The Friday Essay – Our Dogs 23/11/18

OD Governance 211118

The wrong sort of governance?

The Kennel Club has faced an unprecedented period of turmoil since a group of members first submitted their requisition for a Special General Meeting calling for the resignations of three Directors.

At first glance, the concerns of the requisitioners could be attributed to matters of governance. They asked questions about authority, responsibility, decision-making and processes.

All this should be somewhat surprising given the focus on governance that has been evident under the leadership regime of the past 3 years. We have had reviews of strategy and objectives, new codes of ethics (for members and volunteers) and a seemingly endless stream of documents covering guidance, best practices and regulation of our hobby. We also had statements from the former Chairman, Simon Luxmoore, stating that the Board was now working very effectively as a team. We had re-structuring of Board sub-committees and are led to believe that further reviews of these structures are underway.

Despite all this “governance”, the leadership of the KC finds itself splashed across the national press as well as being the subject of almost continuous discussion within the dog world.

Of course, the KC isn’t the first organisation to find itself and its approach to governance under scrutiny. Much has been written about the financial crisis of 2008 and the extent to which this was caused by failures of governance. The following comments refer to the governance framework that existed in the finance sector:

“…among the central causes of the financial and economic crisis … has been a widespread failure of corporate governance.”

“The current economic crisis has led many investors to raise serious concerns about the accountability and responsiveness of some companies and boards of directors to the interests of shareholders, and has resulted in a loss of investor confidence.”

It is important to remember that the finance sector was (and still is) one of the most regulated, yet the behaviour of Boards and “maverick” employees was a major factor in causing the crisis.

In 2009, Sir David Walker reviewed corporate governance in UK banks following the crisis. His unexpected finding was that “principal deficiencies in boards related much more to patterns of behaviour” than to their organisation. A report prepared by the Institute of Chartered Secretaries and Administrators (ICSA) also found that “appropriate boardroom behaviours are an essential component of best practice corporate governance”.

More recently, we have had high-profile failures of governance in the charity sector such as unacceptable fundraising practices and the closure of Kids Company which ran into financial difficulties. Its Chief Executive, Camila Batmanghelidjh, stepped down but denied the charity had been mismanaged. She told the BBC that Kids Company had been subjected to a “trial by media” based on “rumours and conjectures”. Alan Yentob resigned as the BBC’s creative director in the wake of controversy over his role as chairman of the Kids Company charity. He had faced scrutiny for his role in its financial mismanagement and faced claims he tried to influence BBC coverage of the charity’s demise.

Increasingly, I’m hearing the terms “Behavioural Governance” and “Process Governance” which are used to differentiate the two strands any organisation needs to implement successfully. All too often, Boards focus on Process Governance. The further they are from the grass-roots (customers and service users), the more they tend to develop process-based policies to control people that they don’t know or don’t see. A recent leadership blog included this quote: “Leaders who love policies, hamper leadership and hinder organisations”. It is equally true to say that you can have the best policies in place but if they are not respected or followed, they are useless in improving governance.

A new Charity Governance Code was published in July 2018 and, according to the ICSA, where previous versions of the code were criticised for being overly focused on processes and procedures, the new version tries to find a balance between the mechanics – the policies, procedures and processes – and the dynamics – the people, behaviours and culture – of good governance.

The new code suggests 7 principles that should be adopted for good governance:

  • Organisational purpose – there must be a clear and shared understanding of what the organisation is trying to achieve
  • Leadership – should be strong, ethical and visible, as the culture of an organisation is set from the top
  • Integrity – leaders must act in a way that creates and sustains trust in the organisation and safeguards its reputation
  • Decision-making, risk and control – the Board is ultimately responsible for the organisation’s decisions and actions but should not be involved in operational matters
  • Board effectiveness – the right people need to be appointed and they should be competent for their role
  • Diversity – Boards with members whose backgrounds, experience and thinking are diverse are more likely to make better decisions
  • Openness and accountability – Board members must act in line with their duties and in the best interests of the organisation, with genuine 2-way communication and a willingness to learn

It’s pretty clear that these principles should apply to any organisation. The impact of the behaviour of an organisation’s leaders runs through all 7 of these principles. One of my clients uses the term “The shadow of the leader”. Leaders cast a powerful shadow that influences everyone around them. They shape the culture of the organisation around them by a combination of their behaviours and their messages. Leaders must behave the way they want their followers to behave. People aren’t daft; if you say one thing and do another, they see the discrepancies.

So, is the current turmoil at the KC a result of a failure of governance? I suspect we’ve had too much “Process Governance” and too little “Behavioural Governance”. In my opinion, the pendulum needs to swing towards the latter; that’s part of what members and non-members alike are calling for.

The following quote from Professor Lucian Bebchuk about the need for change in the finance sector could apply equally well to the KC today.

“By creating a large public demand for reforms, the current crisis offers another opportunity to improve governance arrangements. This opportunity should not be missed.”

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