The governance component – in detail
How the business functions coherently, legally and with minimal friction.
Part of the building the organisation layer
INTRODUCTION
Let’s be honest. Founders don’t love the idea of governance.
It’s often seen as restrictive and something that gets in the way of progress.
But done well, it doesn’t need to be any of these things.
Governance is the minimum set of rules, policies and risk management processes that are needed to ensure an organisation functions coherently, legally and with minimal friction. Think “minimal viable bureaucracy”.
Even the most progressive teal organisational systems codify governance to help people understand how to manage power together in their business.
Working out how governance should work in a business means being clear on where power currently lies and where you want it to be held in the growing business.
This can then be codified into a way of working, expressed in policy or process, that means everyone knows the rules they’re expected to play by.
In detail
What is governance?
ISO38500 defines governance as “the system by which organisations are directed and controlled”.
But the underlying assumptions of universal direction and control in this definition aren’t necessarily helpful.
The B3 framework defines governance as “the simplest possible set of legal documents, policies and processes needed for a business to deliver its strategy and meet its legal and discretionary standards”.
Why does governance matter?
Having good governance in your business means you are:
- developing and preserving value in the business for investors and customers.
- enabling a defensive shield to protect against things going wrong.
- ensuring the business does the right thing for all its stakeholders as it grows.
Where do I start with defining the governance component?
Start with understanding the legal minimum governance that you need to comply with.
It usually depends on the country, legal form of your business and funding. Get expert advice to understand what you must do, and then put it into a simple, workable format so it happens.
By doing this you’ll ensure you remain compliant with the basics as you build the business.
How can governance accelerate growth?
Once you have established governance that meets your legal obligations, it’s time to think about governance as an enabler of your strategy and operating model.
Consider how you ideally want the business to function. Look at current bottlenecks and points of friction.
These are places where governance might play a role in freeing up blockers to growth.
Use governance to distribute power and decision making more widely.
Think about how you can minimise centralised decision making. Enable people doing the work to have the greatest autonomy possible.
Codify this into how you want things to work. Run experiments.
Then roll out successful tweaks to governance more widely. Over time the right governance system for your business will emerge from this.
Background reading
- Power: Why Some People Have It―and Others Don’t by Jeffrey Pfeffer (book)
- Open Governance (article)
- Where ignorance isn’t bliss – start-ups and corporate governance (article)
- Why The Command-and-Control Mindset Is Killing Your Company (article)
- How to manage compliance and governance efficiently for scaling businesses (article)
- Power architecture (article)
