PM5: Effective governance – does your Board make a difference?

Anne Moynihan, Senior Consultant

  

• To explore what is meant by ‘effective governance’ and how it can be achieved;

• To consider why there is often a gap between the quality of the written governance systems & processes and how it is practiced;

• To take a closer look at how individual trustees can improve the performance of their boards and add value.

Aims of the session

• Name;

• Organisation & role;

• One thing your board must do in order to improve the way your organisation is governed and led.

Introductions

‘If charities exist to create a better world (or part of it) then the whole point of good governance in a

charitable organisation should be to deliver on its charitable objects and therefore to provide greater public benefit – not simply to do governance well!’

Effective governance

• The definition of board effectiveness keeps shifting – no clear link between board effectiveness and organisational performance;

• Since the financial crisis of 2008 research highlights that behavioural dynamics are key & can make the difference between a bad & good board or a good or great board;

• ‘Good Governance: A Code for the Voluntary & Community Sector’; ‘Boardroom Behaviours’ (ICSA), ‘Guidance on Board Effectiveness’ (FRC), ‘Walker Review of Corporate Governance in the UK Banking Industry’ and ‘The CIMA Boardroom Leadership Model’.

Effective governance

“The research clearly reinforced the ‘inconvenient truth’ that a Board can have the clearest and the

most robust processes and adherence to Governance principles, but if its members do not have the courage and judgement to call out and deal with the real issues facing the business in a

timely and direct manner, the Board will fail to add value and may end up destroying it.”

The Behavioural Drivers of Board Effectiveness: A Practitioners Perspective, MWM Consulting,

Effective governance

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Delivering effective governance:insights from the boards of larger

charities

George Levvy, Senior ConsultantJacinta Ashworth, Research Consultant

Compass Partnership

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Outline of this presentation

Background to the research

Selection of findings

Key drivers of effective governance

Conclusions

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Background

First survey of governance of large charities

Top 500 charities account for 46% of UK charity income

Over 100 questions

228 organisations participated (46% response rate)

Questionnaire completed by CEO, senior staff member, or Chair

Responses well balanced across different organisation types

Limitations include: self assessment no direct comparisons with private and public sectors

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The Compass Cass Governance Model

Governance

Structures Processes BehavioursMeetings

• Governance structure• Board size• Terms of office• Term limits• Representation• Committee types• Committee size• Task groups• Advisory groups• Subsidiaries• Representation of nations

• Representation of stakeholders

• Vice chairs

• Succession planning• Recruitment• Appointment• Diversity• Induction• Remuneration• Skills and experience• Chair selection• Committee chair selection• Committee member selection• Setting strategy and tracking organisation performance

• Governance of risk• CE performance evaluation• Performance of governance• Chair performance review• Member performance review

• Frequency• Duration• Attendance• Agenda planning• Meeting management• Quality of papers• Consent item• Chief Executive’s presence

• Manager’s presence• People in the room• Away days

• Use of members’ skills• Listening• Team working• Praise and challenge• Openness and trust• Strategic focus• Contact outside meetings

• Conflicts of interest• Chair-chief executive relationship

• Experience of other boards

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Selection of the findings

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Board size

1 to 5 members

6 to 10

11 to 12

13 to 15

16 to 20

21 to 25

26 to 30

More than 30

0% 5% 10% 15% 20% 25% 30%

1%

26%

26%

21%

14%

5%

3%

2%

Base: All (228)

On average, boards had 14 members Terms of office were usually three years, with a max. of 2-3 terms

Small <10

Medium 11-15

Large 16+

Num

ber o

f mem

bers

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Diversity Women, ethnic minorities and disabled people are under-represented

on boards of large charities

0% 5% 10% 15% 20% 25% 30% 35%

6%

9%

9%

14%

22%

22%

32%

Average % of board members who were:

Female

Representative of beneficiaries

Known to be donors

Active fundraisers

Representative of volunteers

Ethnic minority

Disabled

* For ALL charities the equivalent is 48% women (Source: NCVO).* FTSE100 companies equivalent is 16%* FTSE 250 companiesequivalent is 10%(Source: Cranfield Uni)

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Succession planning and remuneration

Nearly three quarters only considered skill requirements as each position arose

Four in ten used an agreed skills grid for succession planning

The most effective recruitment methods were board and staff contacts, followed by public advertisements

There was generally a good breadth of induction activities

14% said their Chair was remunerated, and 10% remunerated other board members

Higher among larger charities, and linked to higher levels of attendance at board meetings

Suggestions for improvements: fill skills gaps, improve diversity, strengthen induction and board member development

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Board meetings Boards typically met 3 – 6 times per year, for less than 5 hours

per meeting Boards typically achieved 80 – 90% attendance

Those that stated expectations achieved higher attendance Two thirds said that Chair and Chief Executive plan board agendas

together ‘extremely’ or ‘very’ systemically… whereas a third were only ‘quite’ or ‘not very’ systematic

Two thirds spent some time meeting without executives present Three quarters had held at least one Away Day in the last 12 months Suggested improvements included better strategic focus,

agenda planning, board papers and delegation to committees

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Board member behaviours

0% 10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

13%

11%

12%

17%

16%

26%

48%

52%

50%

51%

55%

54%

33%

32%

32%

26%

27%

17%

Extremely Very Quite Not veryBase: (228)

Good at listening to each other

Good at working as a team

Good at praising management

Effective at focussing on strategic rather than operational matters

Confident that operate in an atmosphere of openness, confidence & mutual trust

Good at providing robust challenge to management

Team working, praising management and strategic focus were slightly weaker aspects:

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Main governance issues facing UK’s top 500 charities in next few years

Two thirds made predictions and the responses were grouped by theme. The top specific issues raised were, in rank order:

Ensuring financial viability or sustainability in a difficult and competitive economic climate

Attracting, recruiting and retaining high calibre trustees with diverse backgrounds and skills

Understanding appetite for and management of risk Growing regulation and restrictions placed upon charities Finding board members who can devote sufficient time to the

role Remunerating trustees and the difficulties of recruiting without

remuneration Responding to a modernising society and tumultuous times.

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Key drivers of effective governance

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How well does board perform key governance roles?

Bringing novel or creative ideas to the organisationResolving the interests of different stakeholders

Understanding & reflecting views of all stakeholdersEstablishing appetite for and management of risk

Managing the processes of governanceTracking organisation performance against plans

Providing insight, wisdom and judgementAppointing and supporting the chief executive

Upholding the values of the organisationAgreeing mission, objectives and strategies

Discharging legal and regulatory dutiesEnsuring economic viability of the organisation

0% 10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

7%

8%

13%

18%

24%

19%

31%

36%

39%

36%

43%

43%

32%

44%

47%

49%

46%

52%

51%

47%

46%

51%

46%

48%

48%

36%

35%

28%

25%

24%

16%

12%

13%

10%

9%

7%

12%

9%

Extremely Very Quite Not veryBase: All respondents (228)

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Top 20 drivers of governance performance

An effective board:

1. Works well as a team 11. Has strong chair /CE relationships

2. Ensures meetings deliver excellent governance

12. Holds at least one away day per year

3. Has the required skills and experience 13. Spends time discussing performance of governance

4. Focuses on strategy 14. Has high quality of board papers

5. Operates with openness and trust 15. Achieves high attendance levels

6. Has great diversity 16. Holds formal reviews of governance

7. Praises management 17. Requires Chair and CE to plan agendas together

8. Provides robust challenge 18. Reviews performance of members before re-election

9. Uses committees effectively 19. Has chair / CE who speak 1:1 frequently

10. Gives thorough induction 20. Reviews individuals’ performance

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How prevalent are the top 20 drivers?

An effective board:Strength of driver

% of organisations with good performance on

each key driver

Has strong chair and chief executive relationship 11 89%

Has high quality board papers 14 82%

Has the required skills and experience 3 80%

Operates with openness and trust 5 80%

Uses committees effectively 9 79%

Holds at least one Away day per year 12 79%

Spends time discussing performance of governance 13 75%

Achieves high attendance levels 15 74%

Ensures meetings deliver excellent governance 2 74%

Gives thorough induction 10 70%

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How prevalent are the top 20 drivers?

An effective board:Strength of driver

% of organisations with good performance on

each key driver

Provides robust challenge 8 69%

Requires Chair and CE to plan agendas together 17 68%

Has great diversity 6 64%

Has chair and chief executive speak 1:1 frequently 19 64%

Works well as a team 1 63%

Praises management 7 63%

Focuses on strategy 4 61%

Reviews performance before re-election 18 54%

Holds formal reviews of governance 16 51%

Reviews individuals’ performance 20 50%

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How many key drivers do organisations have in place?

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

-5%

0%

5%

10%

15%

Base: All (228)

Weaker 23% orgs.

Medium 43% of orgs.

Stronger 33% of orgs.

Strength of governance:

Number of Key Drivers in place

% o

f org

anis

atio

ns

Aver

age

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Top innovations introduced by charities in last 2 years

The top innovations introduced by charities in the last two years were, in rank order:

Changes to the committee structure Undertaking a formal governance review Changes to the board composition Carrying out board appraisal or board effectiveness review Reporting innovations (e.g. reporting framework, KPIs, clearer

or more concise board papers) Doing a skills audit or enhancing skill sets Use of an external consultant or facilitator.

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Future improvements

The top actions that participants would like to take in future were, in rank order:

Carrying out a board appraisal or board effectiveness review Greater strategic focus Broadening the skill sets of board members or conducting a

skills audit Creating boards with greater diversity and more balanced

membership

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Hierarchy of governance improvement

Structures

Behaviours

Increasingly demanding

to implement change

Increasingly gain from making

improvements

Processes

Meetings

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Conclusions

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Conclusions

1. The four most important drivers of effective governance are: team working great meetings people with the required skills and experience a sharp focus on strategy

2. Overall picture is that many of the top 500 charities report high standards of governance

3. Charities have to pinpoint those drivers that are most securely in place and those that require attention

4. Working on the top 20 drivers will deliver the greatest improvements

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Conclusions

5. Improving structures and processes may be prerequisites for strengthening governance. Making significant improvements, requires work on behaviours

6. Greater diversity also contributes strongly to better delivery of governance roles (although may make team working more of a challenge)

7. Among the UK’s largest charities the top 20 drivers with the greatest potential for improvement include:

Regular reviews of governance and individual performance Greater focus on strategy Praising management Working as a team

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Obtaining the full report

“Delivering Effective GovernanceInsights from the boards of larger charities”

Mike Hudson Jacinta Ashworth

Available from Directory of Social Changewww.dsc.org.uk/guc

Chair’s role is critical ………but even a good chair can’t do it alone

Personal effectiveness“Personal effectiveness means making use of all the personal resources at your disposal -

talents, skills, energy and time to enable you to achieve both work and life goals.

How you manage yourself impacts directly on your personal effectiveness. Being self-aware,

making the most of your strengths, learning new skills and techniques and developing

behavioural flexibility are all key to improving your personal performance.”

1. What can an individual trustee do to improve board performance?

2. Given that team working is key to improving governance, how do you engender trust and team working in a board/how do you make a group of talented individuals greater than the sum of their parts?

3. Any questions you would like to pose for us…

Questions for discussion

Higgs report

Advice for non-executive directors

• Question intelligently

• Debate constructively

• Challenge rigorously

• Decide dispassionately

Additional resourcesGood Governance: A Code for the VCS - http://www.ncvo-vol.org.uk/codeofgovernanceThe Good Trustee Guide, NCVO, 2010 - http://www.ncvo-vol.org.uk/products-services/publications/good-trustee-guide NCVO’s Annual Trustee Conference - http://www.ncvo-vol.org.uk/trusteeconference2013 NCVO’s Events and Training calendar - http://www.ncvo-vol.org.uk/training-events