When you think of governance, what is the first thing that comes to mind?
You might think of a board of directors making decisions around risk mitigation, budgets, policies… And while these are all important parts of governance, the role of a board goes far beyond these general bureaucratic pursuits.
Off the back of our masterclass last week, we wanted to share with you the three most common myths and misconceptions about governance and how it can actually be shaped for the Next Economy. But first…
What is the Next Economy and Next Economy Governance?
Based on British economist Kate Raworth’s Doughnut Economics, the Next Economy is essentially a new way of leading, governing and being that allows humanity to flourish while living in harmony with the world around us.
With this idea in mind, Next Economy Governance builds on the current thinking of board governance and the role of boards (like we covered at the beginning of the article) while evolving governance practices to incorporate what we need for the Next Economy:
- Purpose at the centre of decision-making (in addition to profits)
- Stakeholders and relationships (the self and the board)
- Directors committed to conscious leadership (self-awareness)
Why does it matter, and why now?
We live in a metacrisis of interconnected challenges. We have breached six of our nine planetary boundaries (more on this here). This is completely unsustainable, and we need new approaches to how we live and work. And we need it now.
We can’t evolve the way we do business without evolving the way we approach governance. Governance doesn’t have to be all data, spreadsheets and money above all else — it can be about giving and must be a part of ushering in the Next Economy.
The myths & misconceptions
With this context in mind, we need to start teaching leadership to let go of the preconceived notions they may have about what good governance is. Let's explore some of the most common myths and misconceptions about governance…
Myth 1: A director of a company has to make decisions which maximise profits for shareholders
Fact: They actually have to make decisions in the “best interest” of the company
Many people believe that directors are legally* obligated to make decisions for a business that maximises profits for the company's shareholders above all else, but this simply isn’t true. Their actual obligation is to make decisions that are in the best interest of the company (Section 181 of the Corporations Act).
There’s a big gap between what directors must do legally and what they think they “have to” do. Many continue to make decisions to maximise profits even when there’s no specific positive obligation to do so in the law. A positive obligation for a board, for example, is things like employee health and wellbeing.
Ultimately, what is considered to be in a company's “best interest” is completely contextual and will continuously evolve. That’s why effective decision-making can only happen when a) the board is very clear on the company’s strategic plan and b) they really understand and embody what the organisation’s purpose is.
*All mentions of law in this article are from an Australian legal context. These laws may be different outside of Australia.
Myth 2: Good governance needs to take place in a Boardroom
Fact: Good governance can take place anywhere, as long as the conditions lead to good decision-making.
Many people live with the misconception that there's only one set of conditions in which governance decisions can take place: a board room, a stiff hierarchy, rigid conversations, etc.
Good governance is about creating the conditions which lead to good decision-making. You can still take the work seriously and do it well without being creatively or emotionally stifled. This can look like:
- Relationships that foster trust, confidence, psychological safety and teamwork.
- A beautiful open space with natural light and an open space to collaborate in
- Good communication, where people listen and act with curiosity.
- Well-considered information flow and sharing of materials.
- A team that you feel good working for and with, where the energy is dynamic, fun, playful, creative, etc.
Myth 3: To be on a Board, you need to have executive corporate experience
Fact: A good Board is made up of people who hold a wide range of perspectives and experiences.
Many agree that to fulfil the role of a director, you must have executive corporate experience, which allows you to understand how organisations work and makes you a good director.
While having this experience is valuable, it’s vital to have a variety of perspectives and diverse experiences in the room. A board solely made up of folks from corporate backgrounds would not necessarily create the best conditions for decision-making. The thing that is truly valuable to a board is how you show up:
- Knowing your strengths and what value (e.g. knowledge) you bring to the table.
- Knowing yourself and being a “Conscious Director” — understanding your unconscious reactions, blindspots, etc.
What’s next?
Being a board member is an incredible leadership opportunity. If you’re interested in learning how to be a business leader and want to embed consciousness, purpose and impact into your governance practice, register your interest in our Governing for Purpose program. Learn more and sign up here.
Things to remember:
- Directors are not obliged to maximise profits; they are obliged to make decisions in the company’s best interest.
- Good governance is about the conditions which lead to good decision-making — it doesn’t have to be a “business only” boardroom.
- Good directors are found through a variety of perspectives and experiences, not just corporate expertise.
Got any questions about Next Economy Governance? We’d love to hear from you. Get in touch with our programs team.