In response to Tony's governance questions

Last week Tony Fish Tony Fish listed some great questions about board governance and challenged me to share my thoughts. So here we go.

What are your thoughts on this? Feel free to contribute to the original discussion here: https://www.dhirubhai.net/pulse/questions-i-am-thinking-tony-fish/

1. What is the reason that directors/ boards turn-off, become aspirated and get annoyed when the word "governance" is mentioned?

The word “governance”, like “compliance”, can mean everything and nothing. In most board-level discussions, the word Governance is used as a blanket statement. Questions like “Do we have good data Governance” mean nothing unless you qualify what data, in what context, for what purpose and with what desired outcome.

2. Why are compliance and governance grouped together and interchangeable?

They are indeed grouped together, but in my eyes, they are not interchangeable. In my recent article, I spoke about what compliance is (or might be), which essentially is monitoring that rules are obeyed. Governance is a much wider topic. It is the framework of how you plan to run AND supervise your organisation in a robust, predictable and efficient way. In my mind, compliance is the gatekeeper in a much bigger governance framework.

3. When will directors individually, or a board, be required to delivery provenance for their decisions that are based on data?

Not sure, that’s up to the supervisory authorities. But it is just as important to be able to demonstrate what information you had available, and reviewed, at the time of a decision and to record the decision outcomes as it is to take the decision itself.

4. Why are board relationships with their executives, shareholders, employees, customers and regulators so antagonistic and confrontational?

I would not say that it is always confrontational. When it is the case, we have to remember that the board carries a fiduciary responsibility towards the shareholders. Still, the main responsibility is to ensure the success of the company. That means the board is sandwiched between structurally opposing views and ask difficult questions and sometimes make decisions that not all stakeholders will like.

5. Is good governance about an agreement or a compromise? How much diversity creates better outcomes?

Boards should strive for agreement; for non-critical matters, compromise is agreement too. The alternative would be “agreed disagreement”, but with a mechanism that still allows the board as a unit to take a decision.

6. As delegated authorities become automated, who is accountable and or responsible for outcomes?

In my years running a depositary business, I learned this: “you can delegate activities but not responsibilities”. This means the delegator remains responsible, even if things are automated, which means it is important to really understand how the delegated or automated activity is running and how you can be notified of shortcomings.

7. There is a real threat from legal and or regulatory action for failures in compliance, and this is a real concern for directors who have 100% liability. Therefore the outcome is surly do the minimum to avoid the pain and threat. 

No! Doing the minimum is the whole problem. I believe that directors should have much more information available than the quarterly board pack because in a quarter a lot can happen. Also, just basing decisions on supervising the executive management based on a report that comes from that executive management is a risk. The board should be pro-active to monitor the business and ask questions actively.

8. Compliance equals pain and threat; as humans, we are designed to avoid both. We don't readily run into the arms of pain, and we try not to court threats. Therefore is doing better than the most bast level of compliance always going to be a problem?

I disagree that compliance equals pain. The problem is that compliance is often considered to be a “burden on the business”, but in regulated environments, compliance is part of the business. Without compliance, there can be no regulated offering. When we accept that simple fact, it becomes a lot less annoying. And when you automate the repetitive and manual controls, compliance can show you things that help improve your business.

9. Finance is a board issue, yet we don't expect the board to know everything about all financial matters. What aspect(s) of resilience are board issues?

Opinions seem to be divided here. My personal view is that boards should know more than just the high level, and have the ability themselves to drill down into matters. Always relying on the executive funnel slows down board oversight. With modern data management and process automation tools in place, this becomes increasingly easy.