This is article 3 in my series on designing internal governance.
One of the most stressful times I can remember in my career as a manager resulted from lack of clarity about authority. I had a big job, and it was reasonably clear what I was accountable for delivering. A few days in, I asked my boss to clarify what authority I had to make decisions. His answer? “I don’t like talking about authority.” I never did get more clarity, and it became clear that whatever authority I did have, it was not commensurate with my accountabilities. This article is about authority and accountability in internal governance.
Authority and Accountability
Matching authority and accountability is a key requirement in any governance structure. If you give someone accountability but not authority, you also give them perfect excuses for failing to deliver (and so in practice for not being accountable): for example, “well, if you had listened to me when I said that was too novel, it would all have been fine.” At best, it results in delays and frustration while decisions are referred. Similarly, if you give someone authority but not accountability, they can make extravagant promises about what will be delivered, and lay the blame for the resulting failure on the person accountable. The blame for the failure really lies with the person who set things up like that in the first place. At the opposite extreme is giving too much authority to the accountable person. This is the case where there is no external holding to account. Very few organisations these days would allow even the CEO to approve their own expenses. But other similar situations are sometimes found, for example, a Programme Director chairing his own Programme Board. While most of the time the situation is probably not abused, it does nothing to remove the temptation to approve a pet project regardless of the business case, or to hide bad news in the hope that things will improve later. It is much wiser to avoid setting up conflicts of interest in the first place than to hope that everyone will be able to resist the temptation to benefit from them. These examples show that deciding what authority to delegate requires balancing the need for control with the need for practical delivery, which includes the ability to hold people to account effectively. Deciding to whom to delegate it brings in a new problem: it requires balancing the desire for decisions to be owned by all those affected directly by the consequences with the desire for a named person who can be held to account. Suppose we need to let a major contract. Perhaps an operations team will have all the day-to-day interactions with the contractor, and they are convinced that Contractor A is going to be best to work with. Should the Operations Director have the final say? At least then we know who to blame if it goes wrong. But the Procurement Director may know that the contractor’s resources are going to be very stretched if they take on this work. The Commercial Director may not be happy with the terms of the contract that can be negotiated. The Finance Director may not be happy with the performance bonds or guarantees they can offer. How do we make the best decision?Collective and Individual Authority
At this point we need to recognise that there are two sorts of authority: Individual and Collective. Collective Authority means that the decisions are made by a specified group of people; no individual has the authority to make those decisions on their own (hence the need for a quorum to be specified in the Terms of Reference (ToRs) for the group). The group must be established by the delegating body – no decision-making body has authority to create itself (or appoint its members, or approve its ToRs)! Individual Authority means that the decisions are made by one individual, even if that individual appoints a group of people to advise him/her. An advisory group can of course always be set up by the individual holding the authority; it is not part of the governance structure, having no authority, so it does not need terms of reference (it just does whatever the decision maker asks of it), and a quorum would be meaningless. That does not stop the members of such a group being confused about its solely advisory nature if this is not explained. Designing the governance structure requires deciding what to use where, but how do you decide which sort of authority is appropriate? The choice between Collective and Individual Authority must balance the possible need for wide ownership of and support for decisions against the preference for Individual accountability which goes with Individual authority. Generally Collective Authority will be desirable at the most senior levels and for the most complex decisions, where the best outcome will result from contributions from people with different backgrounds, knowledge and experience, or where it is important that several people at the same level, typically across functions, feel they are committed to the decision because they helped to make it. Many (perhaps most) of the strategic decisions the company needs to make will be of this kind. On the other hand, Individual Authority will be preferred where the issues are more focused, and typically fall clearly within one functional area rather than spanning several. This kind of authority is just what line management structures are about. It is normally granted through Letters of Appointment and Schemes of Delegation. We will have little more to say about it here. The further down the governance structure you go, the less the diversity that Collective Authority brings to decision making is likely to be needed, and the more likely it is that line management provides all the ownership that is needed. At the same time, each additional layer of Collective Authority tends to make accountability more diffuse, which is unhelpful. Consequently, one or two layers of Collective Authority below the Board is the most that would normally be appropriate. As a general rule, the lower the level of a Collective Authority body, the fewer different interests need to be represented, so the fewer members it will need to have.Principles to establish before starting design:
- That authority and accountability must go together
- That no-one will have authority to ‘mark their own homework’ (that conflicts of interest will be avoided)
- That Collective and Individual Authority are different; and what their respective roles and interfaces will be in the structure you will create.
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
What is governance for?
Wouldn’t it be wonderful if whenever you asked someone to do something, they just did it? And of course, on the other hand, that they didn’t do things which they had not been asked to do? Oh for perfect control! But wait a moment. Midas asked that everything he touched should turn to gold – and look where that got him. Perhaps we had better be careful what we wish for. How often have you said “No, that’s not what I meant!”? Or “I’d have thought it was obvious that that needed doing!”? Let’s face it, most of us are not that great at giving really good instructions about what we need, and we certainly don’t have time to include every detail. At the same time, the people we ask are intelligent and creative. We get better outcomes, and they enjoy the work more and so are more motivated, when we expect them to use those abilities to interpret our needs sensibly and come up with the best solutions, even when we didn’t think to ask. In summary, then, we have specific outcomes we require, but it is neither practical nor desirable for us to be completely prescriptive about how they should be delivered. Governance provides a framework within which the desires for control of outcomes and for flexibility over means can be reconciled with the minimum of effort. Such a framework is fundamentally about good behaviours. Most of us want to behave well, but doing things the way we know would be best often takes more time and effort (at least in the short term), and time is one thing that is always in short supply. Formal governance arrangements help to stop us taking the short cuts which may be unhelpful in the long run. They ensure that we communicate what we are doing – so that changes can be made if required – and may force us to plan a bit further ahead. Being able to see good governance in place reassures stakeholders that the organisation is behaving transparently. It gives Government bodies and Regulators confidence that the organisation is complying with legislation and other requirements. And it allows Boards and managers to delegate authority while retaining sufficient control. Good governance means that we not only behave honestly and competently, but are seen to be doing so, which builds trust. In short, it is the rock on which a well-managed organisation is built. What good governance is NOT about is bureaucracy, box-ticking and delays. It requires finding balances – between control and practical delivery; between the risks of delegation and the cost of control; between wide ownership of decisions and strong accountability for them; between a simple structure and efficient decision-making; between minimum overhead and an effective audit trail – which provide the optimum basis for success. Every organisation has different arrangements because the optimum trade-offs depend on the context. This is the first of a series of articles will set out the main issues to be considered in designing an internal governance system and the principles which should underlie it.
Near where I live, there is a wonderful cheese shop. It sells an amazing selection of English artisanal cheeses, as well as a variety of other delicious local produce. Not surprisingly, it is my place of choice for cheese for Christmas. It's just a pity that the customer service is not up to the standard of the cheese.
I placed my order in good time, for collection on 23 December. I duly arrived at the shop, full of anticipation, on my way home from work. The table outside groaned with goodies including beautifully-decorated cakes, rustic breads and colourful preserves. The shop is fairly simple inside, but filled with the wonderful aroma from the cheeses and from the delicious food being served in their upstairs café.
There seemed only to be one young lady serving, and she looked a bit stressed by the queue of customers; cutting, weighing and wrapping cheeses is a slow process. Still, I assumed serving me would be easy – all that should have been done already. She looked in the fridges under the cool counter; not there. She looked in another fridge; no better. Looking more stressed, she told me that she was very sorry, she couldn’t find my order; “Would you mind going away and coming back later?”
Bad move. “Yes, actually, I would. I’m on my way home from work, I've had a busy day, and I don’t want to hang around. That’s why I placed an order.” Another hunt still produced nothing.
A small lady with shoulder-length reddish hair came in – the manager. We found where my order had been written in the book, just as I had said. “Well, if you can wait, we can make up some of your order again, but I’m afraid we have none of the Tamworth left. We are completely sold out of soft cheeses.” I grumpily agreed that they had better do that, meanwhile starting to wonder where I would be able to find a good soft cheese on Christmas Eve. Then she showed me a small cheese –under 100g I would say – and said “we have one of these left. They are absolutely delicious – unfortunately I can’t give you a taste as it is the last one. They are £6.” … So that is about £60 / kg? Are you serious? No thanks.
After that, the manager lost interest. The assistant worked out the total price, and only then said “we’ll give you 10% off for the inconvenience”. I paid, and walked out with my cheese, about 20 minutes later than I had expected and in a thoroughly bad temper.
So what did I learn from these unhappy events? Observing my own feelings, first, that the longer the problem lasts, the more it takes to put it right. And second, that if you don’t do enough, you might as well do nothing.
Good customer service
The first rule of customer service is “keep your promises”. And since things will sometimes go wrong, the second rule is “When you can’t keep your promises, try to solve the problem you have caused as quickly as you can”. If the assistant had said at the start something like, “I’m really sorry, I’ll make the order up as quickly as I can. You can have a free coffee upstairs while you are waiting. What can I offer you instead of the Tamworth?” – suggesting solutions to my problems – I would probably have been satisfied, and would actually have spent more. By the time the manager showed me the expensive cheese, she needed to have given it to me, not offered to sell it to me, to compensate. And by the end, a 10% discount not only did not solve my problem but felt like adding insult to injury. A customer problem is an opportunity for free good – or bad – publicity. The choice of which is yours. [contact-form][contact-field label='Name' type='name' required='1'/][contact-field label='Email' type='email' required='1'/][contact-field label='Website' type='url'/][contact-field label='Comment' type='textarea' required='1'/][/contact-form]
I’ve recently started taking singing lessons. A bit late, you might say, since I have been singing in choirs for decades, and I certainly wish I’d started sooner. But it has taught me something important about how we learn.
I have been surprised to discover that almost none of my lesson time is about singing in tune or in time! Everything is about technique – how you breath, how you pronounce the words – and a lot of my practice is just saying the words, not singing them at all. It is really hard to train your body to work in a very particular way: months or years of lessons, hours and hours of practice. You can’t just be told the right way to do it, and go away and then do it right - it is more like learning to drive than learning to pass an academic exam. And sometimes you have to be told something over and over again before you are ready to absorb it.
I have taken away three wider lessons:
• What you have to do to learn a new skill may be quite different from what you expected;
• Results may take a long time and demand considerable perseverance; there are no short-cuts;
• Hearing something is not enough – you have to hear it at the right time.
That has made me think about the problems of change in a different way. As an example, one of my clients has many junior and middle managers with a fairly low level of financial understanding, and with commercial pressure continually increasing this is holding them back. How should we fix this? The traditional approach would probably be to send them on a short course to learn the “facts” about finance – understanding a P&L, a balance sheet, etc. But perhaps it is not the facts but the practice they are short of, or they are not ready to hear the message? I have done enough short courses myself to know that few of the facts stay in the mind for long anyway. The singing lessons experience suggests to me that they are probably only part of the solution.
Time to think about a new approach, based on how we learn!
Do you know where you are trying to get to? Are you sure? Could you write down clearly and succinctly what the output will be, or what success would look like? Are your objectives SMART (or at least clear)?
Often people fight shy of being that specific. The trouble is, when you are, success or failure become black and white. And that raises the stakes.
Or it may be that they just find it too hard to write such a specification – and it is hard. It forces you think through options and to make choices, often on inadequate information, and that requires a lot of confidence.
Leaving things a bit vague is more comfortable on both counts, but also makes it much less likely that you will deliver what you really wanted to. That is partly because you have less motivation to do so, but it is also partly because clarity helps everyone in the team to see the contribution they need to make. If the overall objectives are not clear, different people will interpret them differently, and their contributions will not necessarily all be exactly what is needed. It also provides a poor example for them to follow – it means that each of their contributions is also more likely to have a vague specification, and so may deviate even further from requirements.
Setting clear objectives is the first essential of leadership: if you don’t know exactly where you want to go, how can you lead other people on the journey? As the song goes, “If you don’t know where you’re going, any road’ll take you there”.
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English: neck of bottle of champagne (Photo credit: Wikipedia)[/caption]
What? Don’t you mean success?
Well, no – although that is worth celebrating too.
I came across the idea that you should celebrate failure recently in “Co-active Coaching”[1], and it makes a lot of sense. People rarely fail at things because they didn’t really try – or at least not at things that matter. First they had to find the courage to attempt something which they knew might to expose them to failure. Then, wanting to avoid failure, they tried hard, probably attempting things they had never done before. Finally they had to admit they had failed - even though in the process they had probably achieved more than they ever thought possible. All of those things are difficult, and worthy of celebration in themselves.
But there is more to it than that. Failure is an excellent teacher! When you fail, you have to face up to things you tried which did not work. Often you will want to understand why they did not work, and this may lead to more success next time.
There is also a less obvious reason. When we are criticised, blamed and shamed for failing, it usually has the desired effect of making us very keen to avoid failing again. Unfortunately, the consequences of that very understandable urge are not necessarily to make us try harder. We are very likely to learn to avoid taking the risky option in the first place, or to limit the options we consider only to the ones which appear ‘safe’.
You can’t stop failure hurting, but instead of adding to the hurt, celebrate failure – the courage, the effort, the learning involved – and at the same time create a culture in which even risky options can be seriously considered.
English: neck of bottle of champagne (Photo credit: Wikipedia)[/caption]
What? Don’t you mean success?
Well, no – although that is worth celebrating too.
I came across the idea that you should celebrate failure recently in “Co-active Coaching”[1], and it makes a lot of sense. People rarely fail at things because they didn’t really try – or at least not at things that matter. First they had to find the courage to attempt something which they knew might to expose them to failure. Then, wanting to avoid failure, they tried hard, probably attempting things they had never done before. Finally they had to admit they had failed - even though in the process they had probably achieved more than they ever thought possible. All of those things are difficult, and worthy of celebration in themselves.
But there is more to it than that. Failure is an excellent teacher! When you fail, you have to face up to things you tried which did not work. Often you will want to understand why they did not work, and this may lead to more success next time.
There is also a less obvious reason. When we are criticised, blamed and shamed for failing, it usually has the desired effect of making us very keen to avoid failing again. Unfortunately, the consequences of that very understandable urge are not necessarily to make us try harder. We are very likely to learn to avoid taking the risky option in the first place, or to limit the options we consider only to the ones which appear ‘safe’.
You can’t stop failure hurting, but instead of adding to the hurt, celebrate failure – the courage, the effort, the learning involved – and at the same time create a culture in which even risky options can be seriously considered.
[1] “Co-Active Coaching” By Henry and Karen Kimsey-House, Phillip Sandahl and Laura Whitworth
There is a rather impressive new office building going up in the City of London at the moment. Colloquially referred to as the Walkie Talkie building (London likes its building nicknames), instead of the usual flat walls, its walls are gently curved, giving it a very sculptural quality. And like many modern office blocks, it is covered with floor to ceiling glass. It will look amazing when it is completed.
However, people living, working, or even just passing nearby are feeling amazed for all the wrong reasons. It seems that the architects didn't join things up - they forgot to take account of – or underestimated – the effects of the laws of optics.
Think of a reflecting telescope. It works because the concave mirror in the telescope focuses the light from the stars that falls on it. What have the architects put on the front of the Walkie Talkie building? In effect, a gigantic concave mirror. And like all such mirrors it focuses the light – in this case particularly the sunlight - falling on it. On a hot summers’ day, the temperature in a nearby street has risen enough to blister paint and melt plastic. Now it’s called the Walkie Scorchie.