The 4 flows – getting governance right!!

The 4 flows – getting governance right!!

Does the following sound familiar?

You manage a team or department (or even a whole company). You go about your daily routine making and implementing decisions. You may even be extremely successful. But you have a nagging feeling that things are not quite what they should be. You know that at times you make decisions that you are not actually sure you should be making, or you feel pressure to behave/perform/ act in a certain way that makes you feel a bit uncomfortable. You may even get instructions that while unclear you feel you cannot really question – ‘just do it, make it happen – we don’t really care how, whatever it takes!’

Over time, since all these things tend to grow over time, you start to feel less and less comfortable in your position, and more and more vulnerable if,  and when, things go wrong. Ultimately you start to look, for something else, another job, another business to start, other partners – just something different in the hope that it will really be different. Too often on finding the new thing time and experience confirm that nothing is different – just the same in a different disguise!

Is this really the way business should work, are we not all taking some huge risks, are there any solutions out there? Fortunately, the answer is ‘yes, very much so’. The problem is that the answer is contained in a word that many businesses simply ignore because they think it doesn’t apply to them. It is only for the ‘big businesses’ or only for the ‘corporates’ ( and too many people start businesses to flee the corporate life which is in itself a whole other conversation!).

The word I am talking about is governance. Yes, governance, the word that makes most small and growing business people roll back their eyes, shrug and say – ‘doesn’t apply to me’, or even ‘you can’t be serious, I don’t have time for that!’

Governance is the solution, but governance in a way that is applicable to all businesses all the time, that does not have to absorb any time in managing and policing but governance that actually enhances performance and protects people. A pipe dream?  Fortunately not.

Let me explain!

Every business, or more accurately the people who run the business (whether shareholders/owners or directors or managers – the distinction between these is another conversation for another time), have a purpose in mind for what the business wants to achieve. Let’s call this the strategy of the business. The people (or person) who run the business (let’s call them the directors of the business) are the ones who are ultimately accountable for the achievement (or not) of this strategy.

In order to achieve this strategy effectively and efficiently, and not kill themselves in the process through overwork, the directors need to find other people to help them as the business grows. In order for the directors to ensure that the strategy remains the main thing the business works towards they need to ensure that these ‘new’ people have a very clear understanding of what they are expected to do – and how they will be held accountable for doing it. Let’s call this their performance. To hold people accountable for performance requires 4 things – what I would like to call the ‘4-flows’. In a nutshell, the ‘4-flows’ is what governance is all about – get them right and you will have got governance right.

The 4-flows are (let’s define the terms):

  1. Accountability – accountability means ‘who actually is ultimately liable for everything,  good and bad, that the business does as well as the impact of its activities on others’. The answer – the directors of a business (as distinct from shareholders/owners and managers – as mentioned above the subject for another conversation).
  2. Responsibility – responsibility means ‘who is responsible for actually doing the work?’ As a business grows and the work increases ‘the work’ is split up into smaller and smaller bits and more and more people are included in the structure of the business to actually do ‘the work’. The work of each individual is a sub-set of all ‘the work’ of the business.
  3. Authority – authority means ‘whose work is it to make decisions or take actions, and what authority is required to do so?’ Again as a business grows not only does it require more and more ‘hands’ to complete ‘the work’ of the business but more and more ‘heads’ are also required to make the ‘stream of decisions’ required to keep the ‘hands’ busy. In short, liability is attached ultimately to decisions and no-one should be required to make a decision unless authorised to do so. Authority needs to be aligned to responsibility and it is the way that the directors of the business (who have ultimate decision-making authority in the business) divide up and give away the responsibility to make decisions as and when they come up.
  4. Disclosure – disclosure means ‘how do we hold people accountable for the actions they are responsible for and the authority they have been given to make decisions?’ Disclosure closes the loop – without it, or with bad reporting, the directors of a company may/will be taking on more risk than they know, and they will have no idea how to govern this risk because they don’t know what is really going on. And not knowing is not a defence at director level!
Each of these 4-flows flows either ‘up’ or ‘down’ in a business – ensuring all 4 of these flows are in place and operating ensures that the business has a robust governance structure to operate by.
  • Accountability moves up – the directors/board carries ultimate accountability for everything that happens in a business.
  • Responsibility moves down – everyone in the business must have a clear and unambiguous understanding of what they are ‘responsible to do’ in the business.
  • Authority moves down – authority moves down together with responsibility.  Every person in the business responsible to do something, or make certain decisions must be given, by the board, the authority to do so. Without it they are powerless.
  • Disclosure moves up – in order to hold people accountable for what they do in a business the parties ultimately accountable need to receive information  (housed in a report) that enables them to assess the performance of the person involved. This information also ‘feeds’ back into the top level strategic decision making, and closes the loop.
Get the 4-flows right and you get governance right. Ignore them and you will continually feel the way I described at the start of this article – as will your people. We certainly don’t want this to happen.

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