Friday 3 February, 2017

Corporate governance refers to the rules, relationships, policies, systems and processes whereby authority within organisations is exercised and maintained. The residential sector of aged care has evolved over the years to embrace accountability reflected by governance frameworks which recognises both internal and external influences: internal (constitution and organisational policies) external (laws, regulations and community expectations). The Board of Directors play a pivotal role in influencing an organisation’s governance environment.

What makes an effective framework?

Effective governance frameworks challenge organisations to demonstrate that strategy and outcomes are being delivered at optimum levels while maintaining and adhering to all necessary legislation and regulations. An effective governance framework should demonstrate: contribution of individual directors; effectiveness of the board and board performance; how governance is applied throughout the organisation; and the strength of the relationships the organisation fosters with its stakeholders. (AICD, 2016)

The Board Charter and Organisational Policy Framework should articulate the government mandated framework. This directs the actions of the Board’s planned strategy and expectations in accordance with internal guidelines that reflect the organisation’s expectations and intent with external legislation and regulation requirements.

Risk Management enables the Board to anticipate and build defence against potential threats both internally and in terms of market opportunity. Typically, the Board should be informed by committees that oversee risk and identify potential mitigation, protection and opportunity strategies. The Risk Charter and member composition are essential guidelines for purpose and responsibilities

Other Committees

The number and type of board committees can vary based on organisational size, the organisation’s constitution, and regulatory requirements. Committees can include:

  • Remuneration committee
  • Audit committee
  • Risk committee
  • Investment committee
  • Fundraising committee

Great Governance is…

1. Accountable

Accountability is a fundamental requirement of good governance. The Board has an obligation to report, explain and be answerable for the consequences of decisions it has made.

2. Transparent

People should be able to follow and understand the decision-making process. They should be able to clearly identify how and why a decision was made – what information, advice and consultation was considered, and which legislative requirements (when relevant) were followed.

3. Law abiding

This means that decisions are consistent with relevant legislation and/ or common law

4. Responsive

The Board should always try to serve the needs of the entire organisation while balancing competing interests in a timely, appropriate and responsive manner.

5. Effective and efficient

The Board should implement decisions and follow processes that make the best use of the available people, resources (financial and material) and time to ensure the best possible results. (VLGA)

When it goes wrong…

Without good governance organisations can suffer pitfalls with severe consequences. Giants of the corporate world such as General Motors, Blockbuster Videos and Kodak, for example, have failed in the area of governance, clearly missing the warning signs from competitors and following outdated strategies in changing environments. When an organisation is lacking good governance, the signs are usually quite clear.

The signs to look for include:

  • Insufficient information at Board level and directors not asking or knowing the right questions to ask.
  • Ignoring failures, choosing not to analyse causes and issues.
  • Lack of response to industry changes, either proactively or reactively. The latter usually indicates failure to understand any impact on business.
  • Mismanaged risk and wrongly assumed risk tolerance as in rapid growth strategies.
  • Negative organisational culture.
  • Lack of Board expertise in relevant industry.

Successful governance

In conclusion, overall successful governance is predicated on the ability of the Board and Senior Management to demonstrate how it operates within a framework that holds the organisation accountable. A framework that clearly articulates the impact of corporate activities on all stakeholders. Boards should take ownership of governance by ensuring strategy is reviewed and assessed on a planned periodic basis. Measures to assess progress against the strategy should include time to detection, speed of response and recovery processes. (ASIC 2016)

 

Does your organisation tick all the boxes for best practice in the framework for good governance?  For more information, contact the Health Metrics Advisory Team on 1300 810 119 or email enquiries@healthmetrics.com.au.

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