Imperatives of the new framework

Sections 1.5.3 and 3.2.1 of this thesis revealed that authors and commentators see merit in establishing performance indicators that apply to the boards’ corporate governance activities. This view was reinforced by the interviewed experts (described in section 5.3) and action research study (described in section 5.4).

Chapter two established that corporate governance is developing and changeable. Sections 1.5.1 and 2.1 argued that traditional corporate governance models, whilst having relevance in some narrow circumstances, are inadequate in broader contexts. Traditional models that look to assign causality to some specific factors, such as chief executive officer opportunism (Cornforth & Edwards 1999), are examples where too limited a scope often render them invalid. It was argued in section 2.1 that single dimension theories, such as agency theory, may not be valid because the theory inadequately explains the phenomena influencing corporate governance action.

Similarly, in sections 5.3.4 and 7.1 it was argued that there is no evidence to support the validity and usage of elaborate holistic models, such as the BICF, notwithstanding that such models do contribute to understanding board behaviour.

That is not to say that systems and tools, such as the BICF, are not relevant. A valuable contribution is that holistic process models, like the BICF, introduce the notion that board activities are influenced by inputs; a tool is but one of these inputs and places the centrality of intellectual capital squarely within a board’s function. Beyond the insights this model can provide is the irony that boards often carry out decision making by using systems or tools; for example, the financial reporting system enables the board to carry out an overview of the organisation and the chief executive officer, and it is central to decision making concerning the allocation of resources and the development of future initiatives or strategy. At another level, the use of the board’s annual calendar of work is a simple process that allows the board to plan and carry out its work for the year. Similarly, the use of board committees for detailed thinking and work is a process utilised by many boards. The list of processes is large and likely to expand over time, as new technologies emerge and corporate governance thinking advances.

Chapter three discussed the very wide variety of areas and issues that not-for-profit organisations face, so complicated that in-depth familiarity with the organisation, its purpose and its environment is difficult to achieve. The board of directors and chief executive officer is best placed to achieve this.

Section 2.4 concluded from the literature that the approaches available to the board to establish its performance indicators could be based on:

a. an unplanned approach

b. an approach underpinned by strategy c. critical success factors

d. board roles

e. a corporate governance systems approach f. a balance or combination of these.

g. simplistic mono-dimensional performance indicators.

To a limited extent, these approaches were examined in contemporary practice. Section 7.1.2 considered a combination of critical success factors and board roles and section 7.1.4 considered a strategy driven approach. The evidence is clear that this is a difficult task for boards and this is supported by the literature. Section 1.5.3 for instance noted the need to keep the performance management task simple. The same would apply to the development of performance indicators.

Sections 6.2.2 and 6.2.3 argued that boards engage with mechanisms to carry out their work; while these mechanisms ought to be broadly defined they can include relatively sophisticated mechanisms, such as the BICF, or simple tools such as agendas; they can also include social principles or virtues such as ethics and accountability. Section 6.1.3 noted the apparent acceptance of corporate governance statements and that where these were expressed in such a way so as to have binary answers or responses, they could be considered as performance indicators achieving Caddy’s (2002) level one, level two and possibly level four.

A critical driver in most boards is gradual change and continuous improvement as not- for-profit boards are usually conservative and slow moving.

Proper scope and definition of the process map is critical (as introduced in section 2.3). A scope that is too narrow eliminates potential critical success factors and a scope that is too wide leads to the exercise taking too long and becoming more complex than necessary. As noted in the literature review, ‘this step requires experience, intuition and creativity’ (Reynolds 1992, p.25). This thesis recommends that the board engage a skilled consultant to help it perform this task; this is more extensively discussed in section 6.3.1. Here it is argued that because corporate governance is not universally defined and commonly accepted and not-for-profit organisations are varied, the board is crucially and decisively placed to determine its own performance indicators. Thus there is a need within the not-for-profit organisation’s corporate governance practitioner’s community for a methodology that can be applied to satisfy the need for the development of performance indicators.

To summarise, the factors establishing the need and imperative for a new framework are:

• Authors and commentators see merit in establishing performance indicators • Corporate governance is developing and changeable

• A wide variety of areas and issues are faced by not-for-profit organisations • Literature offers little guidance for the board in how to attend to the task and

the action research study material demonstrates the difficulty • Boards engage with mechanisms to carry out their work

• The widespread acceptance and usage of corporate governance statements and argument that where these were expressed in such a way so as to have binary answers or responses they could be considered as performance indicators • Change in most boards is gradual and not-for-profit boards are usually

conservative and slow moving.

Together these factors provide an opportunity to propose a new design framework building upon these factors. The proposed new design framework is fully described in the next section.