Governance models guide how an organization’s board is structured and how the business will function. Operating a business or running any kind of organization in today’s world is highly complex and fraught with risk. At the same time, the volatile economic climate has placed ever-increasing demands on boards of directors. When establishing strong board governance, companies must use an appropriate board governance model that closely aligns with the company’s work and goals.
When we think of company leaders, most people think about a board of directors and either a CEO or an executive director as the positions that have authority over a company. But corporate governance structures aren’t one-size-fits-all.
Here, we discuss the following topics pertaining to governance models:
- What a governance model is
- Why governance models are important
- The five most prominent governance models
- What’s next? Understanding the basics of secure board collaboration
What are governance models?
A governance model combines policies, systems and structures, and strategic and operational frameworks. A model for governance refers to how the authority chain and the framework interconnect with each other. When companies or organizations choose the most appropriate governance model, it can be a real asset to the company, especially when it aligns with the right leaders. A governance model ensures effective decision-making and assigns accountability to the board or managers.
As noted earlier, all board governance models are different and serve different needs. Specific governance models support nonprofit organizations where the board and staff serve out of passion and commitment to the cause. In contrast, others are more geared toward corporate boards bound by legal and regulatory measures and as a result, require a specific board structure.
It’s also important to note that you may adopt a combination of various board governance models to cater to the composition of the board and the future of the organization.
Governance models are important; here’s why
Establishing the right corporate governance model for your organization will help ensure smooth running and long-term success. They help to define strategy, mitigate risk, engage stakeholders and introduce accountability, even when regulations don’t stipulate that you have to.
Here are some ways implementing a governance structure can benefit your organization:
- Ensures ethical, responsible market practices: Governance is how we monitor our behaviors and how corporations conduct their operations. There is typically a reward for good behavior. There are consequences for unsavory behavior, as well. In the case of businesses and corporations, these are repercussions such as fines and reputational damage.
- Promotes equity and fairness among shareholders and stakeholders: A good corporate governance structure gives all shareholders an equal voice regardless of their level of investment in the company. Corporate boards should offer a presence that shows that all directors have a similar vision and commitment to the mission.
- Develops trust through transparency and accountability: A governance model outlines who is responsible for what within an organization. It can serve as a system of checks and balances, which is positive for the business’s reputation among shareholders and the public.
- Helps to manage and identify risk: With greater transparency and accountability comes better risk management practices. Defining appropriate roles and clear decision-making strategies can also aid in complying with ever-changing laws and regulations.
The 5 most common governance models
Understanding the most common types of board governance models can help you choose the right one for your organization. Below is a rundown of the most popular:
Carver Board Governance Model
The basis of the Carver Board Governance Model is a Policy Board Model, which works well for both corporations and nonprofit organizations. Developed by John Carver, among the best-known experts on board governance models and author of Boards that Make a Difference, this model consists of a board of directors and a CEO who works closely to communicate activities, events and updates on the organization’s progress.
Under this type of model, there are few standing committees, leaving the board and the CEO responsible for the bulk of company leadership, with the CEO overseeing operations and employees. Whether the group is a corporation or a nonprofit, the board gives a high level of trust to the CEO. While board members operate primarily behind the scenes, boards should recruit board members who demonstrate commitment to the organization and are willing to enhance their skills through continued board member and governance training.
It’s common for nonprofit organizations to adopt a central model and add other models to fully serve their organization’s needs. For example, religious organizations have slightly different rules than nonprofits.
A religious school may adopt the Carver governance model for running its basic operations. They may add a religious board to ensure that the organization remains in keeping with its mission and vision. They may also add an advisory board to ensure that they have the legal and financial expertise that they need on the board. Lastly, they may add a charity board to focus on fundraising and using those funds to better serve the community.
Traditional Model of Governance
The oldest form of corporate governance is the Traditional Model. Some experts feel this model is outdated by today’s standards, but it nevertheless gives organizations a valuable template for writing up their Articles of Incorporation.
Board of directors operating under the Traditional Model have a collective responsibility for all matters, and they speak with one voice. The board outlines the processes and policies as stated in the bylaws, but the model identifies the structures.
Cortex Board of Governance Model
The Cortex Board of Governance Model focuses on the value that the organization can bring to the community. The main duties of the board of directors under this model are to clarify and establish outcomes to help the organization achieve success. Their duties include defining standards and expectations for performance to meet the objectives of the organization.
Consensus Board Governance Model
The Consensus Board Governance model is also called the Process Model. This model is a form of the Cooperative Model that nonprofit organizations use. It gives all board members equal votes, responsibilities and liabilities. The Consensus Board Governance model works best for small corporations that don’t have major shareholders.
The Competency Board Governance Model
The Competency Board Governance model works best for newer organizations where the board needs more expertise and governance knowledge. The board’s main focus is helping to develop the knowledge and skills of the board members. This model heavily emphasizes developing communication, trust and relationships to set the stage for overall good board performance. The organization’s bylaws outline the policies, practices and strategies with this model.
Take the next step: Ensure secure collaboration before it’s too late
The right governance model can help an organization ensure that they are making strategic decisions efficiently, promoting fair and ethical business practices, engaging stakeholders in a constructive manner and managing risk and compliance issues.
The next step to enhancing your board governance and furthering the benefits of a great board governance model is to ensure secure communication. With incidents of large-scale data breaches and bad actors gaining access to sensitive information on the rise, you can’t take any chances.
Discover how to avoid communication missteps that can lead to costly fines and irreversible reputational damage in our white paper, The Fundamentals of Secure Governance Communication. Download it now.