Why Govern the Business?
20th century management does not enable governance of the corporate business
20th century management used by corporations today prevents actual governance of the corporation business. Organization and management structures are laid over the business preventing actual business management. Corporation management receives mountains of reports against structures laid over the business. The reports are inconsistent since each structure defines the corporation differently. The reports are incomplete since actual business data is not captured and reported. There is no consistent framework for business management and governance. The corporation strategy map or corporate plan is different from business processes, projects, and functions, used to direct the corporation, which are different from the chart of accounts, activities for costing, or quality structures used for corporation control. These structures may have their own reporting that is different from corporation management reporting through various performance management control panels, scorecards, etc. The structures laid over the business prevent good corporate governance of the actual corporate business.
Corporate governance is through compliance with rules and regulations
Since the corporation is unable to manage and govern the actual business, corporate governance is not positive in ensuring that the business is properly governed. Corporate governance is negative based on compliance with rules, regulations, and compliance reporting. Corporation financial accounting is against a chart of accounts laid over the business to gather limited corporation data on expenditures and receipts. Many artificial accounts are included that tend to distort actual business results. Financial statements only have meaning against the accounts maintained and report the distortions as the actual business. Financial statements do not report the value created within the business or manage shareholder value. Financial statements do not report full capital worth and the actual net worth of the enterprise. Financial statements record only costs in cash expenditures and the utilization of tangible assets. Financial statements and compliance reporting cannot be reconciled against the business and can actually promote poor corporate governance.
Corporate governance must be against the current and planned business
In order to govern the business the actual business must be organized, planned, directed, controlled, and reported as explained in previous articles. Actual business governance is provided by Result-performance Management (R-pM) by reporting and governing the three components of the business:
- Results: The economic outputs of value and quality produced across the business
- Capital: The investments in tangible and intangible capital as specific solutions that must be acquired and developed to provide the capability to produce future results and that must be utilized in business performance to produce actual results
- Performance: The deployment and utilization of a specific capital solution to incur costs and provide effectiveness in producing a specific result in a performance domain
The business can be governed only by organizing the actual business as current results produced, capital available to the business, and performance in the utilization of the capital to produce results. Result responsibility is reported against the business organization solution and human personnel solution deployed to manage and produce the result. Capital responsibility lies with the capital result unit manager responsible for developing and supporting the solution. Performance responsibility lies with the performance manager assigned to deploy and ensure cost-effective utilization of the solution.
Business operation is governed though capital deployed to a performance domain with rules and exceptions for cost and effectiveness measurement in producing a specific result, the economic output results of total cost and value-added produced by business performance, and the proper utilization of capital in business performance. Business development is governed through capital developed as specific performance solutions to be utilized by the business to produce results to determine solution worth and development costs to be amortized, and to measure and achieve the return on the investment in the planned added result value-added.
A strategic business structure must be developed to plan strategic results, the capital development required to provide the solutions needed, the result goals by period to move from the current business structure to the strategic business structure, and performance expectations for the utilization of variable solutions in performance. Budgets are set up as financial, such as value-added, and non-financial, such as volume, result goals, and performance costs by time period or performance expectations by solution. The strategic business structure and plans from the current to strategic business must be approved by the corporate board of directors to establish a transparent view of the strategic business and the plans to execute the strategy. Any changes to the strategic business structure must be approved by the board to provide a new strategic business structure. The business is governed against the current business, goals and plans by future period, and updated estimates for the strategic business.
Corporate governance governs the transition from the current to strategic business
Corporate governance with R-pM governs the execution of the actual business against approved plans and strategic value creation. Value created throughout the business is managed and value-added to results across the business is known to highlight problems and specific business decisions needed. The current and strategic business and specific result goals provide a structure to understand the actual business and to assess the viability of new strategic estimates for value creation. The actual and strategic business provides a structure to support business decisions and to formulate business changes needed. All decisions and changes are in terms of results to be added, deactivated, or improved and capital development or improvements needed. All business change can be monitored as part of normal business reporting. Corporate governance has the tools to manage the transition from the current business each period to the strategic business.
Corporate governance governs corporate responsibility in results produced and solutions used
Corporate governance can also monitor and manage corporation responsibility in results produced by the business and capital solutions utilized to produce results. All results produced are reported with the costs of performance and effectiveness of solutions utilized. All results are managed to ensure that results are appropriate within the business strategy. All capital solutions utilized are managed to ensure that solutions are appropriate and effective. Performance is monitored to identify and rectify specific performance problems in the adequacy and effectiveness of solutions in producing specific results. The business is transparent at all management levels.
Corporate governance governs creation of shareholder value
Corporate governance can manage shareholder and stakeholder value created by the business. Accumulated result value is managed for value utilized to produce investment results in income results from investments and investments in new capital of managed appropriate worth needed by the business to produce planned and measured result value-added benefits and return on investment. All new capital investments must define the full range of solutions needed to produce specific new or improved results. All investments must be substantiated by specific attributable result value-added planned for each solution developed substantiated by result goals accepted by responsible result management. Responsible performance management must establish performance expectations for developed solutions. Un-beneficial capital development is largely prevented or quickly identified in operation.
Accumulated result value is managed for distribution to shareholders and protection of other stakeholders. Problems in producing result value are identified at an early stage to take action to change the result expected or the human and other capital utilized to produce the result.
R-pM is the only way to organize the business for good corporate governance
Result-performance Management (R-pM) provides the actual business structure for good corporate governance. All planning plans the strategic business and goals from the current to strategic business. All direction directs actual utilization of capital in performance to produce results. All business control is actual result value created to produce revenue results and all costs incurred against results to manage result value-added across the business. Business control also controls capital worth from development through utilization and consumption by the business, through improvement and replenishment, and for costs in deterioration or obsolescence over the useful life. All business control is against accepted goals for specific strategic results and expectations for variable solutions utilized. All business reporting is against the current and strategic business in actual against goals and substantiated estimates for strategic value creation set in the strategic business structure. This provides the tools for good corporate governance to govern the actual business.
Accounting should use the actual business as the account structure to manage income in result value, expenditures in full performance costs, assets in positive capital worth, and liabilities in specific performance solutions utilized of negative capital worth. Compliance reporting required today is continued, but with accurate numbers substantiated by actual business performance.
This is the article thirteen under the forum “Why Manage your Business”
The Business Change Forum is now running series of articles under the forum “Why Manage your Business?” to explain R-pM fundamentals for actual business organization and 21st Century Management. This is article thirteen in the forum. A new article is posted to the forum every Friday. Visit result-performance-management.com to learn about the breakthrough advantages of R-pM and how you can use R-pM to organize your business for 21st Century Management.
