Why Your Business Needs a Governance Structure

Quynh Pham | 04/10/2023

Why Your Business Needs a Governance Structure

Every company needs a clear structure. Structure gives any business clear guidance to act when specific issues arise, helps coordinate multiple teams and departments, and allows for efficient decision-making.

A governance structure allows companies to achieve all of that while still delivering value to the market. This article will lead you through all the nitty-gritty of a governance model while taking a closer look into IT governance, especially seeing how businesses have become increasingly dependent on technology in their daily operations.

Governance Structure: Definition and Categories

Definition

A governance structure is a system of rules, processes, roles, and responsibilities within the overall decision-making process of the project. It is the framework within which the project is managed and is responsible for ensuring that the project is conducted in accordance with the project plan.

Types of Governance Structure

Governance structures can be put into two broad categories:

Policy Board: The policy board model creates a policy and appoints an Executive Director to execute the policy.
Administrative Board: Administrative governing boards take a more active role in running the business with the assistance of personnel and committees.

From there, we have four common board models:

Collective Board: A collective board, usually referred to as a cooperative or coalition, is responsible for managing numerous organizational administrative tasks. These boards are made up of supporters of a particular objective. Directors and employees work as one cohesive unit. Due to the consensus-based nature of how everyone operates, there is typically no Executive Director and no voting.
Working Board: The members of this kind of board are more actively involved in the organization’s administrative processes, including planning programs, managing finances, managing public relations, and managing people. The absence of personnel on these boards is not unusual.
Policy Governance Board: Also referred to as the management-team board, this is a common format in nonprofit institutions. The organization’s daily activities are overseen by a number of boards and committees. Board members and staff members work together in a partnership.
Policy Governance Board: In honor of its creator, John Carver, the policy governance board, often known as a “Carver Board,” has a more formal organization. The board rarely works with committees and speaks with one voice as a whole. The Executive Director’s responsibilities are well-defined, and there are restrictions on what she or he may do. The board places a strong emphasis on developing policies.

A governance structure often comes with a governance framework. It serves as a road map for strong performance and crisis management plans. It might also consist of the following:

The organization’s business goals and core values
Standards and procedures to ensure such standards
A list of standard practices
The person in charge (if needed)

Examples of Governance Models

Each board governance model is distinct and tailored to meet distinct requirements. There are governance structures that serve nonprofit organizations. The board and employees, in this case, work due to their enthusiasm and dedication to the organization and its purpose. Other models are more focused on corporate boards. Corporate governance models often necessitate a particular board structure and are subject to legal and regulatory requirements.

The following are two common examples of governance models.

Advisory Board Governance Model

As the name of this governance model suggests, advisory boards consult the CEO and the board when needed. Professionals and experts with demonstrated qualifications and experience in the nonprofit sector make up an advisory board’s membership.

Additionally, board members assist the organization in developing a reputation and credibility, which is particularly useful when hosting fundraising activities or engaging in public relations. Members of advisory boards frequently have a good reputation.

Policy Board Model

Also referred to as the Carver Board Governance Model, this is considered the right governance model for both corporations and nonprofit organizations. This model was developed by John Carver, among the best-known experts on board governance models and author of Boards that Make a Difference. In this model, the CEO and board of directors collaborate closely to provide information about activities, events, and advancements of the company.

In this type of structure, there are few standing committees, meaning that the majority of company leadership is shared between the Board and the CEO, while the Board is responsible for the day-to-day operations and workforce management. The Board has a high degree of confidence in the CEO, regardless of the type of organization, whether it be a business or nonprofit.

Why Are Effective Governance Structures So Important?

Governance structures take a lot of work, which is why some businesses want to skip this altogether. However, it is worth investing in a proper governance structure. Here’s why.

Ensures ethical business practices: Governance isn’t only about how organizations and enterprises function, but it is also about preventing bad conduct - which easily ruins a business’ reputation and even leads to heavy financial penalties.
Encourages accountability and transparency: An organization’s governance model identifies the person in charge of certain activities. It can act as a check and balance system, which is advantageous for the company’s standing with customers and shareholders.
A tangible guideline for debates and risk management: even though there is not the most appropriate governance model, the right one will act as a roadmap when conflicts or crises arise. It also offers strategic planning to identify and minimize risk.
Encourages the board members and employees to stay committed to the company’s mission, values, and goals.

Best Practices in Governance Structure

No matter the corporate governance model or role you play (CTO, project manager, stakeholder, steering committee, etc.), you need to be aware of the best practices in a governance system.

The governance structure should be logical, transparent, and applicable to all stakeholders.
There is no one-size-fits-all governance structure that will work for every organization or project.
All information related to the governance structure must be clear, understandable, and accessible to all team members.
The mechanisms and procedures should be comprehensive, allowing them to be applied to any situation.
The governance structure should enable any project to operate as efficiently and effectively as possible.
The governance structure must be solution-focused.

A Brief Overview of IT Governance

We would like to discuss an important governance type in view of the Information era: information technology governance. The critical role of information technology governance (ITG) in aligning IT activities with business objectives and getting the most out of IT. This is especially important in light of the increasing competition in the market and the heightened expectations of customers.

Definition

What is IT governance? Information Technology (IT) governance is a set of rules and processes that help to harmonize business and IT operations using a consistent and structured structure. IT governance can be used by teams to create measurable units to achieve their objectives and goals. IT governance can help a team:

Make sure the quality of products and services produced,
Ensure the project performance and overall performance of the IT team
Comply with guidelines, standards, and legal requirements,
Identify ways the IT department is benefiting and pushing the company forward.

Common IT Governance Frameworks

There are five common IT Governance frameworks you need to know:

COBIT (Control Objectives for Information and Related Technologies)
COSO (Committee of Sponsoring Organizations of the Treadway Commission)
CMMI (The Capability Maturity Model Integration Method)
ITIL (Information Technology Infrastructure Library)
FAIR (Factor Analysis of Information Risk)

We wouldn’t be diving too deep into these frameworks, but if you would like to refresh your memory or learn more about them, check out our article about IT governance and its best practices.

Outsourcing IT Governance: A Common Practice

Is your business service-oriented? Are you struggling to operate transparently and comply with numerous industry standards and ever-changing regulations? If so, outsourcing IT Governance might just be the thing you are looking for.

Outsourcing IT governance is a common practice due to the numerous values and benefits it offers:

Compliance: With the right partner and IT governance model, gone are the days of constantly worrying about meeting regulatory standards and looming financial penalties. Your partner will take care of everything.
Less Cost and Time: Outsourcing allows you to have immediate access to a large talent reservoir and modern tools to implement your governance framework. You wouldn’t have to spend weeks, even months, building a team from the ground up and then paying numerous costs to maintain it.
Better Efficiency: The addition of experts to the team ensures that IT governance operations are progressing at a rapid rate. This gives the team the opportunity to focus on activities that are beneficial to the business, allowing it to move forward more quickly.

If this is the solution for your needs, the Orient Software Team is happy and ready to deliver all of this and beyond. Contact us today to implement your governance structure!