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Behavioural governance: what is it all about?

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Behavioural governance: what is it all about?

Julian Lomas

What is behavioural governance?

Until the financial crisis of 2008/9, governance theory and practice mostly focused on documentation (policies etc), accountability structures (internally and to stakeholders) and various shades of 'management theory' (depending whether one sees the motivations of managers as being generally virtuous or self-interested). How people behave in governance settings (boardrooms and committees etc), was largely a sideline in debates about good governance.

The 2008/9 financial crisis changed that significantly. On the face of it, banks appeared to be exceptionally well governed entities with clear documentation, decision making structures and codes of practice. So why did the banks fail so spectacularly in 2008/9? Many have come to the conclusion that the answer lies in behaviours; in effect that the effectiveness of governance systems (no matter how good structurally etc) was undermined by poor and even unethical behaviours.

A 2009 report by the ICSA argued that appropriate boardroom behaviours are an essential component of good corporate governance. The report concluded that effective boardroom behaviours are characterised by:

  • a clear understanding of the board's role;
  • appropriate deployment of skills, knowledge, experience and judgement;
  • independent thinking;
  • questioning assumptions and established views; and
  • a supportive decision making environment.

Hence the concept of "behavioural governance" was born, leading to a rethink of the way corporate governance is approached; placing less emphasis on structures, processes and documentation and focusing more on effective (and ineffective) behaviours. This has quickly moved to further consideration of subjects such as group dynamics, the role of personality types in making boards effective or not, what makes for effective meetings (and charing) and ethical decision making.

How does this apply to charities?

So, what has this got to do with the charity sector? Surely standards of behaviour in the sector are immeasurably better than the devious, underhand, dirty behaviours found in the corporate world!?

The many charity scandals and significant charity governance failures of the last few years show that we in the not for profit sector have no room at all for complacency and no justification for feeling superior about our governance and behaviours. Almost every report into charity failures and the failings of charities has concluded that governance failings lie at the heart of the problem. And the vast majority of those identify governance failings arise such as dominance (by a single person or small group), poorly managed conflicts of interest and unauthorised personal benefit. Is our behaviour that much better after all? In many cases, I think not.

My conclusion, supported by the July 2018 ICSA report Improving charity boardroom behaviours, is that the not for profit sector needs to follow the lead of the corporate world in shifting the emphasis of good governance more towards behavioural considerations rather than structural and other apparently more "concrete" matters.

The 2017 Charity Governance Code, while somewhat cumbersome in parts, includes a welcome emphasis on behavioural matters, including ethical conduct, personal integrity and the important of diversity. The 2018 ICSA report takes this much further, building on the Code to provide a detailed guidance note on appropriate behaviours in the governance of charities.  Following the structure of the Code (the seven principles of Organisational Purpose, Leadership, Integrity, Decision Making Risk and Control, Board Effectiveness, Diversity and Openness and Accountability), it address a number of "key questions for the board and individual trustees", offering examples of effective behaviours to underpin each principle for trustees, chairs, CEOs and governance professionals. I commend it to you.

To find out more about behavioural governance or governance in general, including the support and training we offer, please contact us at julian@almondtreeconsulting.co.uk to arrange free initial telephone discussion.