Meaning
The process of translating informal agreements, norms, and traditions into a written set of rules and procedures. Organizations use governance codification to ensure that their operating principles survive changes in leadership or ownership.
Rule Formalization
Formalization involves drafting specific documents like a founder agreement or a board manual. During governance codification, the vague understandings that governed the early days of a startup are replaced by precise language that defines rights and duties. This step is necessary to prevent disputes that arise from memory or different interpretations of a past conversation.
It provides a single source of truth for the leadership team.
Documentation Standard
Records must be kept in a way that is accessible and understandable to all members of the organization. The process of governance codification requires that all new policies are voted on and added to the official company handbook. This practice creates a history of how the firm has chosen to govern itself.
Implementation Step
Written rules are only effective if they are applied consistently in daily operations. Once governance codification is complete, the board must ensure that all actions taken by the company are in alignment with the new documents. Written rules provide a defense against claims of arbitrary action.
