How Good is Your Governance?

> Posted by Danielle Donza
Take this quick survey to evaluate the governance of your MFI:

  1. Do you have an independent board chair?
  2. Do you conduct board evaluations?
  3. Does your board discuss the social mission of the organization?
  4. Has anyone ever dissented at a board meeting?
  5. Does your institution have a succession plan?
  6. Do you have risk and audit committees?
  7. Does the board package go out in a timely manner before the board meeting?
  8. Do you have Directors & Officers insurance?
  9. Do you offer any type of board training?
  10. Do your board members have diverse and relevant backgrounds?

If you answered “yes” to the majority of these questions, then you are probably in fairly good shape. Actually, that might be a dangerous claim to make. In fact, as the British hacking scandal unfolded, The New York Times wrote that “News Corporation is in full compliance of the rules set by Nasdaq” and met the requirements to have a majority of independent board members. This means that News Corporation would probably have answered “yes” to most of these questions. And I’m pretty sure the same could be said for Enron and WorldCom.  Yet these boards still consisted of faces that were just a little too “friendly,” and despite conforming to the technical “best practices” for governance, were still not providing adequate oversight.
Following industry best practices is still a necessary condition for good governance, and is also a sign that governance is taken seriously, but it does not necessarily guarantee that good governance is actually present at your institution.
Perhaps I would be safer making the opposite claim: If you answered “no” to most of these questions, you might be in trouble. The recent publications  “Lessons Learned from Failed Experiences in Latin America,” and “Weathering the Storm: Lessons in Microfinance Crisis Survival from Those Who Have Been There” both concluded that most MFI crises or failures could have been avoided or prevented by more robust governance. What really makes governance good is the ability of the board members to monitor the status of the organization, make good strategic decisions, and hold executives accountable for their execution.  And ultimately that comes down to the quality of the board members, the culture and practice of the board, and the power relationships among board members and executives.
So I urge MFI boards and management to take a hard look not only at the composition of their governance structure, but also at the quality.
Image credit: Sarregouset
Have you read?
‘Weathering the Storm’ and Learning from Latin America’s Experiences
Governing Banks, Governing MFIs
 CMEF Releases Report on Growth in Commercial Microfinance

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