• Saying ‘we are focused on ethics’,
• Confusing ethical intent with outcomes,
• Meeting with people screwed as a consequence of unethical behaviour within the organisation,
• Saying sorry and/or making belated payments years too late.

This approach is at best second rate PR and the belated payments may be necessary restitution (but rarely compensates for the pain an suffering caused by the CBA’s unethical behaviours extending over years). But none of these actions has anything to do with setting ethical standards – ethics are about doing the right thing when no one is watching and proactively correcting errors as soon as you are aware of them. Ethical standards have nothing to do with implementing a pathetic PR exercise after your extensive wrong doing has been exposed to the full glare of publicity and then only paying parsimonious compensation to a few of the victims.

The ethical standards of an organisation are set by the minimum standards of behaviour its managers condone.  CBA Directors and managers have condoned highly unethical behaviours and the CBA continues to employ many of the same people who have been responsible for the creation and sustainment of this unethical culture over many years. This is a fundamental failure of organisational governance.

The only real measure of CBA and Comminsure starting to cut out the unethical rot in its management systems will be the number of people in senior management ranks fired or otherwise sanctioned for either:

• Condoning the behaviours outlined in the previous Senate enquiry and the latest ABC 4 Corners / Fairfax report, or
• For incompetence in not knowing (or not wanting to know) the unethical practices were on-going.

A number of Comminsure Directors should be resigning for exactly the same reasons!

The root cause of the Comminsure scandal highlighted over the last 24 hours is identical to the earlier CBA banking scandal (discussed in several previous posts) – CBA management designed incentive systems that paid its staff bonuses to screw their clients and inflate profits. The consequences may not have been intended but nothing was done to correct obvious problems once they became apparent, probably because the managers responsible for oversighting the behaviours were on exactly the same incentive structure. And, the bank continued to pay for behaviours that focused on short term profits over the needs of distressed clients for years. Simply leaving the same group of people who created the mess to clean it up is stupidity of the highest order.

As defined in our White Paper: The Functions of Governance, two of the most important aspects of governance are establishing (and enforcing) the ethical standards and culture of the organisation. These functions cannot be delegated for reasons outlined in Dr. Bourne’s post from last week Practical Ethics.

The question is what are the CBA Board going to do about the core problem?

Unfortunately, neither side stood behind their commitments, leading to civil war with the rebel barons receiving active support from France. After John’s death, the regency government of his young son, Henry III, reissued the document in 1216, stripped of some of its more radical content, and at the end of the civil war in 1217 it formed part of the peace treaty agreed at Lambeth, where the document acquired the name Magna Carta.

The 1297 version of Magna Carta

Short of funds, Henry reissued the charter again in 1225 in exchange for a grant of new taxes; and his son, Edward I, repeated the exercise in 1297, this time confirming it as part of England’s statute law. But as important as this document is in English history, it was not ‘unique’ – the Magna Carta is based on a long Anglo-Saxon tradition of governance.

The 1215 Magna Carter was based on The Charter of Liberties, proclaimed by Henry I a century earlier. Henry I was King of England from 1100 to 1135; he was the fourth son of William the Conqueror and came to the throne on the death of his bother in a hunting accident. The Charter of Liberties issued upon his accession to the throne in 1100, and was designed to counteract many of the excesses of his bother William II and shore up support for Henry.  Among other things the Charter of Liberties restored the law of Edward the Confessor one of the last Anglo-Saxon kings of England.

Anglo-Saxon law itself has a long history; the Textus Roffensis currently held in the archives at Rochester, Kent, documents Anglo-Saxon laws from the 7^th Century. These laws and practices suggest the rights of individuals were fairly well protected and the King was responsible for governing within the law (see: Arbitration has a long history).

The Norman Conquest of 1066 brought a more imperial style of governing that flowed from the Roman Emperors (post Julius Cesar), based on ‘the divine right of kings’ and a feudal system that placed the King at the top of a hierarchy of power based on the control of land – the King owned all of the land and granted it to Barons in return for allegiance and taxes.  The only limitation on the King’s power was the willingness of his barons to accept the King’s rule and if they did not, rebellion was their only option. This type of ‘absolute’ power was wound back a little by the Magna Carta which guaranteed the rights of Nobles and the Church but did little for ordinary people.

However, during the course of its repeated ‘re-issuing’ the Magna Carta did pave the way for Parliamentary government and stood as a powerful counter to attempts by monarchs to assert the divine right of Kings as late at the 17^th Century. By the end of the 17^th century, England’s constitution was seen as a social contract, based on documents such as Magna Carta, the Petition of Right, and the Bill of Rights. These concepts were taken to the Americas by the early colonists and formed part of the underpinnings of the USA constitution.

The governance message from the Mana Carta is the need for the ‘governor’ to respect the rights of the people being governed. The closer a governor gets to absolute power the greater the tendency to despotism and corruption. Effective governance systems balance the needs and rights of the governor and the governed, operate within an open framework, incorporate checks and balances, and adapt to changing circumstances. ‘Absolute systems’ are almost incapable of changing progressively, the usual course is the governors apply more and more coercion to stay ‘in power’ until eventually the whole system is destroyed by revolution or catastrophe; damaging everyone.

Following Magna Carta, the English constitution evolved and adapted to change and certainly since the restoration of the Monarchy after the English Civil War and Commonwealth of Oliver Cromwell has been designed to adapt and change. Corporate and organisational governance has followed a similar trend and evolved from its inception in the early 17^th century into its modern form (see: The origins of governance).

However, whilst the concept of governance has been evolving and the purpose of good governance is to balance the needs and expectations of all stakeholders to the common good, governance failures remain commonplace.  Our last blog post Governance and stakeholders highlighted three recent governance failures; the discussion on FIFA in particular highlighting the danger of concentrating nearly absolute power in the hands of one person.

There are some interesting parallels, eight hundred years ago on the banks of the Thames an embattled King John met the English barons who had backed his failed war against the French and were seeking to limit his powers. The sealing of the Magna Carta, symbolically at least, established a new relationship between the king and his subjects. Eight days ago, Sepp Blatter met his advisors near the banks of Lake Genève and sealed his fate by announcing his resignation from FIFA. If FIFA survives, it is highly likely the powers of his successor will be similarly limited by a new ‘charter’.

The bigger question though, is how can these excesses be avoided in future? History tells us that transparency and good information is one of the keys to avoiding excess, as is making the ‘governors’ accountable to the governed.  Another is the affected stakeholders being willing to assert their rights before a situation gets out of hand and more desperate measures become necessary.

On two separate occasions I’ve been lucky enough to see one of the four remaining copies of the original Magna Carter, once at Lincoln in the UK, and once as part of an exhibition in Canberra. As we reflect on this document and its 800 year history its worth considering its key message, that good governance requires both limits on power and for the governors to consider the interests of their stakeholders; if these two elements are present, the likelihood of governance failure is going to be significantly reduced. This is equally true for national governments, organisational governance and the governing of projects, programs and portfolios.

Certainly, as far as the governing of projects, programs and portfolios is concerned, both the EVA18 Project Controls Conference in England and our local Project Governance and Controls Symposium are organised by people who believe one of the keys to good governance is having open, effective and robust reporting system in place that deliver accurate information to all relevant stakeholders. The challenge we face is persuading more organisations to invest in this key underpinning of good governance – hopefully we won’t have to wait another 800 years…

The best construct seems to be something along these lines, but any thoughts or suggestions to the contrary will be appreciated.

Morals and ethics are the starting point, both deal with distinguishing between ‘right and wrong’ behaviours, but morals are internal to a person, ethics are rules developed by others:

• Morals are the internal code of behaviour that define what is considered right or acceptable by the person, usually derived from a religious or philosophical base. The choice of which morality to follow is made by the individual, and therefore ‘morals’ tend to refer to that person’s ideals regarding right and wrong; within the framework of the society they live in – there can be different moralities.
• Ethics involves systematising and recommending concepts of right and wrong conduct, and refers to the series of rules provided to an individual by an external source, typically in a ‘professional code of ethics’; eg, the PMI Code of Ethics and Professional Conduct.

Values are an expression of a person’s fundamental beliefs, founded on their ethical and moral framework. Values are used to define and differentiate right from wrong, good from bad, and just from unjust based on what is important to the individual – things the person ‘values’. Where are group of people operate within an organisational culture, the ‘values of the organisation’ are derived from the values of the members of the organisation. An organisation’s values are the standards used to provide guidance to the members of the organisation as they determine what is the best decision or course of action to take.

Principles are similar to ethics; they codify a fundamental truth or proposition to define an aspect of an organisation’s overall values in an objective way. They are positive statements of what will be done or achieved. An organisation’s enunciated principles serve as the foundation for its policies, behaviours and reasoning.

The final link in the chain is the organisation’s policies. These are a set of rules used by an organization to define how its members will implement aspects of its principles or objectives. Policies provide the guidance and constraints needed by management to operate he organisation effectively.

Ideally, in a well governed organisation, the connections between morals and ethics, values, principles and policies are direct and free of contradictions and ambiguities; with each policy clearly supporting the underlying ethical and moral foundations of the organisation’s culture. In reality there are frequently conflicting pressures and imperatives within the policies that make choosing the best option difficult – in these circumstances the decision maker’s personal morals and ethics come to the fore.  For more on ethics see: http://www.mosaicprojects.com.au/WhitePapers/WP1001_Ethics.pdf

To lay the foundation for this post, the interconnected nature of governance has been discussed in our post Governance -v- Management: A Functional Perspective  and is best displayed in this ‘petal diagram’

The catalyst for this post are some recent changes in Australian workplace legislation that is forcing all types of organisations to consider how they manage the mental health of their paid and volunteer workforce.  In essence these codified requirements are no different to the pre-existing requirements to protect the physical wellbeing of the workforce and others interacting with the organisation, the only difference is mental heath and wellbeing are now overtly covered.

The new uniform national workplace health and safety laws require employers to ensure that workplaces are physically and mentally safe and healthy, and the work environment does not cause mental ill-health or aggravate existing conditions.  Under these harmonised laws ‘reckless conduct’ offences incur penalties of up to $3 million for corporations and $600,000 and/or 5 years jail for individuals.

These challenges cannot be avoided; it remains illegal to discriminate against individuals on the grounds of disability, including mental disability, in the same way it is illegal to discriminate on the grounds of age, sex, race, and religious and other beliefs.

These are not trivial issues as the  $230,000 penalty (fines and costs) awarded  by the Victorian Supreme Court against the former operator of a commercial laundry for ‘workplace abuse’ and the  reputations damage suffered by CSIRO (Australia’s premier scientific research organisation), over on-going bullying allegations demonstrate.

There is a growing awareness of psychological hazards in the workplace including bullying, harassment and fatigue; and the consequences of organisational failures in this area can extend well beyond the strict legal liabilities.  To avoid prosecution and reputational damage, organisations are increasingly being required to take proactive, preventative actions and implement a culture, reinforced by effectively implemented policies to manage these aspects of workplace health and safety. Attitudes are slow to change and creating a culture that properly respects and protects mental wellbeing will require a sustained focus at the governance levels of the organisation as well as in the day-to-day management of the work place.

The payback for good governance and effective management in this area is that organisations that promote good mental health in the workplace are seen as great places to work, and have higher levels of productivity, performance, creativity, and staff retention, and tend to financially outperform other less well governed organisations. These are very similar findings to organisations that actively support and embrace ‘Corporate Social Responsibility (CSR) – apparently the good guys finish first (not last)!!

However, managing this change is not going to be simple!  Organisations are under ever increasing pressure to adapt to a rapidly changing environment and to produce ‘more with less’ to survive. One of the key capabilities enabling quick and effective strategic change is the domain of project and program management. In response to these organisational pressures, project managers are increasingly being placed under stress to be faster, cheaper and better and to deliver the new capability or ‘thing’ in record time.  Couple this to the mistaken belief of some managers that setting ‘stretch targets’ is a way to motivate workers (even though sustained failure is known to be a major cause of stress and demotivation) and you end up with a classic governance dilemma.

Deciding how to best balance these competing demands require an overarching governance policy supported by a sympathetic implementation by management to achieve both a safe work environment and an effective management outcome.  In the absence of effective governance managers are left to sort out their own priorities and frequently are driven by short term KPIs focused on easy to measure cost and time performance criteria. In these circumstances concern for performance frequently outweighs concern for people.

These issues are compounded by the fact that far too many middle and project managers lack effective people skills and can easily drift from pushing for performance to micro management to outright bullying. The mental wellbeing risks include applying undue pressure to perform that induces stress leading to depression; as well as more overt acts of aggression and bullying. The Australian Fair Work Amendment Bill of 2013 defines workplace bullying as ‘repeated, unreasonable behaviour directed towards a worker or group of workers that creates a risk to health or safety’.

Unfortunately, at least in the Australian context, bullying is a major unreported problem. A recent survey by the University of Sydney (see the report summary) has found that workplace bullying tends to be peer-to-peer and occurs at all levels of organisations. Most incidents occur within the presence of one’s peers, including bullying in meetings and other managers are unlikely to intervene. The problem is insidious, nearly 50% of the survey respondents reported bullying in the last year, and only 16% organisation assisted the situation when the problem was reported. But, ignoring the issue is a high risk strategy.

All types of organisation need to develop focused strategies to reduce the opportunities for bullying to occur at every level from the board room table down to the shop floor; and to policies backed by procedures to deal with bullying effectively when it does occur, in ways that support the victims. Bullying is illegal, causing damage to a person’s mental health is illegal (and bullying is only one way this can occur) and failing to effectively manage the consequences of mental illness is illegal.

The ongoing damage being caused to CSIRO’s reputation by the publication of the report into bullying within the organisation demonstrates the way these problems can escalate into a major issue for the Board. The on-going publicity associated with potential litigation and prosecutions has a long way to run before the final wash up allows CSIRO to move forward with a clean slate. And, as the CSIRO report suggests, the consequences of breaking the law are likely to be a small part of the overall damage caused governance failures in this important area.

The reason this is primarily a governance issue is the challenge associated with developing a philosophy and culture that empowers management to resolve the dilemma associated with balancing commercial objectives against personal wellbeing objectives – there is no ‘right answer’.  It is all too easy for executives to decide the organisation needs a new capability, managers being tasked to deliver the required outcome with inadequate resources, and the project manager to be given an unreasonably short timeframe for delivery.  The pressure to ‘perform’ inevitably leading to increases in stress, conflict and potentially bulling. But whilst there are many questions, and decisions, there are few clear answers:

• When does the need to perform and work extended hours slip into workplace fatigue and an unsafe work environment?
• When does the project manager’s desire to push team members for maximum performance slip into bullying?
• Who is responsible for creating the unsafe work environment:
  –  The PM operating at the tactical level?
  –  The managers that set the strategic objectives?
  –  The executives who created the overall environment?
  –  The ‘governors’ who failed to offer appropriate leadership?

Good management can certainly alleviate some of the symptoms, but good governance is needed to eliminate the root cause and promote mental wellbeing in the workplace. At least in Australia there are now effective laws to help and the data shows improving this aspect of an organisation is good for business, and of course excellent stakeholder management.

Governance is the act of governing. It is the way rules are set and implemented, and relates to the way decisions are made that define expectations, grant power, and verify the performance of people within the entity being governed.

To distinguish the term governance from government, governance is what a governing body does. It might be the governing body of a geo-political entity (nation-state – typically referred to as the government), a corporate entity (typically the Board of Directors), or another type of organisation. When looking at organisations and corporations (Corporate Governance), the governing body may be the individual that owns an organisation, but more typically is a small group of people at the apex of the organisation’s hierarchy.

Sir Adrian Cadbury (2002) defined the aim of corporate governance as aligning as nearly as possible the interests of individuals, organisations and society. Corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. It is the system by which business corporations are directed and controlled.

Stewardship is an important governance concept. It includes:
– Fealty: A propensity to view the assets at ones command as trust for future generations rather than available for selfish exploitation.
– Charity: A willingness to put the interests of others ahead of ones own.
– Prudence: A commitment to safeguard the future even as one takes advantage of the present.

The governance framework, set by the governing body, specifies the distribution of rights and responsibilities among different participants in the corporation, such as the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provides the structure through which the company objectives are set, and defines the means of attaining those objectives and of monitoring performance.

The Functions of Governance
The governance function has two key aspects; the first is deciding what the organisation should be and how it should function. These governance decisions are communicated to management for implementation and the primary outputs from this part of the governance system are:

• The strategic objectives of the organisation framed within its mission, values and ethical framework.
• The policy framework the organisation is expected to operate within.
• The appointment of key managers to manage the organisation.

These aspects are best developed using a principle-based approach that recognises and encourages entrepreneurial responses from all levels of management.

The second aspect of the governance system is oversight and assurance. The governing body should pro-actively seek assurance from its management that the strategic objectives and policies are being correctly achieved or implemented. The assurance and oversight functions include:

• Agreeing the organisations current strategic plan (in conjunction with executive management). The strategic plan describes how the strategic objectives will be achieved.
• Suggesting or approving changes to the strategic plan to respond to changing circumstances.
• Requiring effective assurance from management that the organisations policy framework is being adhered to.
• Requiring effective assurance from management that the organisations resources are being used as efficiently as practical in pursuit of its strategic objectives.
• Communicating the relevant elements of the assurances received from management to appropriate external stakeholders.
• Assurance to the organisation’s owners the strategy and policies are being adhered to by management and the organisation as a whole.
• Assurance to a wider stakeholder community (including regulatory authorities) the organisation is operating properly.

The role of management is the mirror image of governance:

• Providing input to develop the strategic plan
• Implementing the approved strategic plan within the policy guidelines set by the governing body.
• Providing assurance to the governing body that the management structure is:
  • Operating ethically and accountably
  • Providing effective stewardship of the resources available to the organisation
• Providing timely and accurate information on achievements and issues.

Managing the organisation and making the executive level and operational level decisions needed to implement the agreed strategy and run the organisation within the ethical and policy framework set by the governing body are the core skills and responsibility of management.

Governance and sustainability
The key challenge for the governing body is balancing the competing needs of the organisations stakeholders, including but not limited to its owners, employees, suppliers, customers and society at large, so as to align as nearly as possible the interests of each stakeholder, the organisation and ‘society’ in a sustainable way.

The four elements of sustainability are the three depicted above plus time. The current governors of an organisation need to be cognisant of sustaining the organisation into the future and governing so that the organisation can continue as a valuable contributor to the needs of its stakeholders in the medium and long term, as well as the current short term.

The Governance of PPP
Within this overall framework, the governance of project, program and portfolio management (PPP) is simply an integral part of the overall governance process. Whilst there are specific skills and elements associated with governing PPP these are governance requirements, the responsibility of the governing body.

Similarly the management of the organisation’s portfolios, programs and projects at both the overall enterprise level and the operational level is an integral part of the management process. So whilst there are specific skills and elements associated with the overarching management of the PPP domain at the enterprise level, these are management skills, and are the responsibility of the management team. In short, Governors govern, Managers manage.

Some final thoughts on Governance
Governance is a holistic process that requires careful balance. Decisions in any one aspect of the organisation being governed affect all of the others, some examples include:

• A project failure can affect the organisations reputation and share price;
• An accident to an employee may have direct personal liability implications for the Directors;
• A poorly worded press release may damage the organisation’s reputation and have direct personal liability implications for the Directors.
• There are a range of legislative requirement that impose significant ‘duties’ on the governors of commercial and other organisations including financial reporting and disclosure requirements, environmental, OH&S and employment requirements and taxation and superannuation requirements (eg, CLERP9, SOX, etc.). The governors are legally required to govern!

Because of this interconnectedness, governance operates at the organisational level which means you govern an organisation that does projects; you do not govern the individual projects; if the project teams are part of the overall organisational structure – you manage them! There is no effective difference between temporary project teams and permanent teams within the organisation.

Exceptions to this are when a project is set up as a temporary organisation external to the main organisation either as an isolated ‘skunk works’ or ‘major project team’ focused on developing something independent of the work of the main organisation, or as a joint venture between two different organisations. Then, as with any subsidiary, if the project organisation is operating as a largely autonomous entity, it becomes an organisation in its own right that requires governing and any parent organisation is one of the key stakeholders the governing body of the project has to consider.

To access our other papers looking at different aspects of governance see: http://www.mosaicprojects.com.au/PM-Knowledge_Index.html#OrgGov

This assertion is supported by the unequivocal view of governments, the OECD, stock exchanges world-wide, various ISO Standards, various Institutes of Company Directors and the Association for Project Management in the UK. The various laws, standards, definitions and guidelines published by these bodies all agree the Board has the exclusive responsibility to govern all aspects of the organisation and this includes the governance of project and program management activities.

The governance function has two key aspects; the first is deciding what the organisation should be and how it should function. These governance decisions are communicated to management for implementation and the primary outputs from this part of the governance system are:

• The strategic objectives of the organisation framed within its mission, values and ethical framework.
• The policy framework the organisation is expected to operate within.
• The appointment of key managers to manage the organisation.

The second aspect of the governance system is oversight and assurance. The governing body should pro-actively seek assurance from its management that the strategic objectives and policies are being correctly achieved or implemented. The assurance and oversight functions include:

• Agreeing the organisations current strategic plan (in conjunction with executive management). The strategic plan describes how the strategic objectives will be achieved.
• Suggesting or approving changes to the strategic plan to respond to changing circumstances.
• Requiring effective assurance from management that the organisations policy framework is being adhered to.
• Requiring effective assurance from management that the organisations resources are being used as efficiently as practical in pursuit of its strategic objectives.
• Communicating the relevant elements of the assurances received from management to appropriate external stakeholders.
• Assurance to the organisation’s owners the strategy and policies are being adhered to by management and the organisation as a whole.
• Assurance to a wider stakeholder community (including regulatory authorities) the organisation is operating properly.

From the list above, it is obvious that the governance system cannot operate without the effective support of the organisation’s management system. And, if governance and management are different systems within an organisation, they should have different functions creating different outputs. We believe this is the case and the purpose of this post is to define what management is and does.

The functions of management were defined by Henri Fayol (1841 – 1925) in his general theory of business administration and surprisingly, this is still seen as a one of the basic definitions of management. He proposed that there were five primary functions of management and 14 principles of management:

Fayol’s Functions of Management

1. to forecast and plan,
2. to organise
3. to command or direct
4. to coordinate
5. to control (French: contrôller: in the sense that a manager must receive feedback about a process in order to make necessary adjustments and must analyse the deviations.).

Inherent in these functions is decision making!  The primary role of management is to make decisions and value judgements within the framework set by the governing body to achieve the objectives set by the governing body. The primary output from management can be defined as information and instructions that have to be communicated to others.

The communication is firstly to the workers so they understand what has to be produced, where and when; secondly to the governing body to provide assurance that the right decisions have been made and the right things are being produced in the right ways applying the organisation’s policy framework correctly.

Fayol’s Principles of Management

The principles of management define some of the ways the functions of management can be implemented – some of theses principles need adjusting to remain effective in modern organisations but the concepts are still valid:

1. Division of work. This principle is the same as Adam Smith’s ‘division of labour’. Specialisation increases output by making employees more efficient.
2. Authority. Managers must be able to give orders. Authority gives them this right. Note that responsibility arises wherever authority is exercised.
3. Discipline. Employees must obey and respect the rules that govern the organisation. Good discipline is the result of effective leadership, a clear understanding between management and workers regarding the organisation’s rules, and the judicious use of penalties for infractions of the rules.
4. Unity of command. Every employee should receive orders from only one superior, from top to bottom in an organisation (not practical in matrix organisations).
5. Unity of direction. Each group of organisational activities that have the same objective should be directed by one manager using one plan.
6. Subordination of individual interests to the general interest. The interests of any one employee or group of employees should not take precedence over the interests of the organisation as a whole.
7. Remuneration. Workers must be paid a fair wage for their services.
8. Centralisation. Centralisation refers to the degree to which subordinates are involved in decision making. Whether decision making is centralized (to management) or decentralized (to subordinates) is a question of proper proportion. The task is to find the optimum degree of centralisation for each situation.
9. Scalar chain. The line of authority from top management to the lowest ranks represents the scalar chain. Communications should follow this chain. However, if following the chain creates delays, cross-communications can be allowed if agreed to by all parties and superiors are kept informed.
10. Order. People and materials should be in the right place at the right time.
11. Equity. Managers should be kind and fair to their subordinates.
12. Stability of tenure of personnel. High employee turnover is inefficient. Management should provide orderly personnel planning and ensure that replacements are available to fill vacancies.
13. Initiative. Employees who are allowed to originate and carry out plans will exert high levels of effort.
14. Esprit de corps. Promoting team spirit will build harmony and unity within the organisation.

Whilst some authorities have added to and changed some aspects of Fayol’s work in the intervening 100 years, these additions and changes have generally expanded and clarified the concepts outlined above. In general terms Fayol’s work has stood the test of time, has been shown to be relevant and appropriate to contemporary management and defines what management is and does. A person undertaking any of the five functions, or employing any of the 14 principles is engaged in management (not governance).

What I believe this post makes crystal clear though is the difference between governance and management – when a manager is deciding the best options or seeking information on actual performance to use in decisions the manager is managing.

The survey question was:
Who is responsible for the governance of an organisation? This poll is focused on governing, rather than implementing policy unless you feel implementation of policy is itself a governance function.

The four options included in the survey were:
– The Board of Directors or equivalent:
– The Directors plus Senior Executives:
– The Senior Management group:
– All managers in governance roles eg PCBs: (project control boards)

Whilst the total number of responses were low a significant difference of views emerged between the two communities.

The overwhelming majority of directors, 86% see governance as the exclusive responsibility of the Board of Directors or its equivalent.

Whereas more than 70% of the project managers see ‘governance’ as the responsibility of either ‘The Directors plus Senior Executives’ or ‘The Senior Management group’ and less then 30% agree with the proposition that governance is the exclusive responsibility of the Board of Directors or their equivalent.

Whilst it would be useful to validate these findings with a larger sample, the stark difference between the two communities is consistent with our observations and other anecdotal evidence. The project management community perspective that ‘governance’ is a management function is simply not supported by other managers and directors.

We have been advocating for several years that:
“Governance” is what a “governing body” does. It might be a geo-political entity (nation-state), a corporate entity (business entity), a socio-political entity (chiefdom, tribe, family etc.), or any number of different kinds of governing bodies, but governance is the way rules are set and implemented.
(Source: http://en.wikipedia.org/wiki/Governance)
It is encouraging to see the directors of our businesses have a similar view.

The damage caused by the project management communities’ view of governance is set out in a letter-to-the-editor published in this months PM World Journal, see: http://pmworldjournal.net/article/on-the-subject-of-the-january-series-article-enterprise-project-governance-how-to-manage-projects-successfully-across-the-organization-what-is-enterprise-project-governance-by-paul-dinsmore-luiz/

For more papers on this subject see: http://www.mosaicprojects.com.au/PM-Knowledge_Index.html#OrgGov1

The purpose of any system is to deliver functionality or capability; governance and management are no different. However, for there to be a valid difference between governance and management, there has to be a different functional purpose. The purpose of this post is to define this difference!

There are three basic layers of functionality within any organisation:

• The producers of goods and/or services, the production workers and/or knowledge workers;
• The various layers of management who oversight and direct the production/knowledge workers;
• The ‘governors’ of the organisation who oversight and direct the managers.

Within this functional framework an individual may operate at different levels at different times depending on the actual function they are performing. A few examples include:

• A front line supervisor or team leader may spend some of her time working as the first line of management directing the work of others, and the rest of the time as a worker producing goods or services.
• A newspaper editor is primarily responsible for the direction and management of sub-editors and journalist with a view to getting ‘today’s issue’ to the presses on schedule, but also functions as a knowledge worker when drafting the ‘editorial column’.
• In corporations, executive directors operate at the governance level when acting as Board Members, as managers when directing the operations of the organisation.

The above clearly demonstrates function and position are not synonymous. But equally, it is important for a person in a position to understand the function they are currently performing.

Production/Knowledge work
The function of any worker is to produce goods services or other outputs as efficiently as possible. In simple organisations and pre-industrialisation, workers were typically responsible for all aspects of the production process in ‘cottage industries’; exchanging their surplus production for their other needs in local markets.

The advent of industrialisation and the division of work into highly specialised operations introduced the requirement for managers to organise the supply chain, the work and the workers; in order to obtain the efficiencies available from these ‘new’ production systems. The concepts of management were largely defined in the late 19th and early 20th century.

Management
There were many contributors to the development of management theory, Taylor’s Scientific Management focused on performance measurement and process optimisation. The Gilbreth’s, Henry Gantt and George Mayo added the concepts of efficiency, leadership, incentivation and motivation; and Max Weber introduced the concept of bureaucracy (standardising procedures and record keeping).

The overall definition of the function of management was created by Henri Fayol. His six primary functions of management are:

• Forecasting.
• Planning.
• Organising.
• Commanding.
• Coordinating.
• Controlling.

Implicit in these 6 factions is the requirement for decision making! The core purpose of management is to make the optimal decisions to make the work of the organisation as efficient and sustainable as practical.

It’s worth remembering, the production and knowledge workers in any organisations will generate some level of output without any input from management. And as Peter F Drucker commented ‘So much of what we call management consists of making it difficult for people to work.’

The function of effective management in a well structured organisation is to create efficiencies in the accomplishment of the ‘right amount’ of the ‘right work’ at the ‘right time’ that are greater than the costs associated with managing the organisation (or at the very least, better then competing organisations). To achieve this, the functions of forecasting, planning, managing and controlling the work, and recording the outcomes; needs to be undertaken within a governance framework that informs the decision making to achieve the optimum outcomes.

Governance
The function of governance is to provide oversight and direction to the management of the organisation. The Organisation for Economic Co-operation and Development in the OECD Principles of Corporate Governance 2004 (www.oecd.org) define governance as: ‘involving a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined’

The primary elements necessary to achieve this objective are outlined in the diagram below:

Governance is a holistic process, a failure in any one area will cause damage in others; a few recent examples include:

• The damage to David Jones’ reputation and share value caused by inappropriate interactions between a senior manager and a female employee.
• The vast amount of damage caused to BP due to failures in safe operating procedures leading to the Deepwater Horizon disaster.
• An inaccurate press release leading to the conviction of several Directors of the James Hardy group (under continuous disclosure requirements of the ASX).
• The legal actions brought against Centro for the misallocation of debt despite receiving and applying advice from a leading international accountancy firm.
• The personal liability of Directors under various legislative regimes for breaches of taxation requirements, OH&S failures, insolvent trading, etc.

Whilst avoiding ‘failure’ is important, the primary function of governance is to create sustainable success. This is of necessity, a multi-faceted process that requires the careful balancing of different, frequently contradictory, objectives. For example:

• The resources committed to implementing a future strategy cannot be used to enhance current viability or profitability causing a short term loss of value or revenue.
• However, if no commitment is made to develop the future of the organisation, the organisation itself will quickly become uncompetitive and irrelevant, destroying value for its owners in the longer term.

Determining the right balance is a governance decision. Implementing the decision is a management function.

In the area of strategic change, doing the ‘right project right’ is woefully inadequate. An effectively governed and managed organisation starts with a well defined strategy, and manages each selected project or program through the organisational changes needed to make full use of the outputs to the maximisation of the benefits realised; recognising that in a changing world, the potential benefits will be changing throughout the whole life of the initiative and adapting to optimise the overall outcomes (for more on this see: The failure of strategic planning).

Who governs?
There are two schools of thought about governance. One body of literature sees different types of governance, primarily corporate governance, IT governance and project governance. The people developing this concept are almost exclusively project mangers, IT managers and academics focused on these disciplines. Interestingly there does not seem to be a similar body of literature focused on HR governance, financial governance or any other area of management. This school of thought sees governance being a function of almost any management position or entity responsible for overseeing the work of IT departments or projects including sponsors and project boards.

The alternative school of thought developed by organisations such as the OECD, various Institutes of Directors and the agencies responsible for governing the various stock exchanges see governance as a single process with different facets. The approaches taken by various governments in legislating liability for corporate and governance failures supports this holistic view. The Directors of corporations are being increasingly made personally responsible for governance and management failures.

An interesting exception to the concept of ‘project governance’ being something different and special is the various guides developed by the Association for Project Management (APM, UK). The recently published 6th edition of the APM Body of Knowledge sees ‘the governance of portfolios, programs and projects as a necessary part of organisational governance.’ And governance as: ‘the set of policies, regulations, functions, processes, procedures and responsibilities that define the establishment, management and control of projects, programs and portfolios.’

In the referenced source document: Directing Change A guide to governance of project management, the body defined as responsible for governance is the organisations ‘Board’. In this context, the term ‘board’ applies to management boards and their equivalents in the public sector and to councils in companies limited by guarantee. It does not refer to project boards.

In a well governed organisation, responsibility for implementing defined aspects of the governance system is delegated to the appropriate management levels together with the necessary authority to undertake the work. Accountability for the governance of the organisation remains with the board of the host organisation. The resulting governance structure is outlined as:

Figure 1.2 Governance Structure © 6th Edition, APM-BoK, UK.

The concept of delegation outlined above is important; a key principle in managing governance is summed up in the legal doctrine ‘delegatus non potest delegare’… unless expressly authorised a delegate cannot delegate to someone else.

Part of the governing board’s responsibility is to ensure appropriate delegations of authority are made to management so they can develop an effective system of management that meets the governance needs of the organisation. However, delegating authority and responsibility to management does not remove the ultimate accountability for ensuring ‘good governance’ from the Board.

Interestingly, the APM-BoK acknowledges that in poorly governed organisations project teams may have to take responsibility for governing themselves. This lack of organisational maturity (and capability) is the focus of our paper ‘The Management of Project Management’  (due for publication Oct. 2012) and is the likely reason for the emergence of the separate concepts of project governance and IT governance outlined above.

Unfortunately the creation of ‘special’ governance sub-sets separate from the overall governance function compounds the immature governance the special functions are supposed to resolve – when projects fail and benefits are not realised the organisation suffers as a whole. In the absence of an effective governance system these ‘project failures’ are far more likely to be caused by general management failings than by project management failings (see: Project or Management Failures?).

Summary
The function of governance is and should be separate from the function of management although some managers may fulfil both governance and management functions at different times.

The core principles of effective governance are:

• It is a holistic process focused on the creation of sustainable value by the organisation. Authority for some aspects of governance can be delegated to management, accountability remains with the governing Board.
• Governance and management should be separate; importantly a manager cannot govern his/her own work.
• The governance structure is defined by the governing board and implemented by management (see our White Paper: Project Governance).
• A core aspect of good governance is making the decisions to invest in developing the appropriate capabilities to ensure organisational resources are used efficiently and effectively. The management systems and structures needed to create value from projects and programs are outlined in our White Paper: Project Delivery Capability.

The message from ‘Beyond Performance’ is that focusing on current performance such as return on capital is never enough. The primary driver for long term success is focusing on the health of the organisation, supported by performance. Sustained excellence needs an organisation that has a vision of a medium and long term future as well as performing effectively in the current environment. This requires investment in change to meet those futures with no guarantees the investment will pay off, in the short-term, or at all.

A ‘healthy’ organisation has a clear sense of direction, inspirational leadership and an open and supportive culture of shared beliefs. Within the organisation, the people are motivated and empowered to take responsibility and accept accountability for their work, within a coordinated and controlled environment that deals effectively with risks, issues and opportunities. The organisation is effectively governed and designed by its leaders to execute strategy effectively; it is outwardly focused on a wide range of stakeholders and most importantly, creative and innovative.

But innovation is not enough; the key enabler of sustained excellence is the ability to implement change! This requires good project capabilities to transform innovative ideas into the elements needed to enable the change such as new processes, products or procedures, supported by the ability to implement the change effectively within the organisation to realise the benefits. There is no magic formula for this; different styles of leadership can be equally effective. However, what is certain is that organisations that don’t create the ability to continually change and grow quickly fade into irrelevance as the world around them moves on.

This applies equally to private sector companies and government departments and agencies – there are very few government processes that can’t be privatised, commercialised or simply abandoned if the public service executive don’t rise to the challenge. Australia Post makes a profit for the Government; the Royal Mail in the UK carries far more mail over far shorter distances with a far greater population density and charges far more for its stamps but despite all of these advantages is only marginally profitable through the sale of property assets – guess which organisation’s future is in serious doubt!

All types of organisation need to embrace the ability to change or the cultural inertia I’ve been discussing in a series of posts over the last few weeks will have its inevitable consequences sooner or later.

Project governance is a sub-set of corporate governance, focused on systems that ensure the right projects and programs are selected by the organisation, and the selected ‘few’ are accomplished as efficiently as possible. Projects that no longer contribute value to an organisation should be terminated in a way that conserves the maximum value and the resources reallocated through the portfolio management process to more valuable endeavours.

The framework for effective project governance is laid out above, and is an executive management responsibility. Sponsors and the Portfolio Selection/Management processes provide the key link between the executive and the working project and programs (for more see our Governance White Paper).

The focus of this post is to look at the pre-selection activities that inform the portfolio selection processes. One of the key conclusions to be drawn from the Ombudsman’s Report discussed in my earlier post Cobb’s Paradox is alive and well  was that many of the projects that contributed to the $1 billion in failures were set up to fail – the projects had absolutely no chance of delivering within the announced parameters: the inputs to the portfolio selection process were grossly flawed (or were non-existent).

This appears to be a wide spread issue. Most project management standards such as ISO21500 and the PMBOK® Guide start with an approved project and a business case or similar that defines what has to be accomplished; this is the end of the portfolio selection process outlined above and is assumed to set realistic and achievable objectives.

What is missing, are the steps leading up to this point; the life of a ‘project’ starts with an idea, need, opportunity, requirement or threat (the ‘concept’). The organisation assesses and studies the ‘concept’ hypothesises options and solutions and frames a proposal that becomes the foundation of a future project. These key investigative elements of a project generally sit under the portfolio umbrella developing information to allow a proper decision to be made. In mining this can represent exploration, feasibility studies, ‘bankability’ studies and concept designs which between them can cost $millions, leading to project funding. Importantly, this ‘Front End Loading’ (FEL) is seen as the key to a successful mine in most major mining corporations.

Similar problems exist in major infrastructure projects, defining a solution to prison overcrowding can involve building a new major prison, building several smaller prisons, extending current prisons, changing the way criminal justice system works to reduce the need for prison places, or a combination of the foregoing options (substitute University/hospital/school, into the previous sentence to see just one dimension of the challenge). However, unlike mining, most government and many corporate organisations see effective ‘front end loading’ as unnecessary.

Other organisations use the process to formulate definitive solutions to problems they have no real understanding of (typical in ICT) and then pretend the defined solution has no associated risk (because it is defined) despite the fact the full dimensions of the problem the project is supposed to solve are still unknown, and are frequently changing over time.

The challenge, requiring informed judgement and effective governance is recognising which development processes suits what type of ‘concept’:

• Sometimes, the ‘investigation’ requires a significant amount of work (eg, a bankability or feasibility study); this work may be treated as a project in its own right, and is time, cost and resource constrained with a defined deliverable (the report).
• If the work is expected to flow forward and will only be stopped in exceptional circumstances, project phases work best, with some form of ‘gateway’ or transition review.
• In other circumstances, studies are undertaken as part of the portfolio by corporate or PMO professionals with no dedicated budgets, assessing multiple proposals as an ongoing process, but once a concept gets the go ahead a project is created and a budget and resources allocated.
• Other concepts (particularly problems) cannot be defined and an ‘agile’ approach is needed where elements of a partial solution are developed and put into use developing new learning that will then allow the next module to be developed in a progressive sequence. However, whilst this may be the most suitable and cost effective way of developing an effective solution, budgeting in a traditional ‘iron triangle’ concept of fixed cost, time and scope is impossible.

The challenge is recognising which type of project is being proposed (based on Project Typology), and then deciding which type of process will develop the best input to the portfolio selection process and what level of uncertainty (risk) is associated with the proposal once developed. Certainty is not important, what matters is appreciating the extent of the risks and the likely benefits, so an informed investment decision can be made. Most ‘game changing’ initiatives involve high risk, high reward projects that create a totally new future!

OGC Gateway

The OGC ‘Gateway Reviews’ is a flexible process that addresses this part of major projects from the client’s perspective:
Gateway 1 = Business Justification, options identified and appraised, affordability, achievability and value for money established.
Gateway 2 = Procurement strategy, will the proposed strategy achieve the project objectives?
Gateway 3 = Investment decision, based on realistic project cost information (eg, tenders or bids) can the business case be confirmed from both the cost and the benefit perspective?
Gateway 4 = Readiness for service. The completion of the project work and a reassessment/confirmation of the expected benefits as the deliverable is put into ‘service’.
Gateway 5 = Benefits evaluation. Did we get what was expected now the project’s outputs are being used?

Summary

Most of the risks and rewards associated with a project or program are determined long before the project manager is appointed; if these decisions are wrong (or non-existent) project and program management cannot resolve the problem.

The role of effective project management is to deliver a realistic and achievable outcome efficiently; if the parameters for the project are unrealistic in the first place, the best project management can do is stop the situation deteriorating further! As far as I know, none of the various BoKs and methodologies, including the PMBOK® Guide has a ‘miracle’ process that will magically transform an impossible set of objectives into achievable set of objectives. Wishful thinking is not an effective substitute for effective project governance!