The Debate: Focus on strategy must remain

Focus on strategy must remain

By Charles Tilley

There is no doubt that corporate governance issues have received considerable attention over the last couple of years in response to major corporate scandals.

The UK government initiated a number of reviews and we now have a revised combined code. CIMA welcomes such developments: there needs to be regular reviews of corporate governance arrangements to keep pace with a rapidly changing business world if confidence in the market system is to be preserved.

However, there is a danger that in the laudable attempt to improve standards of control and ethics, insufficient attention is paid to the need for companies to create wealth and to ensure they are pursuing the right strategies.

After all, recent UK examples of company difficulties, such as Marconi, were issues of strategic rather than corporate governance failure.

CIMA believes that a possible solution could be offered by the framework of what has been termed ‘enterprise governance’. This focuses on the corporate governance and business management aspects of the organisation, and thereby seeks to balance conformance and performance.

At the heart of the argument is that, while bad governance can bring down a company, good governance on its own cannot make a company successful.

We should not focus solely on what goes wrong, but on how we can ensure things go right and that means focusing on strategy and performance.

What is required is an integrated framework that ensures companies are focusing their energies on the value-creating drivers that move the business forward. Investors need to be assured, not only that the board is presenting a true and fair view of the accounts, but also that it is spending sufficient time and effort on understanding the strategic environment, ensuring that all the strategic options and risks have been explored sufficiently and monitoring implementation.

CIMA is exploring the development of a ‘strategic scorecard’ that draws together the different aspects of strategy, which can then be incorporated into the overall enterprise governance framework.

  • Charles Tilley is chief executive of CIMA.

… but don’t forget governance
By Damian Wild

Charles Tilley is right – bad governance can bring down a company, but good governance alone cannot make a business successful.

Equally, the idea of ‘enterprise governance’ is sound – corporate drivers need to take in forward-looking strategic issues every bit as much as the need to reflect the insurance policy that sound corporate governance procedures offers.

While it is important to recognise that good governance and strategic thinking have to go hand in hand, it is only sensible to acknowledge there is nothing new in this.

The best companies have been doing this for years. The ability to combine a forward-looking strategic push, while ensuring that you don’t take your eye off the governance ball, is a quality that successful companies demonstrate.

The combination is not a pre-requisite for short-term success, but organisations that can push ahead on both fronts are the ones that top the most-admired companies lists.

It seems obvious, but you don’t need to look far for evidence of the City’s ability to focus on just one of the factors. Take this week’s big corporate story. As this page went to press, BSkyB executives were debating the vexed question of who to appoint as the company’s next chief executive.

In Tony Ball, the company has just lost a CEO who took the company on to a new level. In charge since June 1999, he returned BSkyB to profit and increased subscriber numbers. Against the odds, Ball took the idea of multi-channel TV and delivered a highly-profitable business for his boss, Rupert Murdoch. His vision was risky, but it was forward-looking and worked.

Now, as executives and shareholders debate their next CEO, the contrast could not be more stark. Much has been written about his likely successor.

But little of what has been said about James Murdoch has focused on his strategic abilities. They may be considerable – they may not, of course – but all the while most City-watchers have focused on whether it is bad corporate governance for the chairman and chief executive of a publicly listed company to be father and son.

  • Damian Wild is the editor of Accountancy Age.

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