Models of board governance are almost as versatile as the organizations they represent. From nonprofit organizations to profit-oriented companies, different board governance models may be best suited to different organizations depending on their goals, size, and resources.
What makes the board governance model selection so critical?
A report shows that companies with corporate crises fueled by governance deficits underperformed their sectors by 35%, losing $490 billion in shareholder value. Adopting the right board governance model is the only way for organizations to ensure compliance, security, transparency, and effective decision-making.
In this post, we will go through the main types of board of directors governance models. Let’s take a look!
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What is a board governance model?
A board governance model is a framework of strategic systems and policies that helps the board of directors promote organizational values and achieve long-term objectives. It defines a range of protocols, procedures, and roles that must be followed to ensure proper corporate governance practices.
Models of board governance come in different forms, adjusting to the needs of both nonprofit organizations and for-profit companies. While no specific model is universal, they all incorporate techniques that enable board members to be effective in fulfilling their fiduciary and strategic responsibilities.
Board members can have a paperless board meeting or a traditional face-to-face meeting, but the basic duties remain the same. Some core components of board governance models include the following:
- Creating a written document outlining the governing principles of the board of directors
- Assigning responsibilities to board members through a formal organizational structure
- Developing performance standards and objectives
- Implementing mechanisms for sustainable accountability
- Instituting clear lines of communication between each governing body within the organization
By having a thoughtful approach to structuring and operating boards, well-crafted board governance models not only help strengthen organizations but also make them more efficient and adaptable in today’s rapidly changing environment. However, distinguishing between governance models for board of directors can often be challenging.
Different solutions apply to nonprofit organizations and traditional businesses, so it’s important to understand the needs of each type of organization before selecting a governance model. With that in mind, let’s see the main types and learn how to pick the best board governance model for your organization.
Main types of corporate board governance models
Most companies choose one of the five main types of governance models in the corporate sector. While they can often overlap, each model is clearly unique based on its philosophy, decision-making process, and stakeholders. Let’s take a look at each one.
1. The Traditional Model
This model follows the classic corporate architecture where boards are made up of executives from the company’s senior management. Board members have a large degree of control over operations and decisions, as well as the power to appoint and remove senior executives. The Traditional Model is well-suited for companies where the founders still hold a large stake in the business and are actively involved in running it.
2. The Cortex Model
The Cortex Board Governance Model is community-oriented and geared towards fostering collaboration. It is made up of representatives from different company departments as well as external advisors, and its main purpose is to ensure that all stakeholders have a role in decision-making. This model works best for companies with multiple functions, such as those in the technology and healthcare sectors.
3. The Carver Model
The Carver Board Governance Model puts a strong emphasis on board-level oversight and accountability. The main mission is to ensure that decision-making remains centralized, giving the chief executive officer and board members more control. This model is suitable for traditional corporations and organizations that are comfortable with hierarchical structures.
4. The Competency Model
The Competency Board Governance Model suggests that boards should be structured around specific competencies and skill sets. It means that board members should be assigned roles based on their experience, knowledge, and expertise to create the most effective team possible. The competency board governance model is especially useful for companies that require a broad range of specialized skills to stay competitive.
5. The Consensus Model
This model focuses on collaboration between board members, with the goal of reaching a consensus on matters of policy and decision-making. This model is designed to ensure that all stakeholders are included in the discussion and that their concerns are taken into consideration before any decisions are made. The Consensus Model can be beneficial for businesses where key stakeholders have different perspectives or interests.
No matter which model you choose, it is essential to establish clear lines of communication and responsibilities between the governing bodies within your organization. This will help foster collaboration among board members and create an environment of trust and mutual understanding.
Nonprofit board governance models
Nonprofit organizations can also set different types of governance models to ensure that their boards are effective. Let’s see the most common solutions.
1. The Cooperative Model
The Cooperative Governance Model encourages all board members to take an active role in decision-making. There are no presidents or CEOs in this system, which allows board members to make collective decisions about operations and policies. It also gives board members more authority to oversee activities and ensure that the organization is meeting its objectives.
2. The Advisory Board Governance Model
The Advisory Board Model is best suited for when board members are primarily responsible for providing advice and guidance to their organization’s leadership. In this case, the advisory board model serves as a support system to the board president. Board members may even have the authority to give input on decisions, but ultimately they do not hold ultimate control over operations or policymaking in this model.
3. The Patron Governance Model
The Patron Governance Model elevates the board’s authority over other members of the organization. Board members in this model typically have ultimate decision-making power, and their decisions are binding.
That’s because members of the board provide financial support to nonprofit organizations they represent. This model is especially effective for organizations with a limited number of stakeholders where there is no need to involve all parties in decision-making.
4. The Policy Board Model
The Policy Model emphasizes the CEO’s role in nonprofit organizations. In this structure, a CEO is in charge of making decisions, while the board is responsible for providing policy guidance and strategic direction. The Policy Board Model is useful for organizations that need to quickly adapt to changing circumstances without relying on lengthy board meetings.
5. The Management Team Model
The Management Team Model focuses on having a team of senior leaders from different departments in the organization take responsibility for the organization’s operations. The team works together to develop and implement policies that are in line with the organization’s goals and objectives. This model may be effective for larger organizations where there is a need for more specialized leadership.
As you can see, it’s not that easy to pick the right nonprofit governance structure. However, the process becomes much simpler when they deploy new technologies. Board of directors software can streamline nonprofit board governance in many ways:
- The platform makes it easier to manage the board’s activities.
- It provides the necessary resources to make informed decisions.
- It allows board members to collaborate in real-time and share documents securely.
- It helps track progress with detailed analytics and reports.
Solidify board governance with the board portal
Choosing the right board governance model will ensure that your organization’s operations run smoothly. However, in order to make it work well, you also need to use the right tools and resources.
A board portal can help streamline processes and facilitate collaboration among board members, making it easier for them to reach decisions faster. You can organize a virtual board meeting, securely share documents, and keep records up to date. In addition, detailed analytics and reports allow you to track progress in real-time.
Whether you’re just getting started with a new board governance model or looking to refine an existing one, a board portal can help streamline operations and make the process smoother.
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What are the best board governance models?
The best models of board governance are the ones that cater to the organization’s specific needs. It is important to know that there are several models of board governance, all with different advantages and disadvantages. Typical options include the Cooperative Governance Model, Advisory Board, Patron Model, Policy Model, and Management Team Model.
How do I choose the right governance models for a board of directors?
Choosing the right model of board governance for your organization depends on a number of factors. You can always choose the Advisory Board or a traditional model. However, the decision ultimately depends on the size of your team, the type of decision-making required, and the number of stakeholders involved.
What is a board portal for board governance models?
A board portal is an online platform that helps streamline processes for boards of directors. The tool allows board members to share documents securely, collaborate in real-time, and track progress with detailed analytics and reports. A board portal is an essential tool if you want to improve corporate governance or nonprofit board governance.