This is an excerpt of Steinecke Maciura LeBlanc’s “Governance for Regulators” handbook. To view additional sections of the handbook, click here.
2. Governance: Concept and Purpose
Governance is an organization’s choice as to how it will perform its functions. Since there is no one way of doing things, the choices will vary. For example, some organizations choose to give authority to a benevolent dictator who makes all of the decisions and tells everyone what to do. Other organizations prefer that it act only through the consensus of all participants and will discuss decisions until a consensus is reached. Many organizations operate somewhere between those two extremes. Other organizations choose not to have an established structure and decisions are made chaotically.
While there is no one way of doing things, most regulators have found that following certain principles goes a long way to ensuring that the organization is effective and respected. This Handbook will discuss those principles. Any regulator can, at their own risk, choose not to follow any or all of these principles.
There are four areas in which governance choices are made:
- How the organization sets its mission, goals, strategies and policies.
- How the organization selects its Board, committee and senior staff members.
- How the organization ensures that its representatives comply with their fiduciary obligations.
- How the organization assigns, and enforces, the roles of the people and entities within the organization.
The goals of the governance choices include the following:
- To ensure that there is as much consensus as possible as to how things are done.
- To ensure that the mission, goals, strategies and policies of the organization are well thought out.
- To ensure that the activities of the organization are focussed and effective.
- To recruit the best and the brightest to the organization. Good people do not join an organization (or they quickly leave an organization) that is chaotic or ineffective.
- To maximize the use of the available talent found in the organization.
- Ultimately, to waste as little time as possible on governance matters so that everyone can focus on their tasks.
Governance Concept Scenario
At Ernie Eager’s first Board meeting he agrees to serve on every committee within the organization. He also proposes a new initiative that he would head up, at a modest stipend, to create local chapters of practitioners so that the regulator can more effectively get its message out to the profession and to develop a pool of future Board and committee members for the regulator to draw upon. Any concerns?
While energy and enthusiasm of Board members is valuable, Ernie may not be advancing the governance of the regulator. A radical change to the structure of the regulator made at an initial meeting without research and time for consideration may result in a lack of focus of the regulator. Also, Ernie should not be appointed to a committee simply because he is interested. Other criteria also come into play. In addition, it may not be appropriate for a brand new Board member to take the lead in organizing a structure as complicated as local chapters. This proposed role would appear to intermingle the functions of both the Board and staff. Ernie’s accountability (directly to the Board? to the CEO?) is unclear. Also, there may be a conflict of interest in proposing an arrangement where Ernie would receive a financial benefit.