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Compliance v Performance – where does your board spend most of its time?
Mark C. Schultz, FAICD FCPA
September 26, 2016
A board of management has 2 primary functions, namely Compliance and Performance. How your organisation performs over the long term can be dependent upon what your priorities and focus are in relation to these 2 obligations.
Both these responsibilities of the board are important for good governance. Compliance because it reviews, monitors and assesses the activities and outcomes generated, against the expectations set by the board. This function also ensures legal and stakeholder requirements are being addressed, thereby protecting the organisation against any adverse events or actions. The focus is generally the past and reviewing what has been done, rather than what should or could be done in the future.
On the other hand, Performance is about the future, it’s about sustainability and the focus is on strategy and creating a business model that can survive in both predictable and turbulent times. It works with “unknowns “and requires detailed analysis and critical thinking. Robust risk management underpins performance management and development and without a board focusing on Performance, an organisation can be left to wander, without a clear direction and common understanding of what will drive and deliver value over the long term.
Both functions are undoubtedly important to good governance. It is beneficial to know where you have been and how you got to where you are today, however this knowledge has little value by itself. Whilst lack of Compliance may cause problems for an organisation, a sole focus on this function will also be problematic. A board must decide how it will allocate its time and resources to ensure both these functions are addressed and be comfortable with its focus – and a good definition of comfortable, in this case, is an organisational business model that meets the challenges of an ever changing external environment and is able to meet stakeholder expectations over the long term. A board need to think about this and make specific decisions about how it will manage these functions.
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