Good governance does NOT guaranty good leadership! And sometimes, good leadership survives bad governance.

Consider some of the ways to value the quality of governance, and how to enhance the “governance – leadership” dynamic, so that the organization grows faster, better, and stronger. 

In theory, governance becomes critical when the owners – individual, family, group, stockholders – are not involved in the day-to-day operation of the organization. A leader is selected, (ideally) qualified to run the show, and is incentivized to produce the goals of the owners.

BIAS

My views are colored by board service with a NYSE REIT (FPO), a family-owned developer and manager of hotels (Daly Seven), and a national non-traded securities association (ADISA).

If you really know one board of directors, you know…ONE board of directors!  There, are, though patterns to consider.

DEFINITION

From “down under” (the Corporate Governance Institute of Australia) comes this definition Governance encompasses the system by which an organization is controlled and operates, and the mechanisms by which it, and its people, are held to account. Ethics, risk management, compliance and administration are all elements.

CLEAR MISSION

Consistent across all organizations is this one theme (I believe first stated by Yogi Berra) “If you don’t know where you are going, you might end up some place else!” The clearer is the stated mission of the board, the better chance leadership will succeed, and the better staff operating day-to-day will make the best (of sometimes no good) decisions in the moment.

W5H – Consider the following component parts when doing your analysis of the governance of an organization.

Who?

Do each of the members either bring unique competence (e.g., they have developed in a prior life what the organization sells) or sufficient independence (e.g., where they are not connected to the leader)? The quality of the members is typically the first crack to be discovered in your analysis; sometimes they are just there to say yes when asked to vote!

What?

Good governance is NOT telling leadership what to do (as that feels like a parent dealing with a five-year-old!). Generally, the leadership drafts a mission for consideration and amendment by the governing body. 

When? 

When a company is registered with the SEC, most of the board must be independent of the company.  When the company is listed (e.g., on the NYSE), additional requirements fall into place.  This is NOT a requirement for a company which is a partnership or an LLC (e.g., a Reg D 506(b or c)) even if it takes REIT tax status. 

Where?

Geographic dispersion of board members is a cost wasting attempt to make poor quality look special. 

Why?

Owners lose touch (with market, team, competition, technology, finance) once they no longer are daily active in the organization.  Good governance is STP – giving the organization a boost needed to challenge current opportunities.

How?

Are all the votes of the board unanimous? If leadership and board agree on everything, at least one of the two is superfluous! Board members, individually and collectively, provide leadership insights and well considered questions to help drive the organization in the right direction to accomplish the mission (see above).

BOTTOM LINE

Quality governance allows, for both the owners and the leaders, a means for an organization to grow faster, better, and stronger.

It may sound a little like Goldilocks and the Three Bears. The board can be too strong, the board can be too weak, and occasionally, it can be “just right”!

Both the governing body and the leader(s) need share a passion for competition, much like a coach and quarterback in football.

Neither is EVER completely satisfied with the other; both recognize both need to succeed for either of the two to succeed!