Corporate Governance is a Small Part of the Big Corporate Management Problem
Corporations are governed by enforcing rules, because we do not manage the corporate business
Corporations do not organize and manage the actual business, “the utilization of capital in performance to produce value in results”. Actual business data is not captured and business management information for performance capacity, cost, and effectiveness producing result volumes, value, and quality is not available to govern approved business strategies and plans.
Instead of organizing and managing the capital utilized and output results produced by the business, organization and management structures are laid over the business. These contrived structures prevent the actual business from being managed or governed. Management information does not measure and report the actual business, but measures and reports against contrived overlaid structures, such as corporate plans and budgets, business processes, charts of accounts, scorecards, and the like. This requires a large effort by the corporation to collect duplicate and conflicting data related to each structure and to process high volumes of reports that do not report the actual business.
Corporations can only govern by enforcing rules and regulations. 20th century management always addresses the corporate governance problem from the governance side with more costly rules and reporting requirements, instead of addressing the large corporate management problem on the corporate side.
We need to govern strategic value creation by managing the corporate business with R-pM
Good corporate governance requires that we clear away contrived 20th century management structures laid over the business that complicate management, and directly organize, manage, and report the business to simplify management and governance. The means to do this is Result-performance Management (R-pM), as explained further in the article “Seeking Good Corporate Governance by strengthening Bad Governance“.
Corporate Governance is a small part of the big corporate management problem
When we look at the corporate side, we do not just have a corporate governance problem. We have a big corporate management problem, because we do not organize and manage the business of the corporation.
The business is hidden by overlaid organization, strategy, business process, account, performance management, information system, and other structures that manage contrived entities, like department, responsibility, function, unit, station, and center rather than the business. We create a large IT infrastructure with many costly Information Systems to manage overlaid structures and provide corporate management information, yet we have no system that manages the business or reports actual and accurate information on the business.
We invest large amounts in accounting and financial management, but still have “intangible assets”, unknown costs, unmanaged value creation, and unknown capital and corporate worth. Accounting gathers some financial data against a contrived chart of accounts laid over the business, rather than accurately recording the financial and non-financial business for good corporate governance.
Actual data reported by one set of contrived structures is reported against contrived corporate planning and strategy structures. Since most results produced and performance solutions utilized remain unidentified, the information reported can only incidentally relate to the actual business. There is no way to plan actual strategic result value and to govern operations and development specifically directed at creating planned strategic result value.
Solve the Corporate Management Problem with Result-performance Management (R-PM)
We always try to strengthen corporate “governance” through 20th century accounting, auditing, and financial compliance reporting. These are the problems; not the solutions. None of this is related to the actual business. Compliance reporting is against inaccurate contrived structures and irrelevant artificial entities, rather than accurately planning and reporting the actual business.
We need to look at “corporate” governance from the “corporate” side to organize the corporation business to be managed and governed. One of the Ten Rules for 21st Century Management is “Plan and govern the transition from today’s value to approved strategic value“. Best corporate governance practices include having a well-defined and approved business strategy to create planned corporate and customer result value, and clearly knowing and governing the transition of the business time period by period to implement the strategy. We solve the corporate governance problem and institute good corporate management as a by-product of organizing and managing the actual business with Result-performance Management (R-pM).
For more on R-pM visit Result-performance Management.com. Download your copy of the R-pM Toolkit for details on organizing the business for good corporate governance through 21st Century Management.
