Governance models determine how an organization’s leaders interact with others at a business and clarify parties’ responsibilities. Although it is increasingly common for companies to have single models affecting all activities, establishing these frameworks for specific goals or priorities is another option.

4 Common Types of Governance Models

Before exploring how governance models keep companies compliant and employees accountable for their actions, let’s look at some of the most common types. Learning about them can make it easier to decide which one to use.

Hierarchical

This option features centralized decision-making led by a single person or group of high-level executives. The associated choices relate to essentials such as an organization’s standards, procedures, resource allocation and engagement with outside advisors. 

The hierarchical model uses a top-down approach, and there are clear authority chains that people follow when getting permission or asking questions. 

Collaborative

The collaborative approach distributes decision-making authority among multiple parties, including department managers, team leaders and business owners or partners. The model encourages shared ownership and accountability.

Distributed

The distributed model offers more flexibility and autonomy compared to the other models covered so far. That’s because decision-making occurs between project managers or teams, allowing the involved parties to give collective input. Additionally, there are often tailored management approaches for individual projects depending on their specifics.

Functional

This model aligns decision-making authority with a company’s departments or main functions. People working within the framework as the managers of specific business units take ownership of resource distribution, project management and the eventual outcomes. 

How Do Governance Models Support Compliance and Accountability? 

Running a business can be complicated, especially when people are unsure of their roles. Things get worse when employees are unwilling to take responsibility for their actions. If the prevailing mindset is “That’s not my problem,” organizations can develop deep-seated issues caused by individuals failing to recognize how their actions — or lack thereof — can cause ripple effects that harm the business by tarnishing its reputation and decreasing its success. 

A successful governance model prevents these problems by explicitly defining which parties bear responsibility for specific goals, duties, projects and outcomes. Such frameworks also keep companies running smoothly by facilitating the distribution of work, preventing people from getting overwhelmed or engaging in tasks that fall too far outside their skill sets. 

Spreading the work and decision-making authority throughout the organization rather than keeping it too concentrated also decreases the chances of damaging oversights or mistakes. For example, compliance has numerous multifaceted areas to cover. Having many departments or managers supervising and giving feedback about activities and performance prevents situations where errors or misunderstandings happen and result in fines or other regulatory action imposed on the business. 

The Real-World Impacts of Governance Models

How do governance models shape the activities of today’s businesses? Knowing about those specifics will help you understand whether it would be worthwhile for your company to adopt one of these frameworks soon, too. 

Responding to External Feedback 

Sometimes, stakeholder feedback encourages people to create or change governance models. Listening to outside opinions is an excellent way to cultivate accountability and keep a business relevant. In one case, the Hawaii Tourism Authority hired an external contractor to run a study and recommend how to bring the agency into the future. 

That decision occurred after numerous legislative actions, including one potentially resulting in the organization’s repeal. One of the issues was that leaders established the original governance model more than 25 years ago. 

The most significant suggestion was to restructure the organization into a destination stewardship organization. It involves using a multistakeholder approach involving community members, government agencies and tourism working together to maintain locations as appealing places to visit. 

When many people have input into things as extensive and all-encompassing as tourism destinations, individuals are likely to develop creative solutions to overcome challenges and achieve collective success. Additionally, more project contributors can make suggestions that could get overlooked if fewer people influence what happens.

Consider an example where a tourism board works with an area’s restaurants, museums or other attractions to create a promotional program. Such arrangements would likely attract more visitors and encourage them to spend more money. The tourism board and all associated businesses would reap the rewards. Statistics indicate partnerships comprise more than 20% of businesses’ total revenue. Working together pays off, especially when collaboration occurs on large or long-term projects. 

Shaping the Use of Technology

Most modern businesses rely on technology to some extent, whether to create and maintain customer databases or store apps and files in the cloud. However, some companies and even whole industries struggle to implement new technologies and get employee buy-in on using these technologies in a legal and safe manner. 

For example, one study found 80% of leaders in HR and IT leaders struggle with getting frontline workers to adopt new technologies at all. If these technologies are used carelessly or incorrectly, customer and employee data could be at risk. Governance models could reduce those challenges by assigning duties that help decision-makers get people comfortable with and excited about the recently introduced technology. This training is essential for ensuring companies use these technologies in compliant and mutually beneficial ways. 

Governance models dictate how organizations use technologies and which parties oversee those efforts. The inherent accountability assumed by those professionals also creates an authority chain for people to refer to if they have questions or concerns about how a company currently applies technology or will soon. 

Verifying Resource Allocation

Properly functioning governance models are also important when businesses receive large sums of money to allocate purposefully. Leadership concentrations or inadequate decision-making authority across organizations could result in misspent funds, including instances where people use financial resources unlawfully or for activities that could attract undesired regulatory attention.

In one recent example affecting Google and Canadian news outlets, the tech company hired an external group to distribute funds. The actions relate to the Online News Act, which will see news outlets making agreements with internet platforms that aggregate articles. The external group developed a wholly new governance model that affects the distribution of $100 million to affected publishers in the country. 

Many other national leaders have closely watched the proceedings, especially those seeking to develop similar laws. Understandably, though, people want to ensure the money goes to the right places and gets given out fairly. Additionally, the external group must engage with Canada’s regulatory body, which has the final say about the governance model’s sufficiency. 

Governance Models Increase Enterprise Effectiveness

Businesses become more impactful when everyone working at them understands the chain of command, distribution of duties and how decision-making works within the organization. Governance models inform many of those aspects, helping businesses achieve more while staying compliant and accountable to stakeholders.