Defining Corporate Governance (A Strategic Perspective)

“Corporate governance is most often viewed as both the structure and the relationships which determine corporate direction and performance.” (James McRitchie, 8/1999)

There are numerous definitions of corporate governance (including the ones above) but perhaps the most concise expression that encompasses the core value of corporate governance is that it is aimed at ensuring the SUSTAINABLE, RESPONSIBLE EFFECTIVENESS of an organisation.

To define these terms will help clarify what is meant by this;

  • SUSTAINABLE – the capacity to endure, with particular reference to business, social and environment goals, an attempt to provide the best outcomes for human and natural environments both now and into the indefinite future;
  • RESPONSIBLE – answerable (accountable, obliged to answer) for an act performed (within one’s power control or management) and/or for its consequences, capable of being depended on;
  • EFFECTIVENESS – able to accomplish a purpose, having (leading to) an intended or expected effect.

An advantage to this definition is that it does create a logical flow that can be built into the implementation and ongoing monitoring of a corporate governance framework. There are essentially 3 Factors/Clusters in the implementation of a robust Strategy Based Corporate Governance Framework;

  • the Primary Cluster that is mainly focused on the Strategic and Operational Areas in business (addressing EFFECTIVENESS);
  • the Secondary Cluster that provides the required accountability and structure supporting and facilitating the Primary Cluster (addressing RESPONSIBILITY); and
  • the Tertiary Cluster that ensures ongoing monitoring (feedback and measurement) of the first two (addressing SUSTAINABILITY).

 

Primary Cluster (Effectiveness)

The key concept behind corporate governance therefore is that it is PURPOSE/INTENTION driven – this is the strategic imperative of every company, to define its reason for being, what it wants to  accomplish (and figure out how best to do so). As per the above quote corporate governance is related to the direction of the company.

Corporate Strategy (the defining of purpose) precedes corporate governance.

Corporate Business Model (the design and creation of an appropriate “vehicle” that can achieve this purpose Inherent in this is CAPABILITY– to survive companies (or the people that make up companies) needs to be capable of doing what they set out to do. To accomplish a defined strategy requires specific skills and abilities.

Corporate Ability (the sum of the ability of the people in a company) follows, and is determined by Corporate Strategy;

Part of this is also ensuring sufficient organisational CAPACITY – an organisation requires enough of the right skills and abilities to perform effectively.

The challenge for all companies is not just the PLANNING but also the DOING – execution is key! If strategy is one side of the EFFECTIVENESS coin EXECUTION is its flip-side. A company has to have both the KNOWLEDGE of WHAT to do (strategy) and the SKILLS to DO it. Ability and Execution are the key components of Performance.

Execution ultimately creates measureable success.

 

Secondary Cluster (Responsibility)

In accomplishing their purpose however companies impact other parties (these other parties are known as a company’s stakeholders) – in business nothing is achieved in isolation. It is a corporate imperative (and challenge) therefore to accomplish ones purpose whilst ensuring the minimal negative impact on its stakeholders – some of these sit within the company, many sit outside the company, some are obvious (employees, customers and suppliers) others are more obscure (the broader community and potentially the environment). Business is relational – a key part of corporate governance is to properly take all relationships into account during the accomplishment of a purpose.

Accountability (being answerable) therefore flows from Corporate Strategy, Corporate Ability and Execution.

Despite the fact that we talk of companies as if they can (in themselves) accomplish the above steps companies cannot (by themselves) do anything. A company is a juristic/legal structure that creates an identity and gives coherent form to it actions (the actions of its people. This is where the leadership/directorship challenge emerges – and as a result the very strong structural emphasis on much of the material that addresses corporate governance. Corporate STRUCTURES, especially those related to management and leadership, decision making and communication are what facilitates good corporate governance. Structures imposed on a company however, by themselves, will not guarantee good  corporate  governance  but  they  can  help  create,  in  an  environment  of  accountability,  the framework within which good corporate governance – responsible effectiveness – is both expected and delivered by those who direct and lead companies.

Corporate Structures facilitate all that has been discussed to this point, and should be designed and customised appropriately to ensure the Responsible Effectiveness of a company.

 

Tertiary Cluster (Sustainability)

A key part of an ongoing Strategically Robust Corporate Governance Structure is ongoing FEEDBACK and MEASUREMENT. These need to be “built into” everything that a company does in terms of Strategy, Capability and Capacity, Execution, Accountability and Structure. Due to the “speed” or pace of business measurement needs to be “inherent” in policies, systems and processes – it needs to be automated (as far as is possible) – or at the very least clearly scheduled. It is a key corporate discipline that needs to be uppermost in the minds or business leaders, and a skill that needs to be honed as a business grows and develops over time.

Measurement of (before, during and after) critical Strategic, Capability and Execution metrics alongside ongoing feedback related to Accountability and Structural Issues ensure the constant fine tuning of the company in the achievement of its goals and purposes.

Ongoing development of a company’s people is one key area that plays a huge role in “securing” its future success – by developing its people a company become “FutureProof”. Throughout the Strategic and Governance Implementation process – and built into its deployment – is the intent to continually train and develop the leadership capacity of the company.

Since it is the people in a company that primarily determine its Strategic Direction, that make and implement the decisions that direct its activities and that are the main factors in a robust corporate governance structure Training and Development forms an integral part in the framework of robust Corporate Strategy and Corporate Governance implementation

Due to the fact that we can follow the logical (and linear to a degree) flow from strategy to ability to execution to governance we can draw on certain principles that can help us to design and implement structures within a company that can facilitate its good governance.

 

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