“all financial services entities should, as often as reasonably possible, take proper steps to: assess the entity’s culture and its governance; identify any problems with that culture and governance; deal with those problems; and determine whether the changes it has made have been effective.”
— Recommendation 5.6 “Final Report of The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry
Despite the focus on ‘culture’ – the “gentle breeze” filling the sails of a fleet of consultancies – the most evident and most relevant cause of management misconduct is “governance”.
Before you dismiss governance as an issue for larger, public entities it’s important to realise that is nothing more than a business’
“process of decision-making and the process by which decisions are implemented (or not implemented)”.
Whether you prefer to name it leadership or management, good governance is critical to the long-term viability of any company.
Good governance is essential to the sustainability and profitability of your business too.
Like a good flight plan, good governance allows you the freedom to develop, explore, innovate, create value and deliver sustainable and solid business performance. The Corporations Act 2001 places a common set of requirements on all corporates to provide a baseline for corporate governance. In this article we will provide guidance with regards to one of the important elements of your governance framework, conducting governance committee meetings.
The context
“Good governance has 8 major characteristics. It is participatory, consensus oriented, accountable, transparent, responsive, effective and efficient, equitable and inclusive and follows the rule of law. ”
— United Nations Economic and Social Commission for Asia and the Pacific “What is good governance?”
While you may have dismissed your Compliance Manager’s obsession with effective management as an obvious and transparent attempt to secure significance, the reality is that your governance framework – and your demonstrable commitment to good governance – is the foundation of your compliance framework. Without an effective governance framework, you cannot, and will not, comply with the financial services laws and the conditions of your licence.
This reality is reflected in the International Standard of Compliance Management Systems AS ISO 19600:2015. The Standard is explicit and clearly states that an effective, organisation wide compliance management system enables an organisation to demonstrate its commitment to compliance with relevant laws, including legislative requirements, industry codes, organisational standards, as well as standards of good corporate governance, best practices, ethics and community expectations.
Furthermore, the Standard suggests that organisations that apply binding values and appropriate compliance management, can safeguard their integrity and avoid or minimise noncompliance with the law.
The Practice
Convening an effective governance meeting – whether Board, Management Committee or Leadership Team meeting – allows you to demonstrate, and evidence, the consideration and deliberation you bring to making decisions. As a licensee you should ask yourself:
- Are you holding regular governance meetings (i.e. Board or Compliance Committee Meetings)?
- Are you preparing adequate minutes and maintaining and retaining them?
- Are you effectively, consistently and constructively actioning your committee action items?
- Are you reviewing your five key risk registers?
From a regulatory perspective, a focus on governance processes and practices around the oversight of non-financial risk is a key strategic priority for ASIC and their Corporate Governance Taskforce. In a recent speech the ASIC Chair confirmed a commitment to reporting publicly on observations and findings, pointing to both good and bad practices, and sharing expectations for improvement.
APRA, through CPS 510, suggests that robust risk management, which incorporates both a framework for risk measurement and controls and a healthy risk culture, helps reduce the likelihood of a damaging incident or ill-conceived business strategy that might impair the financial health of a regulated institution.
As a Licensee, or as a corporate representative of a Licensee, you have compelling reason to commit to a comprehensive governance framework and ensure that you have the tools to prevent risk and make effective decisions.
A smaller practice, while nimble, can also be more vulnerable to the risks of inadequate governance, whether it be through fraud; damage to your customers and brand or poor decision making.
Practical steps towards good governance
So, what are the elements of an effective leadership meeting.
According to Antony Jay in a 1976 Harvard Business Review article called “How to run a meeting”, a meeting defines the team, the group or the unit. Those present belong to it; those absent do not. Everyone can look around and perceive the whole group and sense the collective identity of which he or she forms a part.
From Jay’s perspective, your meeting both define your business’ focus and its culture.
As a business interested in your own sustainability, your governance meetings address:
- Context: Show your understanding the organisation and the environment, the needs and expectations of interested parties; compliance management systems and principals of good governance; compliance obligations, identification, analysis and evaluation of compliance risks.
- Leadership: Evidence the commitment of your leaders; compliance policy, organisational roles and responsibilities
- Planning: Demonstrate actions to address risks and objectives (particularly non-financial risks)
- Support: Address resources; competence and training; behaviour; culture and communication
- Operation: Consider operational planning and control; outsourced processes
- Performance evaluation: Document monitoring, measurement, analysis and evaluation; reporting and management review
- Improvement: Identify nonconformity; non-compliance and corrective action
Before the meeting
- Develop a Charter/ Structure and Scope.
- Confirm Attendees.
- Appoint a Chair.
- Invite attendees.
People
- The value and success of a governance committee is determined in some part by its membership. Jay suggests a meeting should be made up of approximately 4 to 7 people with a maximum of 10.
- The Chair should play an active role in managing membership and numbers.
Agenda
- Develop the agenda and ensure it includes important licensee elements such as reviewing critical registers like training; conflicts; regulated documents etc.
- Circulate the agenda before the meeting.
- The Agenda is critical. According to Jay, a properly drawn up agenda has the power to speed up and clarify a meeting. Include some indication of the reason for each topic to be discussed and some directional text (i.e. “for information”; “for discussion”; or “for decision”).
- The order of the Agenda item is important. Jay suggests that the early part of the meeting tends to be livelier and more creative than the end of the meeting, so if an item needs mental energy, bright ideas or clear heads, place it at the start of the meeting.
A couple of quick tips:
- 1.5 hours is the optimum time
- Include a start and finish time
- Allocate time to each Agenda item
- Pre-circulate papers to optimise meeting time and discussion
The Chair
Jay suggests a chair’s objective is to ensure the meeting achieves valuable objectives and should be about:
- assisting the group toward the best conclusion or decision in the most efficient manner possible
- interpreting and clarifying
- moving the discussion forward
- bringing things to a resolution that everyone understands and accepts it as being will of the meeting, even if the individuals do not necessarily agree with it
Minutes and actions
- Minutes must include time and date of the meeting, where it was held and who chaired it
- Names of all present and apologies and absence
- All agenda items (and other items) discussed and all decisions reached. If action was agreed on, record (and underline) the name of the person responsible for the assignment
- The time the meeting ended (important, because it may be significant later to know whether the discussion lasted 15 minutes of 6 hours)
- Minutes must be circulated in a timely manner
- Action items must be actively managed
- Action Items need accountable persons allocated as well as due dates
Okay, Houston, we’ve had a problem here
The popular, but apocryphal, line “Houston, we have a problem” references the conversation between the Apollo 13 astronaut, John Swigert, and NASA Mission Control Centre. It’s a great reference for governance focused articles demonstrating, as it does, a catastrophic failure and the effective decision making processes that averted the failure and ensured the success of the venture.
That it’s not entirely accurate doesn’t matter.
Consideration, deliberation, reflection, accountability and clear communication are, regardless of the industry, the foundation of success. Sustained success, or even your sustainability, are ultimately dependent on both your framework for effective decision making and the consistency of its application.
Now, more than ever, governance matters.
If you lack an effective governance framework, or need to refine your current framework, please give us a call.
We can help you with:
- Providing secretariat support for your governance meetings
- Reviewing your current governance meeting arrangements
- Providing templates and training for your governance meetings
