Those that run organisations are expected to make decisions. These can be trivial and some with significant long-term impacts. They are often presented with scenarios where they are required to make decisions for the betterment of their organisations. These decisions could relate to appointments, procurements, ending or starting partnerships, strategic direction or related to communications.
How these decisions are taken determines how risk is managed and disasters averted within an organisation. Bad decisions can indicate Bad governance.
The quality of decision is based on the quality of the source. Is it based on assumptions or assurances? The difference between both is crucial and can be explained by how a surgeon conducts surgery.
A surgeon when conducting lifesaving surgery must also make decisions. How these decisions are made gives us a glimpse on how assumptions can differ from assurances.
A surgeon regardless of his skill and experiences must rely on assurances provided by test results, machine sounds, camera, touch, tools and importantly opinion of other professionals. The more complicated the surgery, the more assurance is needed. This is how risk is managed.
All these together give the experienced surgeon assurances on how much risk he/she can take and/or if the surgery is on track.
Just imagine, if the surgeon decides to ignore all and just uses “assumptions” based on past experiences or what he/she may have heard or read from elsewhere to conduct the complex and life-saving surgery. One can imagine, this surgeon is playing with life and risking death on the table.
The more experienced the surgeon, the keener he/she will be on relying on assurances from data, test results, tools, and opinion of other professionals. This is not about being weak or being undermined. This is about quality of professional decision making to save lives.
Those that run organisations can learn from this example.
Those charged with governance that rely on assurances tend to get it right compared to those that rely on assumptions and hearsay. Personal experiences of founders and leaders can be important but also dangerous when ignored over other means of assurances when making important decisions.
The larger the organisation, the more need for robust assurance mechanisms. Below are some examples of assurances that can be used in decision making context:
Comparing and Contrasting is a skill that leaders must have
Management regularly reports to their Boards. The Board members in their positions should have the ability to compare and contrast that information with other sources of information. Sometimes these alternative sources must be created for this purpose. For example:
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Does the reported finance information agree back to independently audited accounts?
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Does the HR report agree back to staff surveys or outcomes of tribunal cases / HR compliant investigations?
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Does the operations reporting agree back to independent evaluations and client / beneficiary feedback surveys?
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Is the Management submission on a matter supported by robust legal and finance advice?
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Do Management individually report to the Board and are these position holders consistent in their representations?
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Is there an independent and competent Internal Audit function that provides a robust professional assurance to the Board on ALL aspects of the organisation?
If you think it’s expensive to hire a professional to do the job, wait until you hire an amateur
Professionals can be individuals or firms. A good widely experienced professional can provide an independent assessment beyond the organisation’s internal politics and embedded assumptions.
Home truths from independent professionals can do wonders for cleaning up an organisation. Those leaders that surround themselves with “Yes Men” tend to fall in their own dug holes as they miss them when they eventually appear.
Good Governance is about how organisations are run in achieving their objectives. Decision making is part of this. It therefore matters how these decisions are made using assumptions or assurances.
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Author: Nasir Rafiq is the Founder and Director of Dua Governance Chartered Accountants and Business Advisors, a firm specialising on financial governance.
Nasir is a widely experienced Fellow Chartered Accountant (ICAEW) and a Charity Financial Governance Expert.
Email: info@duagovernance.com