders for delivery of the objectives of the company (public sector and non-profit organisations will have equivalent arrangements even if they are called something different). However, unless the company is very small, the Board does not have the capacity to do more than make a very small proportion of the decisions required to achieve this. It needs to retain enough control to monitor and steer the delivery of the objectives, but it must delegate the authority to make other decisions. Internal governance is the framework that it sets up to manage this. Its objectives may include the following:

• To balance the Board’s need for control and assurance of delivery with its practical need to deliver through others, in a way which optimises the balance between the risks it takes by more delegation, and the costs (financial and otherwise) it imposes through more control;
• To have a secure underlying logic so that the framework is self-consistent;
• To ensure that conflicts of interest are avoided as far as possible for those with delegated authority, as these tempt people to behave in ways that are not in the best interests of the organisation;
• To make sure that those people who will have to live with the consequences of decisions made feel ownership because they have been involved in making them;
• To ensure that decisions are escalated when, only when, and only to the level necessary for them to be made effectively, so that interventions are appropriate and timely;
• To ensure that everyone in the organisation has clarity about the decisions they can make, about where to go for those that they can’t, and about decisions made by others which affect them;
• To ensure that stakeholders have enough visibility of the decisions of the organisation to have confidence and trust in its management;
• To ensure that the governance structure is scaleable and adaptable (within reason) to allow for possible requirements for future change without major re-design.

Build internal governance

So where do you start? First, you need to remember that governance necessarily works top-down. The owners of what you design will be the Board members (or equivalent), and they are likely to have strong opinions – that’s almost synonymous with being a Board member! If you start your design at the bottom and work upwards, there is a high probability that some or all of the members will object to at least some aspects of it once they see how it will affect them. Trying to make modest changes to accommodate their concerns will probably undermine the essential integrity of the system, resulting in you having to start again.

If bottom-up does not work, what does? The best place to start is to agree the main design principles with the Board members, before even beginning on the design itself. It is much harder for people to object if you can demonstrate that your design is consistent with the principles that they all agreed earlier, and it is much easier to keep the discussion rational when the specific outcomes are yet to be defined. It also helps to ensure that the whole design is self-consistent.

It is also worth noting at this point that because governance exists to define flows of authority and accountability that need to run seamlessly from top to bottom of the organisation, a governance design project should take a joined-up top to bottom view too. A project that looks only at the top (or bottom) end is likely to require compromises which will reduce its effectiveness.

The next few articles will discuss the principles which you will need to agree at the outset, under the headings listed below. Remember that governance is about finding the optimum checks and balances for your organisation. Because that depends on context, it will be different for every organisation. The way you express the logic and the principles in your own project needs to be right for your context. One size does not fit all!

• Authority

• Hierarchy

• Escalation

• Ownership

• Documentation and language