Boards in the UK are under tremendous pressure to perform. A board portal provides much-needed support, but Enterprise Governance Management goes to the heart of what boards need to achieve.
Getting Enterprise Governance Right
Certainly, the board of directors needs all the support enabled by a high-quality board portal.
The board portal provides for secure communications, as well as a library of materials always at hand and with access controlled to the specific users who need them.
But there is terrific pressure placed on directors in the UK today for efficient performance: Boards are evaluated by shareholders with increasing attention to what contribution they make to corporate success, as the Institute of Chartered Accountants in England and Wales notes in a report. That means much more is needed from board support software.
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Enterprise Governance Management: A new dimension
The “Enterprise Governance” concept is being increasingly applied to define and evaluate board performance.
Enterprise governance is defined as “the set of responsibilities and practices exercised by the board and executive management with the goal of providing strategic direction, ensuring that objectives are achieved, ascertaining that risks are managed appropriately and verifying that the organisation’s resources are used responsibly,” according to a study by the International Federation of Accountants (IFAC).
At the centre of enterprise governance is the balance between “conformance’ and “performance.”
“There are two dimensions of enterprise governance – conformance and performance – that need to be in balance.
- Conformance is also called “corporate governance.” It covers issues such as board structures and roles and executive remuneration. Codes and/or standards can generally address this dimension, with compliance being subject to assurance/audit. There are also well-established oversight mechanisms for the board to use to ensure that good corporate governance processes are effective (e.g., audit committees).
- The performance dimension focuses on strategy and value creation. The focus is on helping the board to: make strategic decisions; understand its appetite for risk and its key drivers of performance; and identify its key points of decision-making.”
In a study by the London-based Brunel University, researchers found that companies tend to prioritise only one of the two dimensions of governance within Enterprise Governance: monitoring managerial performance to ensure the accountability of management to shareholders. What tend to be neglected are the mechanisms that motivate management to create and optimise shareholder wealth. It is the entrepreneurial aspects of Enterprise Management that boards lose sight of just at the very time that pressure mounts for boards to contribute to improved corporate performance.
The IFAC report comes to the same conclusion: Boards tend to concentrate on getting the compliance aspects of Enterprise Governance right, and do not spend enough time on making the company a stronger one. They think about accountability to shareholders, but not enough about driving management achievement:
“The performance dimension of Enterprise Governance focuses on strategy and value creation. The focus is on helping the board to: make strategic decisions, understand its appetite for risk and its key drivers of performance, and identify its key points of decision-making. This dimension does not lend itself easily to a regime of standards and audit,” the report points out.
Instead, to reinforce the performance dimension, the aim should be to develop a range of best practice tools and techniques that can be applied intelligently in elaborating the components and gauges of performance.
This “oversight gap” is a significant issue. “At the heart of enterprise governance is the argument that good corporate governance on its own cannot make a company successful. Corporate boards must balance conformance with performance.”
Enterprise Governance strategy falls behind the times
Because performance has no oversight committee to gauge its progress, many companies fall behind the times in strategy. This is particularly dangerous today, as we live in a time of rapid transformational change. It is easy for companies to fall behind the movement of trends or environmental changes. They fail to see the threat on the horizon, and don’t notice it until it looms right over them and it is too late for action. Even then, they sometimes fail to question or challenge what is happening. In the end, an even more aggressive transformational change may be required – often when the health of the underlying business has deteriorated considerably.
“One possible way of addressing the Enterprise Governance oversight gap is through the establishment of a strategy committee which would undertake regular reviews of strategy and have the right to access external advice if necessary. It should be emphasised that such a committee could only be a ‘preparatory committee’ for the full board, which would still be responsible for major strategic decisions. The ultimate aim of such a committee would be to better inform the full board’s deliberations over strategic decisions,” the study suggests.
In terms of the Enterprise Governance framework, boards are good at assessing risks and managing them, but slow to look beyond the immediate context for risk. To change this, support for Enterprise Governance could make a marked difference to the performance dimension of boards.
Diligent Enterprise Governance Management
Enterprise Governance Management (EGM) is the discipline of applying technical tools and resources to the full range of governance needs to govern at the highest level and deliver long-term success and sustainability.
“Governance, in its essence, is leaders using the right information and controls to direct an organisation, which can be facilitated by technology,” says Brian Stafford, Chief Executive Officer of Diligent. “Governance solutions allow board directors to consolidate information, so they can ask better questions, make better decisions and better shape the future of the organisations they serve.”
At Diligent, we recognise that our product offerings fall into the greater Governance, Risk and Compliance (GRC) category. Today, this category has a host of integrated solutions that address risk and compliance, but few that focus on governance. Where offerings do exist, they are not developed for the full spectrum of governance roles and responsibilities.
Diligent is the only provider of a comprehensive governance management solution.
The simple answer to the question of why we created a new category of governance solutions is that no one else was doing what we were doing. CEO Brian Stafford explains it this way, “The best way for us to share our vision for Enterprise Governance Management was to give boards the products they needed and demonstrate how we could shape solutions to their needs over time.”
August 21, 2018
Enterprise Governance Management – Why You Need More Than a Board Portal
Boards in the UK are under tremendous pressure to perform. A board portal provides much-needed support, but Enterprise Governance Management goes to the heart of what boards need to achieve. Getting Enterprise Governance Right Certainly, the board of directors needs all the support enabled by a high-quality board portal.
July 31, 2018
Importance of Using Secure Software for Board Evaluations
UK boards in board evaluations often see conflict among board members, and that can lead to the leak of confidential information.
February 22, 2018
What is Enterprise Governance Management
If the term Enterprise Governance Management (EGM) sounds unfamiliar, it should. It’s a new term that Diligent is introducing into the market. In the Governance, Risk and Compliance market, there are plenty of point solutions for Risk and Compliance, but there is a lack of attention paid to Governance solutions.