A 2024 survey shows that just 35% of executives rated their boards’ overall effectiveness as “excellent” or “good.” Clearly, most boards of directors have room for growth when it comes to their companies’ governance models.
Governance models guide how members of the leadership team, including the C-suite and individual directors, work together to get things done.
They help boards go from policies to real-world practices that drive organizational growth.
Your board’s governance model will heavily influence operational efficiency, streamlining decision-making and accountability.
However, there is no one-size-fits-all model that works for every board, and you can’t expect to find success simply by importing one from a peer company.
Discover your options when it comes to governance models and learn how to build one that leads you to success.
8 Common Types of Organizational Governance Models
Each of these eight business governance models comes with its own unique advantages and drawbacks. The beauty of having so many reference points is that it becomes easier to create a model that works for your board.
1. Traditional
In a traditional model, the board assumes responsibility for overarching strategy, financial oversight, and policy development. It also establishes and monitors performance benchmarks in these areas. The board then hires a CEO or executive director to whom they delegate authority over operational management matters.
This model focuses more heavily on structures and processes outlined in the bylaws than on year-over-year outcomes. The board makes decisions as a unified body according to these bylaws and is accountable to all stakeholders for organizational direction and performance.
2. Advisory
An advisory board acts as an external group of professional experts who advise the CEO and board of directors on key issues.
The advisory board isn’t poised to make decisions about the company, and it doesn’t have any actual or implied fiduciary responsibilities. Instead, advisors act as consultants who support the organization’s performance and credibility.
3. Management Team
Popular with larger organizations, this company governance model is built on small groups. Directors break off into smaller committees that oversee each department of the organization. For example, you may create committees for risk management, human resources, and fundraising.
Management teams are accountable to the board, which provides oversight and ensures their actions align with the company’s strategic direction. Director independence is crucial to the success of this model, as it ensures that shareholder value is prioritized and management is less likely to exert undue influence.
4. Carver
The Carver model, also called “Policy Governance,” starts with the end in mind. The main responsibility of the board is to define expected outcomes for the organization. The CEO then decides how the organization will accomplish those goals.
The board establishes clear rules for oversight and provides guidance when necessary. Many organizations prefer this model because it clarifies CEO performance evaluations, measuring progress against stated expectations.
5. Cortex
This company governance model prioritizes community input. The governance structure may include representatives from various company departments as well as outside experts and stakeholders.
Companies that follow the Cortex model focus on making collective decisions that create the most value for everyone. The board’s role is to set performance standards and outcomes, which will guide discussions and decision-making.
6. Cooperative/Consensus
Also referred to as the “process model,” this governance framework is all about equality. Each director’s voice and vote holds equal weight when it comes to decision-making, and no one holds power over another individual.
All directors must also agree to be equally liable for performance failures. For this reason, this model often works best for small organizations.
7. Competency
The competency governance model ensures that all directors get an opportunity to use their skill sets to contribute to overall company success. Board members are assigned roles based on their backgrounds and expertise, ensuring their knowledge is put to good use.
The competency model is appealing for companies that need a broad range of specialized skills to compete, such as technology and healthcare organizations.
8. Patron
This model is most effective for nonprofit organizations, as the board’s main focus in a patron governance framework is fundraising. Directors use their influential networks or personal wealth to secure funds for the nonprofit and ensure that fundraising targets are met. Typically, these boards do not advise the management team on strategic matters.
How to Build a Highly Effective Company Governance Model
In determining which governance model will work best for your organization, start by considering your organizational context.
For example, a patron model may work best for nonprofit organizations, while consensus governance is great for small businesses.
Larger organizations are more suited for the management team model, while technology companies do well with competency models.
You should also consider your compliance requirements and existing organizational culture, and choose a model that aligns accordingly.
The next factor in determining your organization’s governance model is your goals and values.
- Is higher performance your main mission?
- Does your board want to serve the community more effectively?
Your goals will determine whether you need a more collaborative or democratic decision-making process. They will also determine whether competency-based governance should take center stage and how you should approach delegating responsibilities and oversight.
Finally, you’ll need to identify roles and responsibilities for the board, committees, and management team. Create policies that define how these entities will work together to make decisions and who will take accountability for outcomes.
As you put the model into practice, establish mechanisms for monitoring its effectiveness and making adjustments as needed.
The Right Model Can Help Your Organization Engineer Long-Term Success
Finding the right corporate governance model is key to operational efficiency and effective decision-making. Fortunately, there are many models to choose from, and a little strategic planning can go a long way in helping you select one that works for your organization.
The best business governance models depend on your industry, organizational context, and legal constraints. Choose a model that aligns with both your values and your long-term goals. With clear roles, responsibilities, and processes, you can make organizational success possible.
About Boardroom Pulse
Boardroom Pulse is the go-to resource for C-suite executives seeking sharp, forward-looking insights on corporate governance and the forces shaping today’s business environment.
Guided by a mission to raise the bar for governance and equip modern leaders, we provide timely news, deep analysis, and thought leadership designed to spark conversation, showcase best practices, and encourage responsible decision-making in boardrooms across the country.
That’s why an increasing number of directors, CEOs, and senior executives rely on Boardroom Pulse to make sense of complex challenges, build sustainable growth strategies, and strengthen governance for the future of business.
