“Governance is the system of rules, practices and processes, by which a company is directed and controlled.” (Charted Governance Institute, n.d.) Governance can be used in a variety of different ways:
Corporate governance are rules put into place which identify who has power within the organisation. As organisations grow, managers can delegate authority via a protocol to manage their businesses and set policies to govern how authority is used.
Operational governance ensures a company can deliver its goods and services and procure and pay for supplies it needs. Operation governance is usually implemented by management approved procedures and can sometimes incudes a governance policy to guide decision making.
Financial governance ensures that any accounts are prepared according to a set of standards. Standards can include published financial accounts, internal management accounts, or customer accounts. Financial governance will often rely on inputs from operational governance; therefore, it’s important that processes are aligned.
Setting a governance framework
Management is responsible for running the business and keeping the organisation profitable and compliant. As organisations grow, managers cannot take every decision and must focus most of their time and efforts on business planning and customer interface; therefore, they hire and train staff to support them. Support staff can include junior staff who are a direct part of the process and middle managers to manage them.
Management should implement a governance framework to ensure the business achieves its goals and to maintain compliant operations. The framework is comprised of three components: Protocol, Policy, and Process.
Protocol is “the official procedure or system of rules governing affairs… (Lexico, n.d.)”. Management implement a protocol by delegating authority to their staff. Protocol ensures that management only approve in areas which are higher deemed to be higher risk.
Policy is a “course or principle of actions adopted…by a…business”. (Lexico, n.d.) Policies set out how the business will run itself, how to apply protocol, and can be used to govern processes. Policies can govern all areas of the organisation and are often used as support for internal control.
Process is a “series of actions or steps taken to achieve a particular end…” (Oxford, n.d.). Processes ensure that a transaction, or other input, is processed from beginning to end, approvals are taken at the right time, and can be used to review organisation efficiencies.
These three standards together form a governance triangle. All three aspects of governance work together to ensure that an organisation effectively and efficiently manages itself.