Monday, May 25, 2020

The Components of Governance Framework

The purpose of developing a governance framework is to define the building blocks of governance principles, processes, and practices, improve business performance through the creation of value to shareholders and other stakeholders in a coherent way.

Governance is part of eliminating risk and doing the right thing. Governance as a management tool and even more as a learning tool needs to be well understood and accepted. The best approach for governance has been the one that has aligned the framework approach with the maturity of the organization and the expectations business leaders have from ways of working, political equations among key leaders, and the decision-making approach in the organization. There are two foundational requirements of governance framework - management commitment and discipline and there are four components of the governance framework.

The organizational relationship that defines responsibility and accountability: Business is changing and the need for networking is based on building relationships that are critical to business both internally and externally. In fact, business relationships are undeniably the root of all business and have varying perspectives such as business peer/shareholder relationship, customer relationship, vendor relationship, etc. Trustful relationships are the foundation of open culture, with the intention to build on morale and real productivity. Employees do not appreciate being referred to as assets or resources; therefore, relationships in business need to be considered in a different context. The deeper the trust, the more valuable the relationship, the more mature the organization. Organizations must seek a governance process for harnessing collaboration and enforcing accountability.

In practice, most problems are systemic and require systemic solutions where people take accountability for their part in describing and solving them. Lack of accountability is often one of the biggest obstacles to get things done or cause business stagnation. In fact, accepting responsibility is when we prove our values and build our trust. Roles and responsibilities need to be clearly defined and mutually understood, and business relationships need to be well well established to improve organizational effectiveness. Without good business relationships, every decision becomes an argument. The relationship is one of the critical components of the governance framework and an effective governance approach further harnesses trustful relationships, enhances process transparency, and harmonizes organizational structure and operations.

Operational delivery (managing results): Business operations “keep the lights on.” Daily operational tasks realize strategic value. The digital organization needs to expand the capacity by improving operational efficiency and effectiveness with the KPIs to resolve problems. The operation is refined to the point that they are nimble, and can adapt to changing business demands in a timely fashion. A solid governance approach enables the organization to optimize business operation management capacity with a keen eye to grasp growth opportunities, manage risks, and achieve operational excellence.

The management needs to be in the continuous tuning mode to streamline processes and tighten coordination and collaboration, take the wise steps in doing consolidation, modernization, automation, integration, and optimization for improving its overall digital maturity. Organizational alignment goes beyond conformity and order taking, it needs to include a close partnership with interpersonal and cross-functional communication and flexible governance disciplines. With an effective governance mechanism, those organizations that have a more mature alignment can build strong operational capability to achieve efficiency and reliability in a cohesive way and outperform their competitors and tend to be more responsive to rapid changes.

Commitment compliance (meeting legal, regulatory, corporate requirements): Change is the new normal with increasing speed, it’s critical to share information and common processes to drive business agility, effectiveness, and efficiency. The effective and proactive compliance tool monitors change, alerts the organization to risk conditions, and enables accountability and collaboration around changes impacting each firm. Commitment compliance is not about a single role or reporting structure, as there are separate functions/roles. Neither is GRC about lumping them together but allowing different roles to work together in harmony.

Taking a proactive compliance approach means keeping abreast of standards and auditing to all regulations that may affect the company. It is a continuous process that keeps you current and diminishes the outcomes of not being compliant. Fine-tuning of compliance processes will also become easier and the cost-benefit more transparent. It’s about setting up governance initiatives in an organization for identifying those common risks which various stakeholders and actors in the organization have to deal with and aim to minimize; various rules and regulations the organization has to comply within a holistic way, and all this in a composed fashion.

Risk management assessment and reviews: We live in an era, full of uncertainty, velocity, complexity, and ambiguity. The result is a higher risk of conflicts and inertia. Risk Management is both for top-line business growth and bottom-line efficiency. An objective risk management assessment and review help to clarify: What are the risk management blind spots? Is it because your ERM program is immature and shortsighted? What to do with this risk even when an ERM program is neither immature nor shortsighted? Often a big risk is that the risk management system is detached from the real management of the business.

Nowadays, the “greatest challenge” is how to objectively quantify the complex business system and how to make key processes more resilient. Embed risk identification and assessment in operational processes including project management. Risk management is important but should be handled and prioritized in such a way that it’s inherent in the way we ask our staff to work and doesn’t negatively impact our flexibility to deliver solutions. Effective risk management makes an organization more resilient: not just controlling risk, but failing faster, failing forward, failing cheaper and recovering more promptly, and even becoming stronger than before.

One significant effect of today’s digital economy is increased velocity, complexity, unpredictability, and a need for a faster response to changes in businesses. The purpose of developing a governance framework is to define the building blocks of governance principles, processes, and practices, improve business performance through the creation of value to shareholders and other stakeholders in a coherent way.


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