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					The Challenges of Good
 Governance for Social
      Enterprises
         Gary Martin

University of Ulster Knowledge
           Club Event
         9th May 2007
    Format of Presentation
1. Defining governance

2. What does governance involve?

3. Sector-specific issues

4. Key governance challenges for social
   enterprises
What is Corporate Governance?

• Governance – refers to the way in
  which something is governed and to
  the function of governing

• Corporate governance – the way in
  which organisations are governed, and
  to what purpose
  What does corporate governance
              entail?
• Practices and procedures for trying to ensure
  that an organisation is run in a way that achieves
  its objectives….

   ……subject to various guidelines and constraints
   with regard to their stakeholders

                                     (Coyle, 2005)


• Guidelines and constraints – compliance with
  laws and regulations and behaving ethically
   Corporate governance
‘Corporate governance can be described
as the brain as well as the nervous system of
an organisation, which, when working well,
provides clear direction, anticipation of
danger, communication, movement and
action, all the while transmitting and
receiving information to enable remedial
action and changes of course’

Corporate Governance, Improvement and Trust in
 Local Public Services, Audit Commission, 2003
               NATIONAL STUDY
       OF BOARD GOVERNANCE PRACTICES
   IN THE NON-PROFIT AND VOLUNTARY SECTOR
           IN CANADA – BUGG (2006)
“Good governance has certain principles that
are common across the public, private, and
non-profit sectors. These are transparency,
clear allocation of roles and responsibilities,
financial probity, accountability, and looking at
outcomes. Recognize that the principles of
good governance apply to all organizations
regardless of their size. The structure will
have to be tailored to the institution depending
on its size, but the principles remain the
same.”
                         (The Honourable Bob Rae)
    Eight key dimensions of corporate
        governance (Davies 2006)
•   Identity of the organisation
•   Purpose of the organisation
•   Leadership
•   Distribution of power
•   Inclusiveness and communication
•   Pattern of accountability required
•   Maximisation of effectiveness
•   Ensuring sustainability
  Duties of Board Members
 (Small Business Service, DTI)

• Fiduciary duty
• Duty of care
• Financial management
• Employment procedures
• Good governance practices
• Risk management
Managing reputational risk
Lord Nolan’s Seven Principles of
Public Life:
•   Selflessness
•   Integrity
•   Objectivity
•   Accountability
•   Openness
•   Honesty
•   Leadership
Key issue - risk to reputation
•    Common theme from case studies –
     denial (Randall 2007)

•    Typical chain of events leading to
     reputational catastrophes (Wharton
     School, University of Pennsylvania):

    1. There’s an initial mistake, often minor, that
       goes uncorrected;
    2. A subsequent error compounds the initial
       error;
3.   Attempts to correct the problem are often
     half-hearted, either because there is no
     recognition of the increasing seriousness of the
     situation, or executives are in denial;

4.   When the problem eventually becomes too
     big to ignore, attempts are made to hide the
     truth; and

5.   There is an awful moment of acceptance that
     the situation is completely out of control
   Corporate governance – an
      integrated approach
‘True corporate governance and
responsibility can only grow from an
integrated system that links executive
authority, financial accounting, board
accountability and stakeholder
aspirations to transparency, which entails
codes of practice that is applied in
practice’
                     (Hawkins 2006)
           Sector-specific issues
               (Coyle 2005)

• Increase in the size and importance of
  the sector

• Greater competition for funding

• Lack of clarity about the duties of
  voluntary board members, and concerns
  about the liabilities of charity trustees
  Sector-specific issues (continued)

• A growing demand for
  accountability to service users and
  beneficiaries

• Demands for greater transparency
Responses to sector-specific issues

• Changes in methods of recruitment
  and selection of board members
• Greater clarity about governance
  structures
• Tightening of regulatory regimes and
  more stringent reporting
  requirements
      Challenges for the sector
          (Miliband 2007)

• Demonstrate your impact

• Use your voice to Government

• Raise awareness
        The TEN essential ingredients for good governance
 (The Foundation for Good Governance – practical guidance on
          good governance in non-profit organisations)

1. Dig out the constitution, memorandum and articles, trust
   deed or other such governing document and read it.

2. Make sure that all members of the board and staff have
   read and understand the organisation’s business or other
   plans, and that there are clear priorities or targets,
   budgets and financial information to match the plan.

3. Ensure you have the right mix of people, skills and abilities
   to support and develop your organisation and its plan.

4. Develop a written set of policies and procedures to guide
   the organisation and ensure everyone is working in a
   coherent way, including a code of conduct for the Board.
5.   Take meetings seriously.

6.   Make sure your Board members are well informed.

7.   Ensure that financial reporting is given due importance, and
     that Board members can understand what is being said and
     recommended.

8.   Spend time on building good relationships.

9.   Ensure the Board understands that it is their role to manage the
     manager.

10. Last – (or should it be first?) – organisations need direction and
    leadership.
    A final thought…….
‘There is hope in honest error,
 None in the icy perfections of the
 mere stylist’

       Charles Rennie Mackintosh