How to simplify governance in your organisation

Effective governance is crucial for any company operating in the UK but it can quickly become complex, particularly in the financial services sector where regulatory requirements are particularly stringent. In addition to complying with external regulatory obligations, companies must also consider internal policies and the needs and expectations of multiple stakeholders. Striking the right balance between control and flexibility can be a challenge, but a strong governance framework helps organisations to set direction and priorities, establish accountability and manage risks effectively.

In accordance with the UK’s Corporate Governance Code and the Companies Act, companies are required to have in place appropriate systems of internal control and risk management. This is especially important in the financial services sector, where the consequences of poor governance can be severe, including financial loss, reputational damage and legal liability. In addition, regulators such as the FCA have specific requirements for governance in regulated firms, including the need for robust risk management systems and effective board oversight.

Simplification of governance is not a one-time effort, but rather a continuous process that requires ongoing review and adaptation. This is especially important in today’s fast-changing business environment where organisations must be agile and adaptable to stay competitive. By regularly reviewing and updating their governance structures, organisations can ensure that these remain effective and aligned with their goals and objectives.

There are several reasons why any company may want to review its corporate governance framework.

• Changing regulatory requirements: Regulatory requirements and industry standards are constantly evolving and organisations must stay up to date to ensure compliance. Regularly reviewing and updating governance structures can help organisations to meet these changing requirements.
• Business growth and change: As organisations grow and change, their governance structures may also need to evolve to meet new challenges and opportunities. This may involve adding new committees or forums or consolidating existing ones to streamline decision-making and improve efficiency.
• Stakeholder feedback: Organisations can improve their understanding of stakeholders’ needs and expectations by engaging with them and soliciting their feedback. This will help to ensure that the governance structure is meeting their needs. Engagement may involve regularly gathering feedback through surveys or focus groups, or establishing channels for ongoing communication and dialogue. It is important to consider the views of a range of stakeholders, including customers, shareholders, employees, suppliers and regulators. This consultative approach can build trust and credibility and ensure that governance practices reflect the needs and expectations of all stakeholders.
• Performance and effectiveness: Regularly reviewing the performance and effectiveness of the governance structure can help organisations to identify areas for improvement and make necessary adjustments. This may involve collecting data on KPIs, such as the timeliness and quality of minutes, reviewing decision-making or conducting periodic evaluations of the governance structure by external experts.

By taking a proactive and collaborative approach to ongoing review and adaptation, organisations can ensure that their governance structures remain effective and aligned with their goals and objectives and that they are well-positioned to navigate an increasingly complex and dynamic business environment. One of the key benefits of simplifying governance is the improved efficiency and effectiveness of decision-making. When governance structures are streamlined and decision-making processes are clarified, organisations can respond more quickly and effectively to opportunities and challenges.

How we did it

I recently took charge of an organisational governance simplification project where we reviewed and streamlined the existing governance arrangements of Santander Asset Management UK. This included a series of workshops with key members and committee chairs. We also took the board through the project, where it was ultimately approved. I was very honoured to receive the award for Governance Project of the Year at the Chartered Governance Institute UK & Ireland Awards 2022.

One of the first steps in simplifying governance is to identify your organisation’s key goals and ensure that your governance structure aligns with these goals. This helps the organisation to focus on its core priorities and ensures that resources are used effectively. Our previous governance model was designed to meet regulatory standards but had some challenges, including too many overlapping committees and forums with different members. There were also heavy administrative burdens and high production volumes that reduced organisational efficiency and left management with less time to focus on strategic matters. The committee scope was also unclear.

We took advantage of the fact that our business had recently developed new strategic objectives and a revised target operating model, which provided an opportunity to carry out a deep dive into our existing arrangements and align the governance structure with the new model.

Here are some steps we took to simplify governance and improve efficiency and effectiveness.

• Streamlined the decision-making process by establishing clear authority and accountability. This helped reduce bureaucracy and improve organisational efficiency. We introduced a more centralised decision-making model where key decisions were made at the executive unit level, rather than through multiple layers of governance. This helped speed up decision-making and reduced the risk of bottlenecks or delays.
• Identified the roles and responsibilities of each member of the governance structure. This reduced complexity and improved communication and collaboration within the organisation. One of the main outcomes of the project was a reduction in the number of committees. These changes resulted in more agile governance, less management and, ultimately, better decision-making. It is worth noting that the fundamentals of the governance model remained the same, with the board retaining oversight, and delegation to the CEO unchanged, as well as maintaining individual accountability of key people as per regulatory expectation. The benefits of reducing the number of committees included a simplified and clearer governance structure, improved accountability, the ability to designate risk owners easily, reduced administrative burden, robust escalation and review processes, agile decision-making and stakeholder engagement.
• Reviewed the organisational scope, MI and reporting. Emphasis was placed on streamlining and clarifying the responsibilities of each committee, reducing duplication and improving the quality and timeliness of reporting. The aim was to ensure that committees received relevant information in a timely manner, enabling them to make informed decisions and fulfil their duties effectively.
• Focused on improving communication and transparency within the organisation. This included establishing clear lines of communication and decision-making and providing regular updates to the executive committee on the progress of the project. This helped build trust and confidence in the governance process and ensured that all stakeholders were fully informed and engaged.

Don’t stop there

In addition to the steps above, there are some considerations that organisations should also take into account when looking to simplify governance.

• Use technology to automate tasks and streamline processes. We leveraged the Office 365 environment to automate and simplify key governance processes and improve collaboration with key stakeholders.
  More complex organisations would benefit from the use of collaboration and communication tools, such as virtual meeting platforms or cloud-based document management systems, to facilitate communication and collaboration among governance stakeholders.
• Communicate clearly and transparently with stakeholders about governance structures and decisions. This helps to build trust within your organisation and reduces the risk of misunderstanding or conflicts of interest. It also ensures that everyone involved is aware of the organisation’s goals and objectives.
  Always keep the relevant stakeholders involved throughout the governance process and ensure that their feedback is addressed.
• Use metrics and KPIs to measure the effectiveness of your governance structure and identify areas for improvement. This helps organisations to track and assess their objectives and ensures that resources are being allocated effectively.
• Establish a strong corporate culture that values integrity, transparency and accountability. Creation of a positive work environment will assist in improving the overall long-term performance of the organisation.
• Include risk management as an important aspect of governance. Organisations face a variety of risks including market risk, credit risk, operational risk and reputational risk. It is vital to have effective strategies in place to identify and mitigate these risks. This may include implementing policies and procedures to reduce the likelihood of risks occurring and contingency plans to minimise the impact of risks that do occur. Organisations can use a variety of risk management tools and techniques, including risk registers, stress testing and scenario analysis to identify and manage risks.

Implementing the above steps will simplify your organisation’s governance, improve its efficiency and effectiveness and allow your organisation to focus on delivering value to your customers and stakeholders. Taking a proactive approach to governance creates a strong foundation for long-term success and helps with meeting the challenges and opportunities of an ever-changing marketplace.

Reaping the benefits

Overall, the governance simplification project has been a success, resulting in a more efficient and effective governance structure that aligns with the organisation’s strategic objectives and better serves the needs of all stakeholders. By streamlining processes, clarifying roles and responsibilities and improving communication and transparency, we have been able to simplify governance and improve decision-making. We are confident that these changes will help us better navigate the complex and dynamic business environment in the financial services sector and continue to drive strong performance and value for all stakeholders.

In conclusion, simplifying governance can help organisations to become more efficient and effective, while still maintaining strong controls and risk management. By streamlining the decision-making process, clarifying roles and responsibilities and improving communication and transparency, organisations can create a governance structure that is more aligned with their goals and better able to adapt to changing circumstances. While the process of simplifying governance can be challenging, the rewards are well worth the effort.

Moving forward, it is important to continue reviewing and adapting the governance structure as needed to ensure that it remains effective and aligned with the organisation’s goals. This may involve ongoing simplification efforts, as well as regular communication and engagement with stakeholders to ensure that the governance structure is meeting the needs of the organisation. By taking a proactive and collaborative approach, organisations can build a governance framework that helps them to navigate an increasingly complex and dynamic business environment.

Harrus Ali ACG and the team at Santander Asset Management UK