TE functional governance
If you’ve worked in a large, complex organization, you’ve likely encountered debates over who sets the "rules of the game" for a given business activity. These disagreements often stem from unclear governance—when expectations, responsibilities, and decision-making authority aren’t clearly defined:
In Trade Execution (TE), examples of governance issues might include:
Who has the authority to settle claims?
Is purchasing execution services a TE function or a procurement decision?
How are resourcing and budgeting decisions made?
A lack of clear governance slows decision-making and increases compliance risks. It can also affect organizational culture, leading to ongoing conflicts over decision rights or a "pass the buck" mentality that fosters inaction and lack of accountability.
Elements of a functional governance framework
In sectors like commodity trading, a robust governance framework is crucial for managing risks, ensuring compliance, and maintaining operational efficiency. An effective governance framework rests on three pillars: policies, procedures, and processes. Each of these elements plays a unique role in guiding an organization toward sound decision-making and strong operational performance:
Policies: Setting the Direction:
Policies define an organization’s guiding principles. They establish the rules of operation, detailing what needs to be done and why. In commodity trading, corporate policies might cover ethical standards, legal compliance, corporate social responsibility, and core principles that are expected to be observed across the organization. Policies outline what needs to be done and why it is required.
Procedures: Defining the Actions:
Procedures provide step-by-step instructions for implementing policies. They are the actionable steps that define who is responsible, when tasks should be completed, and how they should be carried out, ensuring consistency in execution.
Processes: Creating Integrated Workflows:
Processes bring policies and procedures together, creating a cohesive workflow. For example, the process of executing a trade in commodity trading involves multiple steps like contract negotiation, shipment coordination, and documentation.
The Importance of Alignment
Policies, procedures, and processes are interdependent. Without clear policies, there’s no direction. Without procedures, there’s no consistency. Without processes, workflows are disjointed. Together, they form a governance framework that provides clarity and accountability.
In commodity trading, where operations are complex and risks are high, a well-defined governance framework is essential. It helps organizations navigate challenges, minimize risks, and maintain a competitive edge.
Looking Ahead
Over the next few weeks, our guide will further explore the topic of governance as it relates to the Trade Execution function, providing insights into good practices.
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