POWER AND GOVERNANCE
Don Tosti
Dynamic systems left on their own without some means of regulation will soon become
erratic and eventually disintegrate We often use the term “out of control” when describing
such systems. That control force in such systems is often referred to as governance.
Governance is an important force in all organizations. It is absolutely necessary to keep
them functioning efficiently and to allow them to adapt to changing environmental
conditions.
In business organizations, governance is executed through the power of the
organization’s board and its managers. The term “power” often evokes emotional
responses in people but in a business setting we need to look at power in a wholly
rational way. In physics, we define power as the capacity to accomplish work. We can
use a similar definition for organization power. That is we can define organizational
power as the capacity to accomplish desired results. In both cases, the simplest way to say
it is POWER is the capacity to accomplish.
The means by which this capacity is enabled in organizations takes two forms.
First, through the control and allocation of resources to achieve desired results. This is
referred to as governance power.
Secondly, through the influencing of people to take appropriate actions to achieve
desired results. This form of power is referred to as leadership power
.
Both governance and leadership power should ideally be focused on the effective
realization of the organization’s strategic goals. This means that organizational results
should be the primary driver of both governance and leadership action. Unfortunately, this is
not always the approach taken. Leadership practices in particular are seldom viewed in
terms of what is necessary to do to accomplish the mission of the organization. Instead
most leadership development is usually based of someone’s leadership theory. These
theories are typically not results driven but instead built on some analysis of traits or
styles.
The performance view starts with a desired business result e.g. -the value we are
trying to create for our stakeholders, and work back from that to determine what the
best governance and leadership approaches should be for a particular organization.
Politics
Politics are not only inevitable, they are absolutely necessary for a large organization to
function effectively. Politics, in its basic form provides a means of reaching an agreement
on priorities in results and resources. The alternative is governance by a single
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individual. This may work for a while in small privately held organizations. But it is risky for
any organization particularly a large one to rely solely on the judgment of a single
individual.
Positive politics involves the legitimate contention for resources. Since every
organization has more goals than it has resources, there must be some degree of
contention in the organization in order to maximize the system’s response. Positive
politics provides answers to question like. “What should we focus on? Where should we
concentrate our resources? What’s the best way to create the highest value for our
stakeholders? And so on“
This is a challenge that organizations constantly face, and one, which is beneficial if the
politics are played above-board, with clear guidelines and rules. Positive politics is
always focused on maximizing the benefit and value to the company and its stake
holders. It is not positive if it benefits only a small group to the determent of the whole
company. (This is where many companies have problems. Too often individuals try to gain
resources based on what’s best for their group or themselves, rather than what’s best for
the company.) Some administrative governance systems such as budgetary approvals and
so-forth are designed to help reduce this tendency, but they are not foolproof.
We often use the term governance only when we refer to the actions of the board of
directors and that area of governance is of course critical to the success of the
organization, but in fact, governance processes occur at all levels of the organization
from the boardroom to the show room. And they may apply to everyone – senior
managers and front line employees alike. All those that have some influence on the
control and allocation of resources.
Since we’re dealing with a system and that system functions across many levels, one of the
most important considerations in governance is its alignment. As we said, power is the
capacity to accomplish and then the question is “Accomplish what?” If that
accomplishment is consistent with the mission and vision of the company, then the
alignment is positive. If, however, that accomplishment benefits some other
constituency, or is out of balance in some way, (e.g. too much focus on shareholders rather
than customers) then we may have an alignment problem. Most misalignment occurs
because of internal issues, but misalignment can also result from changes in the external
environment as well. If the organization becomes misaligned with its external environment
disaster can occur. For example as markets change, many companies are in a better
position to thrive than are others. Recently many hi-tech companies simply went out of
business or were forced to merge with other organizations to survive as the information
technology market changed so rapidly.
THE GOVERNANCE PROCESS
We can look at governance at all three levels of the organization; that is at the job level, the
operations level or the organizational-administrative level... Let us take an example from
the operation level. Suppose we want to create a new customer handling process.
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Usually there’s kind of an up-front design and planning phase: Then there is the
implementation and execution of the new processes and finally there is a follow-through
and revision as necessary. There are many ways to describe this process, but one of
the most convenient ways is to see it as consisting of three phases: Plan, Do and
Review.
All governance planning involves decision-making. Two things we have to consider in
planning are assuring alignment with the organizational goals and the allocation process
itself
Doing also has two parts - the assignment or approval of actions and the initiation of
those actions
Reviewing involves two elements here as well. One is the assessment of the results
and the other is the adjustment one takes in response to that assessment.
The quality of the governance can then be analyzed in terms of these six elements and how
well they are executed .Particular governing groups may vary to the extant they are
responsible for all of the six so the test of their governance quality depends on how well they
consistently execute their duties well
The six elements of Governance power
As we noted governance power consists of six primary functions:
1. Alignment: ensuring coherence and reasonableness of the organization's
direction. This requires clarifying what the organization is trying to accomplish — for
example, its product and service goals; its targets for profit and return on investment —
and ensuring that these are right for the organization and its stakeholders, given the
such factors as the organization's environment, competition, and resources.
2. Allocation: committing sufficient resources to achieve the goals. There will always
be more potential goals than an organization has resources to accomplish. The
board has the primary authority to allocate the company's resources against goals in
accordance with its view of the relative importance of those goals, but the act of
allocation goes all the way down to supervisors who allocate his/her limited resources.
3. Approval/Assigning: screening and selection of projects and people. At the board
level, such approval decisions are normally reserved for major projects, particularly those
which seem to be outside the "guidelines" or are in exception to the existing
organizational goals, but some kind of approval is made at all levels in the
organization.
4. Acting/implementing: Activities must not only begin but must continue. This
requires some degree of continuing support. Board member must not “lose heart”
too soon. We all want quick action but it is important to stay the course until there
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is information that indicates otherwise. Too many “canceled” initiatives can result in
distrust
5. Assessment: evaluating decisions regarding the organization and its people against
desired results (e.g. corporate or departmental goals). This requires that measures be
established and data gathered. Since the assessment might also be useful to
provide feedback to the system much of this information must be actionable. (Not just
“scorecards” but “dashboards”)
6. Adjusting: based on the feedback from the assessment function there may need to
make adjustments or alterations in what we do or in the way we do it.
These six A’s of governance power are done well or less well in every organization. To
the extent that they are done well they work to assure the success of the organization. This
is critical at the Board level but to the extent good governance is pervasive through all
levels of the organization, the power is amplified. One of the saddest things is to see a
successful CEO take over a new company which has much less effective governance
process at the lower levels than he/she is used too. It’s like having a top pilot fly an
aircraft that has been poorly maintained.
SUPPORT FOR EFFECTIVE GOVERENANCE POWER
The following conditions will support governing bodies in making more effective
decisions — decisions that result in clarifying organizational direction and setting
boundaries or frameworks that free people to perform effectively, rather than restrict or
inhibit them.
1.
Clarify purposes: Gain agreement among decision-makers on the overall
purpose (goals and priorities.) At the lower levels these must be aligned and
approved by those to whom the group is responsible, the y also must in turn be
communicated to those who will be affected by the decisions.
2.
Establish/approve responsibilities: Gain agreement as to key
responsibilities in performing governance power functions. For example,
obtaining and evaluating information, assessing feasibility, risks, and
benefits, methods of monitoring and communication. Designate who will fulfill
these responsibilities
3.
Establish/approve processes: Put processes in place that will keep the
board well-informed and focused on key governance power issues. Primary
among these are setting agendas and guidelines for governance meetings, and
creating support processes that function across levels
4.
Establish decision-making criteria: Agree on the primary criteria against
which decisions will be tested. For example: impact of the decision on short4
and long-term goals; impact on key constituencies such as employees,
customers, shareholders, and others. While it will sometimes be necessary
to make decisions that do not meet all criteria, the group must be clear about
the nature of the trade-offs it is making.
5.
Establish ‘champions’ for key issues and constituencies: Gaining a
balanced representation of the needs of key constituencies, and full
consideration of both long- and short-term issues can be significantly
facilitated by identifying ‘champions’ within the group. Each champion would
take responsibility for keeping fully informed on their constituency and/or
ensuring that their constituency or issue is fully and accurately represented.
GOVERNANCE POWER AND BUREAUCRACY
The board does not run the company. It’s decisions regarding actions must be delegated.
The activities of approval and assessment must provide a strong but flexible control /
maintenance function. This is necessary to make sure the organization retains its
integrity and does not operate out of control. Unfortunately, too often these
maintenance functions become the dominant means of exercising governance power
and the result can be the creation of a crippling bureaucracy. Most organizations create
formal ways to accomplish alignment and allocation through a planning and objective
setting process. The problem is that these processes are “fixed” methods for dealing
with what is essentially a dynamic ever changing system. For example budgets are a
fixed ways of allocating monies but there also must be ways of getting approval for
variances in order to meet unanticipated needs or peruse new opportunities. What takes
precedent here, doing what is right for the business or conforming to the administrate
requirements. Over control can result in building and maintain “forts” while the enemy,
i.e., the competition, swirls around from behind.
As one corporate director of planning said, “Slowly, plans do not happen.” We are not
questioning the importance of “static” processes (e.g. planning and objective setting).
However a significant portion of the variance of organizations is not dealt with through
plans or budgets. They are, in fact, reflective of an ongoing need for re-alignment and
re-allocation. That is best done through a dynamic governance process. They are the
“thermostats” that measure the organizational alignment on a daily basis. It is the major
reason we need governance meetings in organizations. Yet the purpose of governance
meetings is often distorted because of the way in which we conduct those meetings. A good
governance power meeting has a structure and flow. That structure and flow
process exists from the top to the bottom of the organization at all levels. If an
organization can discipline itself to conduct proper, regular meetings, they can be very
effective.
Independent Tests of a governance meeting (from board room to shop floor)
1 Do they face the future and avoid being mired in the past or overly concerned with
the present?
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2 Are ground rules established and adhered to?
3 Do they use decision-making process that employ divergent thinking process (generating
alternatives) followed by convergent evaluation (evaluation and agreement on a course of
action)?
4 Is their agenda focused on issues and the agenda adhered to?
5 Do they rely on using business cases linked to organizational goals and operating
principles for considering exceptions?
6 Is there full participation and are disagreements addressed?
7 Is consensus-decision making, preferred over ‘majority’ decision-making
8 Is there a balanced focus on considering opportunities as well as problems?
9 Look for signs of problems:
Threats, intimidation
Silence on the part of one or more members in relation to certain
issues and decisions
Late arrivals, early departures, interruptions
Focus on blame, fault -finding, continuing review of past
mistakes
Decisions reached apparently to end a difficult discussion or
placate a member of the group
Decisions frequently reached between or among a few members
of the group and then announced to, or urged upon, the rest
Decisions made for self-centered political reasons alone
If you are a member of a governance group
1. Do you feel we have allocated our resources and correctly established our
priorities? (If that did not occur, did you voice that view during the meeting?)
2. Are commitments to action clear and do you honestly believe that the various
members of the team will support them to their utmost ability?
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3 Were people listened to and their opinions valued by the team and the chairman?
4. Did we attempt to build on each other’s ideas?
5. Did we challenge and accept challenge from others?
6. Do you feel the members of the board are, in fact, aligned in terms of their goals,
or do you see that there are significant conflicts that have not been raised or
dealt
If the answers to the above six questions are "positive," you've got a great team and the
governance power of your companies board, department or work team should produce
highly productive results
.
EFFECTIVE GOVERNANCE POWER
John Pound (1995) noted in an article that “corporate management power is not, at its
core, about power; it is about finding ways to ensure that decisions are made
effectively.” He described the beginnings of a movement from what he calls the
managed corporation in which the role of boards is confined largely to hiring,
monitoring, and occasionally replacing management to the governed corporation in
which the board’s role is to ensure effective decisions and the timely reversal of failed
decisions or policies. We must get rid of the legacy of Kings which too often creates an
uncaring atmosphere of exploiting employee, disregard of customer satisfaction, and
paranoia amidst the company managers.
Ensuring effective decisions is the heart of the governance power. We believe
governance power is not so much a structural issue as a process issue. Our emphasis
in this paper was on the “how of power.”
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