A model of maturity

We still tend to think of a boardroom’s ‘silver-haired foxes’ as the earmark for mature governance. Not because that is what today’s corporate leadership looks like; today’s leaders reflect the diversity of a global economy with an unprecedented age-range. Rather, it’s the notion that the silver hair reflects an honor attained through a winding path of experience.

We expect this wisdom to transform cunningness into effective, mature governance. Shouldn’t we want the people vested with the fiduciary duty of protecting our investments – our future – to have these characteristics: wisdom and cunning? Oh, yes, these and more.

In our youth, we long for the freedoms that come with maturity. Parents eagerly anticipate their children’s independence so they can extend them greater levels of trust and opportunity. In business, the notions around maturity are similar. Maturity hallmarks include independence, responsibility, trust and opportunity.

By contrast, what constitutes good governance varies greatly. Ratings agencies use hundreds of criteria to opine on the quality of corporate governance. Exchanges, lenders and investors have their own criteria. Due to the market influence of these external stakeholders, it is tempting to take a checklist approach to governance. 

But don’t fall for the bait. At the heart of good governance is effective leadership, which will never be a matter of mere compliance or ‘checklist’ behavior. Ratings criteria and methodologies are not designed to guide corporate leaders toward creating their own roadmap for advancing effectiveness and efficiency.

In the absence of a generally accepted tool designed for corporate leadership, the Open Compliance and Ethics Group (OCEG) in January introduced the Corporate Governance Maturity Model (CGMM) as part of its 2007 OCEG Benchmark Series – the Governance, Risk and Compliance Strategy Study. The CGMM identifies five attributes that combine to enable and sustain excellence in governance: capability, structure, process, information and technology, and results. These attributes are assessed against five levels of maturity. 

Discussions on corporate governance too often focuses on board practices. But corporate governance and board governance are not coextensive synonyms. The CGMM is underpinned by a perspective that corporate governance resides at multiple layers of the corporate hierarchy and that maturity across the attributes applies equally well to the boardroom, the C-suite and beyond.

Using the CGMM

It is unlikely that you’ll look at the CGMM and conclude that each attribute of your governance is at the same stage. Assessment for each attribute can be averaged to characterize the organization as being in a single stage. But the tool is more useful in rating each decision-making attribute. The unique profile informs the organization of which attributes need improvement.

Standard relationships among the attributes help anticipate which ones will improve first. The advances in structure and processes typically precede the advances in capability or information and technology. The advances in the results attribute commonly lag behind advances in the others.

A maturity model is most useful in setting targets. With a target maturity, you can fashion a specific plan  for advancement, employing the five decision-making attributes that comprise governance maturity.

1. Capability: The capability attribute measures the degree to which decision makers have the skills to make well-reasoned, competent decisions.

Individuals who are more skilled in considering changing dynamics and strategic concerns beyond tactical imperatives – and balancing near-term and long-term perspectives – can better position the organization to affect its market rather than be affected by its market. 

2. Structure: Structure is the integral link between the individual decision makers and the rest of the organization. Maturity is based on the degree to which decision makers are accountable – making and communicating decisions appropriate to their level of authority based on well-defined roles and responsibilities and  stakeholder perspectives.

3. Processes: With all the dialogue in the past few years on the business process maturity model, most people could probably anticipate how this attribute’s maturity levels would be defined. Process maturity is based on the degree to which both strategic and tactical decision-making processes are defined, well-known, used consistently and continuously undergoing improvement. To the extent that processes are automated, they are presumed to be more defined and consistently applied, bringing us to the next attribute.

4. Information and technology: With the exponential growth of process and controls automation, more than ever we distinguish between data, information and technology. The information upon which decisions are based can only be as good as the quality of the data from which it is derived. Without the aid of technology, information often isn’t generated, received or delivered in a timely manner.

Having a process automated through technology does not guarantee information flowing through the automation pipes is accurate. This attribute acknowledges the integral link between information, technology and automation. Maturity is measured by the degree to which technology is integrated to deliver timely, accurate, comprehensive information throughout the decision-making chain and communicated broadly by decision makers.

5. Results: Results tend to be the last attribute that advances. Ironically, it’s almost axiomatic that greater maturity around results motivates advancement in the other attributes. Needing the information to report results drives information and technology advancement. Wanting to measure efficacy drives a need to define and standardize processes. Needing to associate the measures to the decision makers drives structural maturity. Concern that measures will reflect poorly on individuals motivates them to enhance capability.

Getting measurement right is critical because leadership and/or stakeholders can and do readily discount the validity of results based on the mechanics of collection, the method of analysis and/or the narrowness of perspective. In the CGMM, the results attribute refers to the degree to which consistent, repeatable methods are used to provide a 360-degree perspective on the effectiveness and efficiency of leadership. 

Five stages of maturity

As corporate leadership becomes increasingly matrixed and the workforce operates project-centrically, those vested with governance responsibilities are expected to work dynamically while remaining a stable group. Because the governance team gains and loses members and the organization undergoes change, leadership maturity cannot be assessed like other teams. While team dynamics play a factor, the ability to hasten the changing team through development phases is crucial so that team dynamics don’t impede maturation.

1. Forming: If the players continually change, are we perpetually at a ‘forming’ stage? No, an established governance team may need a new person’s capabilities to advance to the mature stage. The forming stage is less about specific individuals or  combination of new individuals as whether the ways in which the leadership is expected to operate are ill-defined or unknown. 

This is the ‘what is it?’ stage. There will be plenty of questions without answers. Each decision maker is likely to have differing perspectives on what leadership and governance entail. Moving from ‘forming’ to ‘developing’ may seem particularly daunting. By its nature, moving out of the forming stage requires a lot of work on multiple fronts. This can leave a company unclear on how to get started. I’d encourage focusing on the results attribute first and letting that drive – in combination with the natural dependencies – a prioritized approach.

2. Developing: During this stage, ‘what is it?’ becomes ‘what it is.’ The leadership team may have differing interpretations of decision-making. Roles may overlap. Members have their own ideas of what works and personal agendas. Leadership focuses on the here and now. Am I meeting today’s priorities? Progress through the model will be challenged by impatience over the ability to agree, intransient tactical perspectives and the resulting ‘seek forgiveness versus permission’ style of communication.

3. Normalized: This is the ‘how it ought to be’ stage. The leadership team now begins to reach consensus on how things should work (although in practice they may operate differently). Leaders feel more confident in their own decision-making capability because they are informed and enabled. This is often the stage where leadership perceives consensus and backing such that an entrepreneurial spirit may take on an opportunity-limiting form. With a common focus and objective, the leadership team is empowered through to the next stage.

4. Established: In the stage of trust, leadership has consistent expectations of one another and respect for their diverse strengths and weaknesses. They share best practices across the organization and are confident in their information and openness of communications.

5. Mature: During the stage of honor,  reasons to respect the leadership team become well known outside the conference room or boardroom through the cafeteria and onto the streets and airways. Mature leaders are respected for their ability to anticipate, to trust, to be accountable and to continuously seek improvement.

The dynamic nature of modern board and other leadership positions greatly increases the need to quickly assimilate an effective governance model. The CGMM represents an alternative path that may be more in keeping with this need.