Enterprise Governance: Driving Enterprise Performance Through Strategic Alignment

By Bharat Vagadia

This book is written for business leaders and those that govern organisations. All high performing organisations excel in achieving 7 organisational outcomes: Accountability, Awareness, Adaptability, Agility, Alignment, Action and Achievement. The enterprise governance framework must deliver on these 7 As through penetrating and integrating three organisational governance layers to drive high performance. These include: corporate governance, strategic governance and operational governance. The book unifies traditional corporate governance, leadership, and strategic management processes, whilst seeking to understand what actually happens on the ground to keep the organisation working and delivering ongoing value to its stakeholders. It synthesises these separate streams into a unified enterprise governance framework, posing some challenging questions whilst providing clear insight into how you implement enterprise governance: something that helps deliver on the 7 As and ultimately high performance.

• Language: English
• Publisher: Springer
• Release date: Sep 17, 2013
• ISBN: 9783642385896

Book preview

Bharat VagadiaManagement for ProfessionalsEnterprise Governance2014Driving Enterprise Performance Through Strategic Alignment10.1007/978-3-642-38589-6_1© Springer-Verlag Berlin Heidelberg 2014

1. A New Approach and Model for Organisational Governance

Bharat Vagadia¹ 

(1)

London, UK

Abstract

Worldwide, the business landscape is littered with untold obstacles to high performance with the only certainty being continuous rapid change. Financial security is unpredictable; cash flow is tight; trends fluctuate; new markets develop; raw materials and commodities become scarce; customer preferences change; and with advances in technology new business models and competitors emerge. Some experts suggest the recent financial crisis can to some extent be attributed to failures and weaknesses in governance; it would seem there has never been greater pressure on boards to govern, and govern well.

As we get more experience and get deeper into science, you come to realise that the two models of the universe: classical and particle physics need to be brought together – what we need is a unified theory of the universe. Similarly the old models of corporate governance need to be revisited and aligned with theories of high performance organisations.

Worldwide, the business landscape is littered with untold obstacles to high performance with the only certainty being continuous rapid change. Financial security is unpredictable; cash flow is tight; trends fluctuate; new markets develop; raw materials and commodities become scarce; customer preferences change; and with advances in technology new business models and competitors emerge. Some experts suggest the recent financial crisis can to some extent be attributed to failures and weaknesses in governance; it would seem there has never been greater pressure on boards to govern, and govern well.

Despite all the interest and the large and growing literature, the concept of governance however remains elusive. It can be very challenging to explain what governance is, identify examples of good governance, and articulate how governance improves organisational performance.

Philosophically good governance should be an all-pervading attribute within an organisation – a key enabler to aid in defensible decision making concerning the affairs of the organisation. Effective implementation and maintenance of good governance should facilitate continuous improvement in relation to Compliance and Accountability (what we associate with corporate governance) and Strategy and Performance (what we associate with the strategy management process).

Organisations today need to react to changing environments with real agility. The days of the graceful elephant roaming its own territory without worry is over: it is the day of the lion; agile, smart, working in unison with its pride and others, and above all hungry to succeed. The winners are those with the ability to align, execute and renew themselves (adapt) to sustain exceptional performance over time. New processes, systems and measurement loops by themselves cannot create alignment. Leadership behaviours set the tone for the new canvas; what is acceptable behaviour and what is not. The ability of the leadership team to give a unified and constant front becomes one of the key factors of success. Leadership can bring a performance management culture into existence but its long term survivability is dependent on establishing an effective governance structure. This goes far beyond merely the operating rules, and needs to include the ways of working, and the creation or reconfiguration of organisational structures, command and control authorities and communication flows to maintain and reinforce the performance structure.

Agility is however just one element from a wider set of organisational pillars required for thriving in today’s world. These foundational pillars include: Accountability, Awareness, Adaptability, Agility, Alignment, Action and Achievement – these are elaborated in Table 1.1.

Table 1.1

The seven pillars of high performing organisations

Adaptability refers to the organisation’s ability to adapt their business model to changes in the environment. Alignment refers to the need to ensure the operational layers within the organisation are constantly aligned with strategic intent as well as other parts of the business. Accountability is important, because without accountability in a constantly changing environment, there is no one to drive the organisation, its constituent parts and the actions required to deliver on the intent. Without Action and Achievement, strategies just remain a wonderful yet fanciful set of ambitions on a piece of paper or within a PowerPoint slide set. For intent and strategies to be realised, there must be concerted Action and there must be the ability to keep track of these actions to ensure your objectives are being realised. Achievement provides that vital feedback loop which contributes to the pillar that is Awareness and creates a learning organisation. As Jack Welch, retired CEO of GE said An organisation’s ability to learn, and translate that learning into action rapidly, is the ultimate competitive advantage.

Organisations are spending significant time, effort and capital on corporate governance related activities (compliance, internal audit and risk management…). Although these activities help demonstrate conformance, and this is important, they do nothing to drive performance or create value for organisations; governance today is unfortunately largely just a bureaucratic cost centre.

A more strategic and integrated approach to governance can transform an organisation – integrating the vision and mission with strategic objectives, with policies, processes, controls, decisions, issues and risks, and these ultimately to actions and tasks that are carried out by stakeholders across the enterprise. A more integrated enterprise governance framework for the organisation can create a fully aligned and agile business, where governance is no longer a cost centre but a value creation centre – as shown in Fig. 1.1. So, while good governance starts with conformance, this is only the starting point. If excellence is the real goal, adaptability, agility, accountability (as well as the other As) which intrinsically include integrity and morality, has to be at the heart of good governance in the organisation.

A305411_1_En_1_Fig1_HTML.gif

Fig. 1.1

Enterprise governance = corporate + strategic + operational governance

Evidence suggests that organisations with better corporate governance attract investors and reduce their cost of capital. A global investor opinion survey carried out by McKinsey & Company (2002) gives some evidence that good governance is linked to investment decisions. The survey found that:

Investors state that they still put corporate governance on a par with financial indicators when evaluating investment decisions;

More than 70 % of investors are prepared to pay a premium for companies exhibiting high governance standards, ranging from 14 % to more than 30 % depending on the region;

Sixty percent of investors say they would avoid companies with poor governance.

Capital markets are also placing some value on corporate governance, as evidenced by the appearance of governance-related funds such as Relational Investors (USA) and Hermes Funds (UK), which select companies for inclusion in the fund based on good corporate governance.

Numerous case studies have also shown that a robust decision making process (a small element of governance) can help double organisational performance – imagine what a more unified approach to governance could do to drive performance. Other sources of evidence include:

McKinsey found organisations with high quality strategic decision processes outperform others by a factor of two. Raising a company’s game from the bottom to the top quartile on the decision-making process improved its Return on Investment by 6.9 % points (McKinsey Global Survey Results 2009).

Deutsche Bank’s UK research based on an assessment of the governance of the FTSE 350 companies at the end of 2000, 2003 and June 2005, using 50 differently weighted corporate governance standards, found a clear link between corporate governance and share price performance of the companies surveyed. During the four-and-a-half year period investigated, the top 20 % of the companies in terms of governance structure and behaviour outperformed those in the bottom 20 % by 32 % (Deutsche Bank 2000, 2003, 2005).

A Standard and Poor study of 500 companies showed that companies with strong or improving corporate governance outperformed those with poor or deteriorating governance practices by about 19 % over a 2-year period (Grandmont et al. 2004).

The most celebrated governance-ranking study, which supports the proposition that there is a link between the quality of corporate governance, measured in terms of shareholder rights and performance, was carried out by Gompers et al. (2003). The study was based on an assessment of the governance of 1,500 USA companies using 24 governance ‘provisions’ analysed by the Institutional Investors Research Centre during the 1990s. The study found that if a fund had taken long positions in companies scoring in the top percentile of their governance ranking and short positions in companies in the bottom percentile, it would have outperformed the market by 8.5 % per year throughout the 1990s.

There also appears to be recognition that organisations can no longer rely on just corporate governance; something that is about historic financial reporting. Organisations need to be able to drive performance in real time, rather than simply monitor it. Transitioning an organisation from running its business based on performance reporting to driving its business based on performance management requires a paradigm shift in organisational culture. This change of culture from focusing on the values of the numbers in the reports to focusing on the actions and activities undertaken to influence the numbers requires strong and unified leadership from the top.

Although I talk about integrated governance as if it is a unified model, the reality is that an organisation will need to adapt its governance processes so that they are aligned with existing culture, structures and methods of decision making; whether centralised or devolved, autocratic or consensus driven. Governance after all takes place in the organisation’s context. Relevant factors that impact and influence the most appropriate governance framework for an organisation include:

Its strategic purpose and the substance of its work

Its position in the organisation’s life cycle

Its geographical place

Its scale and relationships to other organisations

Its financial and physical resources

Its immediate past and its planned future

Its current and past reputation

Its dependence on key personnel

The influence of stakeholders

External pressures that are bearing on the entity

There is no single model that works across organisations. Although the framework that I describe within this book is universal, its implementation within an organisation must be tailored.

References

Deutsche Bank. (2000, 2003, 2005). Global corporate governance research, ‘Beyond the Numbers – UK Corporate Governance Revisited’.

Gompers, P., Ishii, J., & Metrick, A. (2003). Corporate governance and equity prices. Quarterly Journal of Economics, 118(1), 107–155.CrossRef

Grandmont, R., Grant, G., & Silva, F. (2004). Beyond the numbers corporate governance: Implications for investors. Deutsche Bank, April 1 2004. Germany.

McKinsey Global Investor Opinion Survey. (2002). http:​/​/​ww1.​mckinsey.​com/​clientservice/​organizationlead​ership/​service/​corpgovernance/​PDF/​GlobalInvestorOp​inionSurvey2002.​pdf.

McKinsey Global Survey Results. (2009). Flaws in strategic decision making, January 2009. USA.

Bharat VagadiaManagement for ProfessionalsEnterprise Governance2014Driving Enterprise Performance Through Strategic Alignment10.1007/978-3-642-38589-6_2© Springer-Verlag Berlin Heidelberg 2014

2. Delivering High Performance Organisations Through Enterprise-Wide Governance and Strategic Leadership

Bharat Vagadia¹ 

(1)

London, UK

Abstract

Traditional top down corporate governance and the associated strategic decision making models (strategic planning models) do not provide the speed, flexibility, and responsiveness needed by firms to reposition efficiently and effectively in response to an ever changing global market environment. While it is important to begin with a mission orientation and move culturally through the executive strata into the root structure of the varied functions of the organisation, it is critical in today’s dynamic market conditions to recognise opportunities and threats early and exploit or defend quickly and robustly, realising that consequences of not doing so, or doing so slowly, may endanger the organisation. High performance organisations are like guerrilla organisations that ensure proactive decisions are taken quickly and new strategies are rapidly developed to both survive and thrive in highly competitive markets. Decision making within these firms is by its very nature a rapid, iterative, interactive process involving stakeholders and their interdependent relationships to the various internal and external environments.

Merely looking at the details of the physical world helps serve the curiosity of the scientists, but unless it helps answer the wider questions of how that insight can help mankind, you have to wonder what the point is? The billions that have been invested by NASA have on average delivered a rate of economic return of between 7 and 10 times and a multiplier effect that by some calculations has been as high as 20 (Comstocki et al. 2011). The benefits are not just financial but also include environmental, impact of livelihoods and the creation of employment. Likewise investment in governance must deliver economic benefits; it must impact the organisational performance and the wider society.

Traditional top down corporate governance and the associated strategic decision making models (strategic planning models) do not provide the speed, flexibility, and responsiveness needed by firms to reposition efficiently and effectively in response to an ever changing global market environment. While it is important to begin with a mission orientation and move culturally through the executive strata into the root structure of the varied functions of the organisation, it is critical in today’s dynamic market conditions to recognise opportunities and threats early and exploit or defend quickly and robustly, realising that consequences of not doing so, or doing so slowly, may endanger the organisation. High performance organisations are like guerrilla organisations that ensure proactive decisions are taken quickly and new strategies are rapidly developed to both survive and thrive in highly competitive markets. Decision making within these firms is by its very nature a rapid, iterative, interactive process involving stakeholders and their interdependent relationships to the various internal and external environments.

It does not really surprise me that despite the recent proliferation of laws, regulations, and codes of corporate governance, high-profile incidents of corporate failure and managerial misconduct remain largely unabated – these realities emphasis that compliance isn’t enough for effective governance. Enterprise governance processes must take into account the need to implement effective business policies and deliver on the long-term objectives that define the scope of good governance for monitoring performance. Boards of directors should become more engaged in strategy leadership and involved especially in strategy formulation instead of limiting their role to strategy ratification and monitoring management behaviour. Corporate governance can influence organisational performance through its influence on the strategic management of the organisation. What real influence does corporate governance have over strategic management, if strategic management is implementing its own strategies?

Research from the Harvard Business School (HBS) (Lorsch et al. 2009) following the global financial crisis, concluded that recent boardroom failures differed from the previous corporate failings. Previous failures such as Enron, WorldCom, and other corporate collapses, were rooted in management malfeasance¹ and poor governance oversight. These led to the USA Sarbanes-Oxley Act and consequential focus on compliance and risk management as key components of corporate governance.

However, recent corporate governance problems, the researchers found, were primarily attributable to the growing complexity of the organisations that boards governed. The research found a strong consensus among directors that the key to improving boards’ performance was not government action, but action by each board. Moreover, it emphasised the differences between organisations and concluded that each board needed to develop structures, processes, and practices to fit its needs. The notion that ‘one size fits all’ was viewed with scepticism. The Harvard research identified six areas for improvement at board level:

Clarifying the board’s role;

Acquiring better information and deeper understanding of the company;

Maintaining a sound relationship with management;

Providing oversight of company strategy;

Assuring management development and succession; and

Improving risk management.

I would agree with these findings from HBS, although it still appears to assume that a centralised board, who may not actually understand the business or environment all that well, can direct and control a complex organisation.

Traditional corporate governance largely uses intimidation as a means of control and influence at an organisational level. But to intimidate effectively, corporate governance has to distance itself from the object of its intimidation and as a consequence, traditional corporate governance has strongly demarcated the boundaries of its function from that of executive leadership. Also traditionally, executive management has seen their role as exactly that, executive management and not governance. The subtle difference between a management orientation and a governance orientation by the key actors within an organisation are what often defines the culture of the organisation.

To drive an organisation to high performance requires a culture of governance (business ownership and involvement) to penetrate deeply into the operational layers of the organisation and to achieve that, two other layers of control and influence are required. These include: strategic governance, which uses aspiration and inspiration as its primary means of control and influence; and operational governance – which uses instruction, infrastructure and information as a means of control and influence – See Fig. 2.1.

A305411_1_En_2_Fig1_HTML.gif

Fig. 2.1

The three layers of governance

By Intimidation, I mean the method of control and influence is normally a threat; either an external threat from legislation or regulation; or internal threats in the form of dismissal, missed promotions etc.

By Inspiration, I mean inspiring all employees to not only do their prescribed roles but to go beyond the call of duty; to overcome the inevitable difficulties that an organisation working in a dynamic environment faces; to rise above politics and bureaucracy that organisations create, and bring forth creativity and positive change.

By Instruction, I mean the rules and practical steps to help employees work in a consistent manner (these are usually in the form of policies, standards, rules etc.). By infrastructure I mean the structures and systems necessary for all employees to be able to undertake their role with some consistency. By information, I mean the information that employees feed into the system and the aggregated information that provides oversight to the organisational leaders of what is actually happening within the organisation. What is remarkable is how the airline industry, which is a pretty complex industry with thousands of aeroplanes and numerous pilots taking off and landing every hour, manages to apply governance at the level of the cockpit; governance is delegated to the pilots. The mechanism they use to apply governance and quite effectively at that, is the use of simple checklists. These reminders seek to provide consistency. By codifying what needs to happen into a simple checklist and then giving people the freedom to act and adapt using their best judgment while at the same time meeting specified expectations, they achieve consistency. Under conditions of true complexity – where the knowledge required exceeds that of an individual and unpredictability reigns – efforts to dictate every step from the centre usually fail. But what the airline industry does is to provide guidance rather than control. Another key factor that appears to differentiate the airline industry from many others is that every time there is an ‘incidence’, they learn the lessons and incorporate the learning into either new checklists or revise existing ones. The airline industry is a true learning industry (obviously the pilots are also subject to significant training, which helps). Contrast this with the BP deep horizon oil rig explosion recently. There have been explosions before, but the sector doesn’t appear to codify these lessons into a series of checklists which are used as a practical tool in their day to day operations. What checklists they have, tend to be used more as a compliance exercise after the event. The operational governance layer thus seeks to provide the framework and ‘checklists’ to ensure the people working in this layer follow a consistent standard and they don’t get overwhelmed by the sheer complexity of a situation.

In many ways governance is similar to the way people view physics – everyone has a broad idea of what it is and how important it is, but unless you get into the detail and understand how it forms the building blocks for the entire universe, you never realise the power or it. Extending this analogy further: there are a number of fundamental forces that shape the universe we live in, some are considered strong and some weak:

The gravitational force is widely recognised and easily seen in action, has an infinite range and acts on all particles that have mass; but it is actually a relatively weak force – this is akin to the corporate governance layer. It should act on all activities within the organisation, but its actual influence on behaviour is relatively weak.

Electromagnetism is the force that acts between electrically charged particles (akin to people in an organisation). Electromagnetism is infinite-ranged like gravity, but vastly stronger, and describes a number of macroscopic phenomena – such as rainbows, lightning, Aurora Borealis. Electromagnetism fundamentally determines all macroscopic, and many atomic level properties of chemical elements. It is certainly stronger than the gravitational forces but weaker than what is considered a strong force – nevertheless it is the force that is most visible and interesting to the vast majority of people – this is akin to the strategic governance layer. It acts on the charged particles – the people within the organisation, but only those that are charged (engaged and aligned). The role of the strategic governance layer is both to charge the people with energy and then align them to action.

The strongest force is the nuclear force. It is the most complicated force in nature and its influence varies with distance – it acts only inside the atomic nucleus. It is the force that today powers bombs and power plants alike. It is a fundamental building block, and bearer of the other forces, since all the other forces are reliant on the atomic form. You need to get inside the detail to see this force in action, but without this force there will be little order within the universe – it provides the mechanism by which the planets, the sun and stars within the universe maintain their form. This is akin to the operational governance layer. The operational governance layer provides the detail and structure that enables there to be order – without this detail and structure you get organisational chaos and anarchy. It provides instructions, infrastructure and information necessary for coordinated action.

The need for a broader, more strategic perspective to governance has been addressed by several professional accounting bodies. A document entitled Enterprise Governance: Getting the Balance Right, was published in 2004 by the Chartered Institute of Management Accountants (CIMA) and the International Federation of Accountants (IFAC). Within this document, enterprise governance is defined as the set of responsibilities and practices exercised by the board and executive management with the goal of providing strategic direction, ensuring that objectives are achieved, ascertaining that risks are managed appropriately, and verifying that the organisation’s resources are used responsibly.

This definition is interesting because it starts to merge governance and management activities. Traditional theory suggests that managers should manage and board of directors should govern, and the two shall not be confused. However, repeating my mantra on participative self governance, if managers both managed and governed, then we might not have seen the excesses within the banking community that led to the financial crisis. If the managers managed what was within their areas of responsibility, but then also stepped back and with a governance mindset, examined if what they were doing was in the good of the wider organisation, was moral, ethical and in line with the organisational values, it may have tempered management activity. Boards of directors cannot govern the actions of individuals, but they can instil a culture and expectation that all employees will act not only in their own interest but for the broader good of the organisation and wider stakeholders if that is what is desired. Ethics, morals and tempered action is associated with governance related activities, and this is what most organisations would want from their employees. I would argue that the distinction we see today between governance activity and management activity is part of the problem.

Nevertheless, despite the increasing recognition of the need for a stronger link between governance structure and strategy definition and implementation, there is still a lack of understanding of the mechanisms through which governance systems can be translated into strategy and its corresponding frameworks for developing associated policies, processes, controls, decisions etc.

In the many years ‘observing’ and working with different organisations, what I consistently see are a range of common themes emerging from those that are poor performers (relatively):

They usually have a meaningless vision and mission. By that I mean these do little to drive behaviour within the organisation. The vision and mission act as a Public Relations (PR) statement and its audience is seen to be the organisation’s customers and financiers rather than its employees.

They usually have a highly centralised management and governance system through which they have a centralised strategy, risk and compliance management function, with little delegation of authority and an ineffective and sometimes inappropriate decision making process.

They have an unclear decision rights management framework or system, and characteristically do not meaningfully consult key stakeholders and those with real insight over strategic decisions. They prefer to keep strategic decisions confidential and wholly within the purview and control of senior managers, who may have the right job title but frequently little real insight or understanding into what is happening on the ground. Their decisions are often made without a comprehensive risk assessment, making decision implementation risky and sometime impractical.

What little risk assessment that may be been done while making a decision, more often than not is ignored and doesn’t get translated into risk management and containment activity.

Decision, processes and initiative implementations, are often poorly aligned with organisational policy. Initiatives are started because they seem like a good idea and fit with what the current trends may indicate is relevant, but have no real alignment with organisational intent or policy.

They have no information resource that can show what’s been done to deliver strategic objectives and without a formal reporting process and a culture of individual accountability there is little commitment to delivering the strategic objectives across the organisation.

The lack of a unified alignment mechanism means there are multiple contradictory strategic programmes under action across the organisation at any one time with little alignment between them, or with the wider vision.

Employees keep themselves busy attending meeting after meeting discussing things that may do little to deliver on the strategies of the organisation. No effective action follows meetings and what should take weeks or days takes months and consumes valuable resource.

As a result of these observations and much research into academic and practitioner thinking, I have identified what I consider to be the seven ‘virtues of high performance’ and seven ‘deadly sins of poor performance’. The enterprise governance framework I have developed sets out to promote the virtues and counter the corresponding sins.

2.1 The Seven Attributes of High Performing Organisations

1.

Accountability is as much about a cultural accountability ethos imbuing all members of the organisation, as it is about holding the leadership team to account in respect to compliance, risk and performance. Recent events in the news, the RBS Libor scandal and the Staffordshire Health Trust in the UK, demonstrate what happens when accountability is thought of as only an board responsibility and is not recognised as something all members of an organisation can and must engage in.

2.

Awareness requires the right sensors to be in place, an executive that is aware of and who actively monitors the sensors, understands what to look out and listen for and is capable of interpreting and acting on the signs that signal the need to adjust. The G4S Security problems before the 2012 London Olympics Games demonstrate what happens when the wrong sensors are in place or the executive fails to understand, interpret and act on the signals in a timely manner.

3.

Agility requires flexibility that allows the organisation to rapidly adjust its strategies, technology, and workforce, to meet changing circumstances and through delegation and devolved decision making, respond quickly to emergencies. A classic case of an organisation responding with agility and speed was the response of the power authority in Christchurch New Zealand after the 2011 earthquake. Within days the power to the city was restored in spite of complete infrastructure failure due to a wide range of phenomena including vertical land displacements of more than a metre, extensive liquefaction, irrecoverable damage to over 1,000 buildings in the Central Business District, almost impossible working conditions with regular sizeable aftershocks, and extremely difficult logistics due to extensive transportation system failures and overload. Any organisation can be agile if its members have a collective mind to be agile and make agility a fundamental principle of its ethos and business.

4.

Adaptability provides the new strategies and products to hedge against vulnerabilities and shapes a hoped-for future, through pliable command and control structures, and a learning culture. History is littered with examples of business failures where organisations have failed to adapt and the failure of many UK high street brands in 2013, such as HMV, are classic cases of businesses failing to adapt, even though the mounting pressures of competition from the internet and out-of-town supermarkets had been obvious to everyone for some time.

5.

Alignment ensures the organisation acts as a whole and remains aligned to a shared vision, to a common strategy and to consistent and coherent personal goals, even when the organisation is constantly evolving. Aligned organisations are happy organisations and through positive images of current and future environments, seek to eliminate noise while creating conditions in which stakeholders can deliver. The UK Conservative Party has taken the decision to hold a referendum on EC membership as a mechanism to (eliminate noise) facilitate alignment of the party behind its EC policy. Previously EC policy has proven divisive for the party but with a commitment to a referendum all factions can be aligned and united, at least in the short to medium term, behind this one policy.

6.

Action is the prerequisite for success of any high performance organisation. As no work is done until an object is moved, action is needed to initiate work and ensure that people overcome their own inertia and act to deliver their piece of the jigsaw. Action is how the other six attributes are implemented or demonstrated, hence good governance and high performance cannot be achieved without positive action. The National Health Service (NHS) as an example is undergoing major transformation. Significant effort has been spent, together with millions on consultancy fees on planning this major reform. Unless the NHS moves on from planning towards coordinated action, this will be another major reform that just fizzles out. Those sophisticated plans need to be turned into concrete action, the different stakeholders within the NHS need to be motivated and believe that change will be for the good, and that action must be coordinated so as not to create further inertia.

7.

Achievement both good and bad is the ultimate product of Action. By maintaining a focus on achievement the high performance organisation ensures it is engaged and is delivering the desired outcomes while minimising unintended consequences. To fully understand and differentiate planned achievement and unintended consequences the organisation must predict the products of its actions, review its achievements when actions are completed and learn from its achievements, feeding that knowledge back into action planning processes. An organisation that has done well to develop itself into a learning organisation over time is McDonalds. Traditionally it was known for its greasy fat laden burgers. Today it appears to be making 30 % of sales from its breakfast menu; it has rolled out Wi-Fi across a number of stores in the USA; and changed its menu towards a much healthier choice for the European audience (Americans still appear to like their salt, sugar and fat however, and McDonalds obliges). It has its own Hamburger University which has more than 5,000 students attending each year and since 1961, more than 80,000 restaurant managers, mid-managers and owner/operators have graduated. The University is considered to be the Harvard of the fast food industry, with campuses sprouting up in Tokyo, London, Sydney, Munich, Sao Paulo and Shanghai. More than this it has a relentless focus on delivering customer experience. Their goal is quality, service, cleanliness and value (QSC&V) for each and every customer, each and every time. This demands consistency across all their stores and this is what they have managed to achieve.

Although this may sound clear enough, designing a governance model that is appropriate for the organisation is not an easy task. You will need to consider:

Strategic insight. The governance framework should focus attention on the most important decisions. In order to identify which decisions have most impact, an organisation must be able to link strategies, programmes, processes, policies and priorities with its overall strategic objectives.

Culture. Awareness of the personal and cultural issues that surround decision making rights and processes will be critical to success, as will being able to match the governance model to behavioural norms within the organisation. Sensitivity to the political climate and power structures within the organisation is important, as these determine the mechanics, success and scope within which governance is implemented.

Change management. Establishing governance often involves making changes to other structures and processes. It may even be part of a conscious effort to change elements of the organisational culture. This requires all the skills that go with any substantive change programme.

Scope, leadership and expertise. Many people equate defining governance with setting up policies and standards. It can be seen from the above that governance actually needs to address a broader, more strategic remit if it is to succeed. Strong leadership is needed to ensure an appropriate scope is maintained, expertise is delivered where it is needed and a clear line of sight on the ultimate goal of high performance is maintained.

Defining a governance model is thus not a trivial task. To be successful, you need substantial experience within policy management, strategic leadership, controls and compliance, change management, information management, organisational design, process design and management and the list goes on. Good governance is complex. It is related to and bound with compliance and performance but is somehow more. It is the strategic value of all the compliance and performance activity, the proposed direction and the contextual factors of the environment and organisation.

Good enterprise governance must allow organisations to make effective decisions, to make them in an efficient way, and to monitor and refine the outcomes of these decisions so as to improve overall organisational performance. Governance, strategy, structures, leadership and what actually happens on the ground are intricately linked. It is about achieving organisational adaptability, operational agility, strategic alignment, shared purpose and accountability for sustained organisational performance.

To date, much of the focus of governance within organisations has been around compliance. Compliance is often seen to be an external facing activity, almost part of the organisation’s brand development and a mechanism for polishing a tarnished image. Yet evidence suggests that having good governance which is internally facing and fully scoped across the supply chain can dramatically improve enterprise performance. Given the board is to a large extent the guardian of stakeholder interests; they need to govern the strategic direction of the organisation in a manner that delivers maximum return on stakeholder equity. I purposely use the term stakeholder, as equity in any organisation comes in a many forms and is not restricted to shareholders which have become the governance focus of the majority of private sector profit driven firms.

Many boards have taken this governance role to be primarily about financial governance and that mainly in the context of conformance. Governance in these organisations is about ensuring that shareholder funds are properly accounted for, and encompasses executive remuneration, financial audits, anti-corruption measures and ensuring compliance against regulations. However, this does not fulfil the broader mandate of the board, which must be about driving the performance of the organisation.

Beyond its legal and fiduciary duties, the purpose of a board must be to create more value, more effectively over time, than the executive of the company could do on its own. In practice this means making continual judgements about the direction of the business, in particular assessing recommendations for transformational action, to ensure the good custody of its assets despite the inevitable pressures and cycles of disruption the business will encounter. To do this requires a very different approach towards policy, strategy, decision making, enterprise risk management, executive engagement and performance oversight. It must integrate the elements of strategy, enterprise decision making, risk management, policies, processes, controls, compliance, performance management and ultimately accountability. It requires a redefinition of the role of the board, a governance structure that is dynamic and relevant to changing environments and matrix management structures. It requires tools and techniques that align strategy with performance, the board with operations and stakeholders to the vision. It needs to hold people to account, yet drive creativity. It needs to provide enterprise oversight, but more importantly insight.

Unfortunately education around enterprise governance, let alone corporate governance has been rather lacking. In spite of the recent focus on governance and a push from policy makers for better governance, most Business Schools still do not provide modules dedicated to governance. Some may spend an hour discussing corporate governance as part of a corporate finance module, but most simply cover the theoretical underpinnings of the principal-agency problems and the need for corporate governance. None seek to educate or instil the need for good governance within the future business leaders these business schools churn out. I have tried to reconcile why this might be the case, and I can think of two reasons that might explain this rather peculiar behaviour: first, the majority of students that do MBAs are mangers or senior managers, and do not see themselves in a governance position. They aspire to be consultants or work in investment banks as was highlighted in Case Study 2.1: Imperial College Business School. Governance