The Corporate Governance Problem and Solution

Corporate Governance is one of the top 10 problems of 20^th century management!

Corporate Governance problems are “solved” my more imposed governance

We have all heard of the recurring crisis in cooperate governance. Governing the corporation is a big problem because we cannot manage the corporate business. We lay a myriad of contrived structures over the business to organize and manage various entities like units, functions, activities, processes, objects, jobs, etc. Corporate governance itself may be through a contrived corporate governance structure laid over the business to extract and reconcile information from other overlaid structures.

Corporate governance problems are “solved” by adding to the problems with more stringent and costly requirements for outdated 20^th century accounting, auditing, and compliance reporting.

Corporate governance problems must be solved through governance of the actual corporate business

Corporations will be governed effectively only after corporation businesses are organized and managed. The strategic corporate business must be defined as strategic results and the new and improved capital solutions utilized in performance to produce the strategic results. Result goals and performance expectations must be established period by period to the strategic horizon. Corporate governance can then manage actual result value creation against goals and strategic estimates, corporate responsibility for actual business practices, and corporate information capital as part the actual business. The solution to the corporate governance problem is Result-performance Management (R-pM) to organize the corporate business for 21^st Century Management. Review the article “Seeking Good Corporate Governance by strengthening Bad Governance” at Result-performance-Management.com.

Corporate Governance Problem

We lay structures over the corporate business, and fail to organize the business

We do not organize the business. Instead, we lay many structures over the business for organization, strategy, planning and budgeting, business processes, information systems, performance management, accounts, administration, etc. We gather data on all the entities used and compile a wide variety of management and statutory reporting, but we cannot capture actual business data. Each overlaid structure creates business and information complexity, obscures the view of the business, and compounds the problem of corporate governance.

We are now are laying more information classification structures over the business and investing data reconciliation and information management systems in a futile attempt to provide management information and manage information capital. These problems are caused by 20^th century management and and only get worse with more 20^th century management.

Corporate Performance Management reports against overlaid structures

We have corporate performance management to report financial and non-financial measures, against accounts, maps, processes, scorecards, and other structures. But, all of the entities we report do not directly measure and report what is happening in the business. The business changes whenever management decides to produce a new result, close a finished result, or utilize a different capital solution. But this business change and the value of results and the cost of solutions is not recorded. We may get snippets about product volumes and costs, revenues earned, or payroll expenses. But we do not have one consistent way to report all that is produced in the business and all costs incurred. We have no consistent manner to relate performance costs incurred to the value of results produced.

Accounting accounts for only part of the business cycle and against the wrong entities

We account for money received without a good idea of what we provided to get the money. We incur enormous expense keeping track of this money until the point we spend it. We record an asset or something else we got for the money, but not necessarily what we used it for. So, we have problems managing the dark side of accounting for financial information on the value of what we got for money spent, the value we created in the business, the cost of creating the value, and the worth of capital utilized.

Accounting follows accounting principles, rather than providing the true picture of the full business cycle needed for governance. Accounting is equated to record-keeping, but does not keep all the financial, non-financial, document, and correspondence records needed for governance. Audit checks to see that rules are being followed, rather than understanding the substance of what is going on in the business. The effort is on compliance reporting and producing corporate governance documents.

We govern the corporation by rules and regulations, because we cannot manage the actual business

Since we are unable to know and manage the substance of the business, we manage and govern by policies and rules. We have various business and financial accounting standards and principles that are managed through rules, often independent of business reality. Accountability is related to contrived entities rather than direct business results. Best practices show us how to follow rules, rather than how to manage the business and govern the corporation.

We try to solve Corporate Governance by strengthening the problems

There have been well-publicized cases of corporate malfeasance over the past few years. We hear experts talk of solving the problem, once and for all, by stronger accounting, audit, and reporting rules. 20^th century accounting and financial management must first solve well-known problems with “intangible assets”, “unknown costs”, “unknown value creation”, “unknown corporate capital worth”, and “unknown return on corporate investments”; before they can solve the “corporate governance” problem.

The Corporate Governance Solution

We need to rethink our approach to corporate governance. We cannot address corporate governance only from the governance side. We need to address the problem from the corporate side to enable those responsible to understand the substance of what is happening in the corporation. We need to give managers, boards, and committees the tools to govern the actual corporate business.

Organize the corporate business to be managed

We need to simplify and organize the business though Result-performance Management (R-pM). R-pM organizes and manages the business of the corporation through the three entities that comprise the actual business:

• Results: Economic outputs produced by corporate business performance
• Capital solutions: Capital the corporation invests in for business performance
• Performance domains: Capital solutions implemented to produce a result through utilization in business performance

All corporate business decisions involve what results to produce and what human and other capital solutions are needed to produce results. The results define what management and the board want the corporation to produce to create value. The capital solutions represent the capital investments made by the corporation that must be utilized properly to provide the return on investment. Performance measures the costs of all capital utilized to produce value in a result and provide result value-added. All organization units or managers are solutions implemented to be responsible for specific results. The business structure is inverted to manage the results under a specific business organization unit solution or human personnel solution manager. All structures laid over the business, with their high costs and unsolvable problems, are abolished. One business structure is used to integrate business organization, planning, direction, control, and reporting.

Manage and report cost-effective performance to produce value-quality results

Our corporations manage functions, processes, tasks, activities, etc. but do not manage real results or performance, so they do not have the metrics needed for governance. When corporations manage performance, with R-pM, all assets are tangible and organized and all performance costs, capital worth, and investment returns are known. A capital performance manager is directly responsible for the cost incurred, utilization, worth development, and return on investment results for each capital solution. When corporations manage results, costs are charged to the proper result entity and the value, quality, volumes, and risk for all results are managed. The corporation knows the value added to results and manages result value-quality chains from supplier input results to final customer results.

Govern from today’s corporate result value to the creation of strategic result value

When corporations manage result value, they set result value goals and build from today’s value to a future strategic value to govern the period by period creation of value against goals and costs incurred. R-pM defines a strategic business structure at the strategic horizon to manage the strategic value of existing and new results and capital solution development. Corporate governance ensures the month by month convergence of the current business structure to the approved strategic business structure.

Manage all corporation information referenced to the actual business in the corporate Business Information Base

The explosion in information produced in, brought in, or leaving the enterprise is creating new corporate governance problems in information complexity and management. With R-pM all information, including emails, Internet downloads, and transmitted files, must be referenced to the business in a result, capital solution, enterprise, or other managed business data entity and managed properly as data, knowledge, records, or intelligence capital in the official business information base.

Overhaul 20^th century accounting, rules, and regulations to govern the 21^stcentury corporation

Once we used R-pM to abolish 20^th century structures and have a simplified corporation business for 21^st century management, we can take a completely new look at our accounting, audit, and reporting rules and regulations and the alternatives in professionally-managed management strategy and tactics solutions, records solutions, and integrated information capital management.

21^st Century Management leaves 20^th century problems behind

Result-performance Management (R-pM) eliminates the top ten problems and other costly 20^th century problems. Slash costs, simplify business management, and boost competitive advantage through R-pM, the conventional method for 21^st Century Management.

Your 21^st Century Management Manual, The R-pM Toolkit, is available today at result-performance-management.com, and is under continual development to expand and refine 21^st Century Management.

This entry was posted on Friday, March 21st, 2008 at 02:33 and is filed under:
Forums: Administration and Capital Management, Corporate Investment and Governance, Top Ten 20th Century Problems
Topics: Conventional Management Methods, Enterprise Worth, Information Capital Management, Management Capital, Records Management, Corporate Governance, Financial Management
Result-performance Management (R-pM): How the Business Benefits from R-pM
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