Understanding Governance Documents

 

There is no single definition of Governance Documents. In a narrow scope, it includes high level rules, policies, processes and procedures at the level of Governance Board and C-Suite. In a broader scope, it includes all formal documents that are used for governing the business and managing its operations. In this article, the broader definition is used. Documents such as regulations and standards that are of external origin are not included. 

Organisations have various governance related internal documents. The type and number of documents varies based on the type of organisation, nature of business, management style, work culture, requirements of applicable corporate certifications, product/service certifications, statutory requirements etc. Most of the corporate, product and service certification standards mandate certain documents to be officially controlled, approved and published. Documented governance greatly enhances the 'Effectiveness at Workplace'. The articles 'Developing Effective Process & Procedures' and 'Documenting Policy and Procedures' provide further guidelines on these topics. 

Like organisation hierarchy, the documents have their own hierarchy based on their importance and the level of approval required. The documents on the top of the hierarchy are more strategic and those lower down are more operational. The illustration above shows the typical hierarchy of various Governance Documents. Actual position of a document in the hierarchy depends more on the content rather than the title itself. The illustration does not provide a comprehensive list of all Governance Documents. Only the most common documents are included for our discussion.

Although not precise, based on their functions, the main blocks of the pyramid from top to bottom, represent the following groups:

Corporate Governance Documents 

Policy Documents

Process Documents

Operational documents

Supporting Documents

A brief description of various types of documents is provided below.

Articles of Association:

The Articles of Association is a statutory document at the highest level and is a founding document. This document is necessary for the registration of an organisation as a legal entity and typically contains information about the purpose, governance structure, ownership/shareholding, authority, voting rights,  and other articles mandated by applicable laws depending on where the organisation is registered.  

Governance Manual:

Governance Manual, which is also sometimes called as Governance Handbook or Governance Charter, is a high level document that typically contains information such as vision, mission, core values, high level organisation structure with roles and responsibilities, the corporate building blocks such as its strategic business units & divisions, Board of Governance structure and its main committees, High level policies and procedures for board operations, Ethical code of conduct, and delegated authorities. The list is just indicative, not exhaustive. 

Table of Decision Authority (ToDA):

The ultimate decision authority for an organisation rests with the Board, which needs to be delegated downwards, generally to C-Suite for managing the business. The activities and the level of authority delegated for each position is tabulated in a document called Table of Decision Authority (ToDA). This document also states whether the authority can be sub-delegated and the rules governing sub-delegation. The extent of delegation and the organisation level to which the authority is delegated is risk based.

In some organisations the ToDA is an independent document, while in others it is part of the Governance Manual.

In addition to the corporate ToDA, there may be operational level ToDA for different functions. The underlying principle is that for every decision, the authority must be traceable back to the delegation by the board. In some organisations the operational ToDA is known as Transaction Authority Matrix.

The decision authority may require a preceding review and endorsement by other independent roles to ensure checks and balances and also to ensure avoidance of conflict of interest. For example, the decision authority of introducing a new product line may be with the CEO, but that decision itself may be based on a business case prepared by the Chief of Marketing and endorsed by the Chief Operating Officer.

Table of Financial Authority (ToFA):

The financial authority of the Board is generally delegated downwards using the Table of Financial Authority document. Without this delegated authority no funds of an organisation can be committed for payment of salaries, procurement or any other purposes. The ToFA defines the type of spend and the extent of financial value that can be committed by a specific position in the organisation. The financial approval authority may require a preceding review and endorsement by other independent roles to ensure checks and balances and also to ensure avoidance of conflict of interest. The delegated value limit may be per transaction, monthly limit, annual limit or a value linked to the approved budget, depending on the control best suited for an organisation.

Sub-delegation of financial authority is very much restricted compared to decision authority. The ToFA document includes the extent and the level in the organisation hierarchy to which the financial authority can be sub-delegated and the rules governing such sub-delegation. Often additional controls are imposed on sub-delegated financial authority. A fine balancing needs to be done between ease of business and financial controls.

Policy: 

A Policy document outlines the philosophy, values, and guiding principles of an organisation and provides guidelines for taking decisions while conducting specific aspects of business. An organisation's culture is formed by these Policies. The procedures and other lower level documents are developed in alignment with applicable Policies. It is a statement of intent and as such, does not deal with operational details. It states ‘what’ and to some extent ‘why’ certain things need to be done, but not ‘how’. In the event of any conflict or ambiguity about what is stated in a procedure, the underlying principles stated in the Policy are used for resolving the conflict and interpreting the provisions of the procedure. 

 

Policies are long term documents that are not subject to frequent changes. A well developed Policy may see its first revision only after a span of about five years. 

Depending on the subject matter, the Policies may be strategic or operational. The strategic Policies support the top management in taking objective decisions while the operational Policies are designed to guide the lower level positions in making operational decisions. 

Mandate:

Organisations have two distinct structures - one organisational hierarchy and the other functional hierarchy such as hiring, procurement, accounting, planning, production etc. For efficient operations and management, the functional responsibilities assigned to an organisational element should be absolutely clear without any ambiguity or overlap.

The Mandate document assigns the functional responsibility and accountability to an organisation element with clear scope, authority and exclusions if any. For example, the mandate document for HR assigns functions such as manpower budgeting, manpower planning, recruitment, capacity building, compensation etc. to the HR department. Every department is required to operate within the functional boundaries of their mandate. Operational efficiency is the key in preparing the Mandates.

Terms of Reference:

The Terms of Reference document outlines the purpose, constitution, scope of work, governing rules, reporting structure, expected outputs and outcomes of a committee or a group formed for a specific task. Generally these committees or groups are of temporary nature and get dissolved on achieving the objective or on expiry of their term. 

Charter:

Charter is similar to a Terms of Reference document, except that it is applicable for committees or bodies that are more permanent in nature. For example, the Tender Committee or an Audit Committee is a permanent body in an organisation and has a Charter. 

Procedure:

Procedures detail step by step sequence of activities to execute specific operational tasks or achieving objectives, and identify the key activities and responsibilities of each department or organisational position involved in the task. It deals with ‘who’ does ‘what’ and ‘when’. Depending on the nature of the business or task, a Procedure may also contain ‘how’ an activity needs to be performed and ‘why’ it needs to be done in the way described. In addition, the Procedures describe the inputs, outputs, and measurements of the process being carried out. The article in this blog 'Developing Effective Process & Procedures' provides some guidelines on how to develop effective process and procedures.

Guideline:

A Guidelines document provides guidance, additional information, best practice, and permitted options to support the implementation or compliance with policies and procedures. A Guideline is typically non-mandatory unless specified otherwise. 

Manual:

A Manual is used for providing information about the organisation, product, service or process. Sometimes a Manual may be used for mapping and outlining relevant Policies, Procedures, Guidelines and Work Instructions as a ready reference. 

Service Level Agreement (SLA):

Organisations that operate on a Shared Service model centralise common services and provide those services to internal customers on a need basis. The terms of service delivery in such cases is defined in a Service Level Agreement. As the name indicates, the main purpose of this document is to set out the Service Levels that the internal customers can expect and at the same time define the obligations of the customers and the consequences of failures to reach defined service levels. The list of services, specification of services, inputs and metrics are also part of the SLAs. 

There are also SLAs with external service providers, especially for outsourced services. Those are part of the procurement contracts and therefore not part of our current discussion.

Work Instruction:

Work Instructions are step by step instructions to the lowest level operators for performing a task. They are usually written in a simple way the operator understands, with graphics if necessary. The Work Instructions are more detailed documents describing the inputs, the step-by-step activities, measurements at various stages, the tools, equipment and instruments used etc. They also refer to which drawings or manuals to be referred to, what checklists are to be used, what forms are to be updated etc. while performing a task. In an industrial environment they specify the safety precautions to be taken and the PPE to be used. The best test of an effective work instruction is to give it to a new person and see if he/she is able to accomplish the task just by following the Work Instruction.

Form & Template:

Forms and Templates are supporting documents for the Procedures and Work Instructions. The purpose of Forms and Templates is to standardise the data gathering and reporting for greater efficiency and consistency.

The difference between a Form and a Template is that, while a Form has a fixed format and is generally used for gathering information or data, the Template is a guidance format, providing some flexibility to the user to customise it based on the context.

List & Checklist:

Lists and Checklists are supporting documents for the Procedures and Work Instructions. The purpose of Lists is to provide information in a simple, indexed way for easy reference. List of procedures, list of applicable laws, list of approved signatories are some examples.

Checklist is a confirmatory list where certain items such as material, tasks, services are listed with a checkbox against each and the availability of material, completion of task or receipt/provision of service is checked in the box. The Checklist provides the status of completed or remaining tasks at a glance. The safety Checklist in an aircraft, periodic service Checklist of a vehicle, cleaning Checklist used by housekeeping staff are some examples.

Plan:

Plan is a scheme or design for accomplishing a task, that provides details of the task,  start date, completion date, work schedules, requirement of resources such as men, material and funds, key milestones, performance measurements etc. Business plans and project plans are some examples.