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. Public companies and larger companies almost always operate under this model, but good corporate governance structures aren't one-size-fits all. Smaller companies and nonprofits don’t necessarily need the same positions to function and prosper. That’s why there are actually a variety of examples of governance models to suit all kinds of board structures, some of which are more common than others.
Governance models don’t just guide how a board is structured, but also 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, while the volatile economic climate has placed ever-increasing demands on boards of directors. To establish strong board governance, it's important for companies to first use an appropriate board governance model that closely aligns with the company's work and goals.
What Are Governance Models?
A governance model is a combination of policies, systems and structures, along with 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 that decision-making is effective and assigns accountability to the board or managers.
As noted earlier, all board governance models are different and serve different needs. Some models are geared more toward nonprofit organizations where all or most of the members are volunteers. Certain governance models are designed to support nonprofit organizations where the board and staff may not have a great amount of business experience, but they serve out of passion and commitment to the cause.
Other governance models are more geared toward corporate boards that are bound by legal and regulatory measures, and as a result require a specific board structure. It's also possible to adopt a combination of various board governance models to cater to the composition of the board and the future of the organization.
The 5 Most Common Governance Models
Here's the rundown on the various types of board governance models:
1. 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 work 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 over to the CEO. While board members operate mostly behind the scenes, boards should recruit board members who have a demonstrated commitment to the organization and who are willing to enhance their skills through continued board member and governance training.
It's common for nonprofit organizations to adopt a main model and to 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 their basic operations. They may add a religious board to ensure that the organization remains in keeping with their 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. In addition, they may add a charity board to focus on fundraising and using those funds to better serve the community.
2. Traditional Model of Governance
The oldest form of corporate governance is the Traditional Model. Some experts feel that this model is a bit outdated by today's standards, but it nevertheless gives organizations a useful template for writing up their Articles of Incorporation.
Boards of directors that operate 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.
3. Cortex Board of Governance Model
The Cortex Board of Governance Model was designed to focus 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.
4. 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.
5. The Competency Board Governance Model
The Competency Board Governance model works best for newer organizations where the board lacks the expertise and governance knowledge. The board's main focus is on helping to develop the knowledge and skills of the board members. This model bears a heavy emphasis on 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.
Modern Governance for Today's Leadership
The right governance model can help an organization ensure that they have the right structure in place to meet its purpose and objectives, as well as to have the right leadership and accountability along the way.
No matter which of these examples of governance models you choose, Modern Governance from Diligent can give your organization the leading edge with the latest technology, adding the final piece to your governance structure.