Board governance plays a crucial role in a company's strategic growth. It covers both the social and institutional aspects of a company by establishing principles, processes, policies, defined responsibilities, and more. Sometimes these aspects can be challenging for the corporate board to bring together without a framework or process in place. In order to have these elements work cohesively, a company establishes an optimal model for its board governance. There are many standard frameworks that various companies use.
These governance models or frameworks do not just guide how a board is structured but also how the business will function. It is no longer enough to focus simply on the tasks that need to get done. Instead, these tasks have to be aligned with an organization's strategy, goals, and capabilities. Any model that does not consider these aspects can result in inconsistent performance, diminishing returns on investment, and misdirected resources.
To ensure accounts do not fall victim to these pitfalls, owners must first use an appropriate board governance model that closely aligns with the company's work and goals.
That being said, here are some of the prominent frameworks of board governance:
THE TRADITIONAL GOVERNANCE MODEL
This is the oldest and most common board governance model. It is the model companies typically use when they are forming a board. The structure usually includes a chairperson with a parallel management structure, while other members of the board act as advisors by assisting the CEO or president in formulating the company's goals and objectives. In this model, the board of directors commonly acts as a collective voice for all matters.
THE EXECUTIVE BOARD MODEL
An executive board is a highly active governance model where all members of the board are engaged in day-to-day operations. In this model, the chairperson is elected by the board. Executive boards typically meet at least monthly to address company concerns, such as strategy development and employee issues.
The board will often organize operational, financial, and risk management and reporting processes so that they are receiving ample information from all departments in order to ensure the business is running strategically and adhering to compliance requirements. This also includes paying attention to technological updates, such as software, IT, and cybersecurity.
THE ADVISORY BOARD MODEL
Under this governance model, all members of the board have extensive knowledge and experience in a specific field or industry and provide feedback and guidance to CEOs on business opportunities, ideas, and approaches that may improve the growth or efficiency of their companies. This often manifests when the CEO realizes that they need some help in running the organization. In this situation, the board of directors is who the CEO turns to for advice and guidance.
It is normal for advisory boards to meet with CEOs quarterly or even less frequently. This type of model is common for non-profit organizations in which a board of directors is consulted for advice on affairs such as fundraising or sponsorship.
THE EXECUTIVE MANAGEMENT TEAM MODEL
This is more of an open-ended governance model wherein there are no strict roles or responsibilities given to each member of the board. This approach allows for more flexibility and transparency among executives. It is a popular framework of board governance for small to medium-sized businesses.
Because of how transparent this model is, there are different ways in which companies manage this framework. The most common way is a corporate model where the board of directors is split into committees that oversee different departments of the company.
WHICH FRAMEWORK SHOULD YOUR BUSINESS FOLLOW?
The good news for company directors is that there is a wide range of board governance models to choose from. The bad news is that no one model will likely be a perfect fit for every business. Good corporate governance comes from keeping in mind the company's people, processes, goals, and purpose. It is critical that the right model be put in place to match the priorities and objectives of the organization. This can be a particularly tricky task, seeing as each business is unique and, as such, should require a unique approach.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
