STRATEGIC

MANAGEMENT
LECTURE 2

Dr. Mahmoud El Damaty

Consultant Surgeon
AUC & AASTMT Instructor
Lecture two
• Organization Governance

• Reference: www.HeGTA.org

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What is governance?
Governance is a mechanism through which boards of directors are able to direct,
monitor and supervise the conduct and operation of the institution and its
management in a manner that ensures appropriate levels of authority, accountability,
stewardship, leadership, direction and control.

• The importance of governance lies in its contribution both to business prosperity

and to accountability.

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Why corporate
governance?
Chairman
Board of Directors

CEO

Owners/
Shareholders/
Stakeholders

Company
Management

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Governance 5 principles

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 Principle 1: “The Hospital implements and fosters
corporate and clinical governance practices that are both
sound and effective.”

Corresponding Guidelines and Samples

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 Principle 2: "The Hospital develops its Board of Directors to
be effective, professional and independent in terms of its
composition, size and behavior as well as empowers it to
adequately discharge its responsibilities and duties.“

Corresponding Guidelines and Samples

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 Principle 3: “The Hospital incorporates proper audit,
control and risk management practices with their
corresponding structures, policies and procedures.”

Corresponding Guidelines and Samples

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 Principle 4: ”The Hospital applies and cultivates
responsibility, ethics and inclusiveness practices and takes
its specific social, ecological and economic environment into
account.”

Corresponding Guidelines and Samples

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 Principle 5: “The Hospital integrates transparency practices
into the core of the organization and commits itself to good
disclosure.”

Corresponding Guidelines and Samples

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What is corporate
governance?
• CG is the system by which business corporations are directed and controlled.
• The CG structure 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 the means of attaining those objectives and monitoring performance

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definition
• Governance concerns the structures, functions, processes, and organizational
traditions that have been put in place within the context of a program’s authorizing
environment “to ensure that the [institution/program] is run in such a way that it
achieves its objectives in an effective and transparent manner.
• It is the “framework of accountability to users, stakeholders and the wider
community, within which organizations take decisions, and lead and control their
functions, to achieve their objectives.

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Functions of governance
Strategic direction:
• Establishing a direction for the vision and mission for the institution/program,
reviewing and approving strategic documents, and establishing operational policies
and guidelines.
• Exercising effective leadership that optimizes the use of the financial, human, social,
and technological resources of the institution/program.
• Continually monitoring the effectiveness of the institution’s/program’s governance
arrangements and making changes as needed

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Functions of governance
Management oversight:
• Monitoring managerial performance and program implementation, appointing key
personnel, approving annual budgets and business plans, and overseeing major
capital expenditures.
• Promoting high performance and efficient processes by establishing an appropriate
balance between control by the governing body and entrepreneurship by the
management unit.
• Monitoring compliance with all applicable laws and regulations, and with the
regulations and procedures of the host organization, as the case may be.

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Functions of governance
Stakeholder participation:
• Establishing policies for inclusion of stakeholders in programmatic activities.
• Ensuring adequate consultation, communication, transparency, and disclosure in
relation to institution/program stakeholders that are not represented on the
governing bodies of the institution/program.
Risk management:
• Establishing a policy for managing risks and monitoring the implementation.
• Ensuring that the volume of financial resources is commensurate with the
institution’s/program’s needs and that the sources of finance are adequately
diversified to mitigate financial shocks.
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Functions of governance
Conflict management:
• Monitoring and managing the potential conflicts of interest of members of the
governing body and staff of the management units.
• Monitoring and managing conflicting interests among institution/program partners
and participants, especially those that arise during the process of
institution/program implementation.

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Functions of governance
Audit and evaluation:
• Ensuring the integrity of the institution’s/program’s accounting and financial
reporting systems, including independent audits.
• Setting evaluation policy, commissioning evaluations in a timely way, and overseeing
management uptake and implementation of accepted recommendations.
• Ensuring that evaluations lead to learning and programmatic enhancement.

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Governance and
structures
Accountability Responsibility

Transparency Information

Governance Structure

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Managers?
“Someone who works with and through other people by coordinating their work
activities in order to accomplish organizational goals”.

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Leader?
Someone who has some managerial authority and can INFLEUNCE others.

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Leadership Principles
BECC
Believe
Encourage
Challenge
Correct

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 EACH MANAGER HAS :
 4 FUNCTIONS :
Planning, Organizing , leading & Controlling

 3 Roles :
Decisional , Interpersonal & Informational

 3 Skills :
Technical , Human & Conceptual

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 Complementary

Governance X Management

• Where are we going • From where do we get

and what do we want to our supplies?
be?
• Who are our staff?
• What changes are
happening in the • What are our
business? operational policies and
• How to secure capital procedures?
• Is the management
good?

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Barriers to effective governance
• Ineffective leadership
• Lack of sustained commitment to Vision, Mission and Values
• Unclear definitions of functions, roles and responsibilities
• Lack of clarity between role of management & Board
• Lack of mutual trust within Board and between Board and management

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Barriers to effective governance
• Imbalance of skills/competencies
• Poor information management (too much/too little)
• Burnout of Board members
• Turnover of Board members and little/no corporate memory
• Lack of succession planning

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Board of directors
Shareholders/Owners

Executive Directors
Managers

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Is it mandatory to have
a Board?

Limited Liability Companies Joint Stock Companies

NOT REQUIRED BY LAW MUST HAVE A BOARD

• Boards can add value to any size, shape or form of

organization.

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Does the law explain
everything about the
Board of directors?
• The law is clear on when an organization must have a Board of
directors.

But….
• It does not explain precisely many issues such as:
 How the Board is structured ?
 How the Board should function?
 What is the authority of the Board?
 What is the Board supposed to do?
 How to evaluate the effectiveness of the Board?
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The corporate dilemma!

Boards are established as

a legal requirement

Boards often do not understand

the responsibilities and
authorities

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 What are the different
Board types?

Rubber Stamp Golf Club

The Good Board Old School Friends

Paper Board
Yes-Man The prestigious

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The Degree of Board Involvement
Low Involvement High Involvement

The Passive The Certifying The Engaged The Intervening The Operating
Board Board Board Board Board

 At discretion of the  Certifies to SHs that  Provides insight,  Intensely involved in  Makes key
CEO CEO meets advice & support to decision-making decisions that
expectations mgmt. around key issues mgmt. then
 Limited activity &
implements
participation  Takes corrective  Understands its  Frequent & intense
action only as very responsibility to meetings, often on  Fills gaps in mgmt.
 Limited
last resort oversee mgmt. short notice experience
accountability
 Understands role of  Guides & judges the
 Ratifies mgmt.
independent CEO
preferences directors
 Has right skills mix
 Informed about to add value
CEO’s performance
 Define roles and
 Establishes a responsibility of Source: HBR, David A.
succession plan Board vs.
Nadler, Building Better
management
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Different structure and functions
Advisory Board Board of Directors

•SMEs •Large companies

•NGOs •Listed companies
•Universities •State-owned entities

TIP : Board Transition

In order to manage a transition period towards a better Board, the hospital
may create a two tiered-board; one advisory with a new diversity of skills
while keeping the current Board as executive body. This set up may
continue such or be merged after a certain period of time.

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Why Boards Do not
Perform Well?
• The management is often appointed by the majority shareholders.
• The organization lacks institutional investors.
• The Board does not understand its role.
• Board members are unfamiliar with their rights and responsibilities.

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The Dividing Line Between
the Board & Management
THE BOARD

Sets strategies
&
Directions

THE MANAGEMENT

Carries out day-to-day

operations

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Understanding the
difference between
•Strategy
Day-to-day operations
•Oversight

Substance Form

Performance Conformance

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Cooperation Between
the Board & Management
• Good corporate governance and performance require good relationship between
the Board and management.
• The Board must support the management and maintain close cooperation with CEO
and management team.

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What is the Board’s
Authority?
Monitors Guides
Performance Strategy

Protects Ensures
Shareholders’ Transparency
/Owners & Proper
Rights Disclosure
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1. The Board Guides Strategy
& Monitors Performance
TIP:

The Board does not develop the strategy and budget of the
hospital. It is the responsibility of the executive
management to develop strategy and budget in line with
the directions set by the Board.

The Board will review and discuss the strategy and budget
with the management and subsequently approve them.

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2. The Board Ensures Transparency &
Proper Disclosure
Financial Results Information on
& Management Team
Operating Results

Ownership Corporate
Structure Documents
&
Related Parties
Material Risk
Factors
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3. The Board Protects Shareholders’ /
Owners’ Rights
Proper General
Meetings of Approves
Shareholders Dividends

Approves External Approves Related

Auditors Party Transactions

Ensures Strong
Compliance

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The Role of the Chairman
of the Board
• Promotes a constructive relationship between the Board and the Hospital's
management, and between the executive Directors and the non-executive Directors.
• Promotes a culture in the boardroom that encourages constructive criticism and
alternative views on the issues under consideration, and consequent discussion and
voting on individual questions.
• Ensures Directors receive adequate and timely information.
• Ensures high standards of clinical and corporate governance within the Hospital.

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The role of the Chairman
vs. CEO
Chairman CEO
• Chairs the Board • Leads the Hospital
• Responsible for Board • Formulate strategy, business plan
agenda and work plan and budget, to be approved by
• Works with chairmen of the Board
Board committees • Responsible for financial and
• Leads Board evaluation corporate objectives
• Relations with • Ensure continuous improvement
shareholders, investors in services
and key stakeholders • Ensures Hospital sustainability

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Typical Board Structure & Committees
Chairman

Board Of Directors

Quality Committee Audit Committee

Quality Manager Head of Internal Audit
External Audit Senior Partner
Compliance Officer
Other Examples Nomination
for Committees &
•Sustainability
Remuneration Committee
•Leadership
•Learning & Research Chief Executive Officer
•Ethics

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General Principles for Committees
• Aid to the Board, not substitution
• Generally no executive powers
• Defined terms of reference and limitations
• Chaired by independent non-executive directors
• Board composition determines committee requirements

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THANK YOU
drdamaty@aucegypt.edu

Dr. Mahmoud Mohamed El Damaty

+201222850959