The four pillars of governance

In one paragraph

Governance is four distinct responsibilities: setting direction, overseeing performance, managing risk, and holding management to account. They are separate from running the business.

Direction — deciding what the business is for and where it is going. Strategy, values, the plan.

Oversight — monitoring performance against that plan with information good enough to judge by. Not the same as reading the management accounts once a quarter.

Risk — identifying what could seriously damage the business and deciding what to do about it. Concentration, key person, compliance, cash.

Accountability — holding management to what was agreed, and being held to account in turn by owners.

The small-business version

There is no board, so this either happens deliberately or not at all. See [governing versus managing] — the same failure from a different angle. The practical fix is a fixed quarterly session with the four headings as the agenda.

How to actually use it

• Use the four as a quarterly agenda. Ninety minutes, out of the office, one item each.
• For risk, name the three things that would genuinely damage the business and write down what would reduce each. Most owners have never done it and can name them instantly.

Where it breaks down

• Formal governance can become theatre — papers produced for a meeting nobody acts on. The test is whether a decision changed as a result.

More on leadership