The AICD's Ten Principles of Good Governance Explained

Why the AICD Principles Matter

The Australian Institute of Company Directors (AICD) is the peak body for directors and governance professionals in Australia. Its ten principles of good governance represent the most widely accepted framework for board performance in the country, drawing on decades of research, case studies, and practical experience across the corporate, not-for-profit, and public sectors.

For boards seeking to assess and improve their governance, the AICD principles provide both a diagnostic tool and a roadmap. They are not a compliance checklist. They are a description of what effective governance looks like when it is working well. Understanding them is the starting point for any serious governance improvement effort.

Principle 1: Roles and Responsibilities

The board and management have clearly defined and well-understood roles and responsibilities. This is the foundational principle, and the one most frequently violated in practice. The board sets strategy, risk appetite, policy, and culture. Management implements strategy and runs the organisation day to day. The AICD's 'noses in, fingers out' formulation captures the distinction: directors should be well-informed about the organisation's affairs without involving themselves in operational decisions that belong to management.

In practice, the boundary between governance and management is a source of ongoing tension in many organisations, particularly in smaller NFPs where board members may also be volunteers with operational roles. Clarity about who decides what, and how decisions are escalated, is essential.

Principle 2: Board Composition

The board has an appropriate mix of skills, knowledge, experience, and perspectives. A board that lacks the skills to oversee the organisation's strategy and risk is not in a position to govern effectively, regardless of the quality of its processes. Skills matrices are a practical tool for assessing board composition against the organisation's current and future needs, and for identifying gaps that need to be addressed through recruitment or development.

Principles 3 and 4: Chair and CEO

The chair leads the board effectively, and the relationship between the board and CEO is productive and well-managed. These two principles are closely linked. The chair sets the tone for board culture, manages board dynamics, and is the primary point of contact between the board and the CEO. A strong chair-CEO relationship is one of the most reliable predictors of organisational performance. A dysfunctional one is one of the most reliable predictors of organisational failure.

Principles 5 and 6: Integrity and Risk

The organisation acts with integrity and manages risk effectively. Integrity is not simply about avoiding fraud or misconduct. It encompasses the organisation's culture, its treatment of stakeholders, and the consistency between its stated values and its actual behaviour. Risk management, meanwhile, is a core board responsibility that goes well beyond financial risk. Reputational, operational, compliance, and strategic risks all require board-level oversight.

Principles 7 through 10: Performance, Accountability, and Stakeholders

The remaining four principles address board performance and renewal, stakeholder engagement, transparency and accountability, and the organisation's relationship with its mission and purpose. Together, they describe a board that is self-aware, outward-looking, and genuinely committed to the organisation's long-term success.

Board performance reviews are a practical mechanism for applying Principle 7. They provide boards with structured feedback on their own effectiveness, identify development needs, and demonstrate to stakeholders that the board takes its governance responsibilities seriously. Signal and Strategy facilitates board performance reviews as a standalone service or as part of a broader governance improvement program.

Putting the Principles into Practice

The AICD principles are most useful not as a one-time assessment but as an ongoing reference point for board decision-making and self-evaluation. Boards that return to them regularly, asking 'are we living up to these principles in our current decisions and behaviours?', tend to develop stronger governance cultures over time.

If your board is looking to assess its governance against the AICD framework, or to develop a governance improvement plan, Signal and Strategy can help. Our governance consulting services are built on the AICD principles and delivered by practitioners with deep experience in the NFP, local government, and SME sectors.