Enterprise Governance - International study recommends actions to strengthen corporate performance
Author:
Accountancy Ireland
The culture and tone at the top, the Chief Executive, the Board of Directors and the internal control system are the four key determinants of corporate success and failure, Mr Bill Connell, Chairman of the Professional Accountants in Business committee (PAIB) of the International Federation of Accountants (IFAC) told ICAI members at a breakfast briefing in October.
Mr Connell was presenting an overview of the findings of a new study, jointly published by IFAC and CIMA, entitled Enterprise Governance: Getting the Balance Right.
Commissioned by the IFAC Board in October 2002 to explore the emerging concept of enterprise governance, a particular focus of the study was to consider why corporate governance often fails in companies and, more importantly, what must be done to ensure that things go right.
The study conducted in-depth analysis of corporate successes and failures in 27 case studies from 10 countries. Ten industry sectors were covered including telecommunications, retail, financial services, energy and manufacturing.
Although poor corporate governance can ruin a company, the study revealed that good governance on its own cannot make a company successful. Companies need to balance conformance with performance.
In the study, conformance is defined as “corporate governance”. It covers such issues as board structures and roles and executive remuneration. The performance dimension focuses on strategy and value creation.
“Unlike the conformance dimension, there are no dedicated oversight mechanisms, such as audit committees, in the arena of strategy. Several of the high-profile companies highlighted in this study fell into difficulties as a consequence of their strategic choices. There is a danger that in the laudable attempt to improve standards of control and ethics, insufficient attention is paid to the need for companies to create wealth and ensure that they are pursuing the right strategies to achieve this. It is both easy and common for boards to fall into the trap of getting immersed in detail at the expense of focusing on overall strategic risks and opportunities that drive shareholder value,” Mr Connell said.
An analysis of the case studies showed that, in addition to the corporate governance issues mentioned above, there were several other key strategy issues contributing to corporate success and failures:
• Choice and clarity of strategy;
• Strategy execution;
• Ability to respond to abrupt changes and/or fast-moving market conditions; and
• Ability to undertake successful mergers and acquisitions (M&As).
Unsuccessful M&As were the most significant cause of strategy-related failure. A complete chapter on how enterprise governance can be used to control M&A activities is therefore included in the report.
The report also gives detailed information about CIMA’s development of a Strategic Scorecard for enterprise governance as a means of addressing the strategic oversight gap and avoiding the sort of strategic failures that were apparent in the case studies.
In addition to introducing the concept of the strategic scorecard, the report offers guidance on enterprise risk management, the acquisition process, and managing board performance. An appendix features a synopsis of recent international corporate governance developments.
Accountancy Ireland, Vol 36, No 6, December 2004.
Recent Comments:
At
7/25/2009 1:39:55 PM
Md. Abdul Mannan
said:
enterprise governance is the new issue for governing organization
At
8/18/2007 1:07:10 PM
Nkechi
said:
It is informative and relevant for companies in Nigeria's emmerging democracy, which has seen the implementation of reforms promise to affect the life of businesses.