When you make a wrong turn and go down the wrong road, maybe sometimes you can recover by moving forward. But more often than not, you need to turn around, go back, and get on the right road, and then move forward.
A major wrong turn made by boards was when they abdicated their responsibilities to management. This has led to the "imperial CEO", and the "ceremonial board". Very expensive mistakes.
Shareholders don't entrust their capital to management. They entrust their capital to boards. They then expect those boards to assemble management teams capable of using the rest of that capital to purchase assets, and then manage those assets to produce returns shareholders expect for the risk they incurred in making that investment. Boards are responsible for doing whatever is necessary to make sure that happens, as long as it's legal, ethical, and moral.
When boards regain this position and start playing this role, then and only then will they be able to purse competence followed by excellence. Until they do, boards don't deserve the confidence of shareholders, do they?
Mark W. Sickles
Organizational Architect
201-315-3653
Thursday, March 26, 2009
Monday, March 23, 2009
The Need for a Global Governance Standard
Summary
The current global economic crisis is a failure of past and present governance systems. In response, we are introducing a new approach to governance designed to fulfill its fundamental purpose. This principle-based approach to corporate governance may serve as the foundation for a globally recognized standard for this vital discipline.
Article
In October of 2008, Carl Icahn charged that boards aren’t doing their jobs. Warren Buffett in effect said the same thing in 2003. And in 1976, Peter Drucker said the board of directors has failed as an institution in nearly every major fiasco over the last 50 years. Having been deeply involved in board education and corporate governance over the last 5 years, I can see why: There is far too little discipline and science applied to this critical function. Governance needs to be governed, and the role of the board needs to be transformed.
In response to this unmet need, we are introducing to the global business community a new approach to corporate governance designed to fulfill its most fundamental purpose: Assuring long-term success for the firm and all of its stakeholders through alignment of their interests and efforts. Created at the systems level of thought and action, this principle-based, strategic approach to corporate governance is intended to serve as the foundation for the establishment of a globally recognized standard for this vital business discipline.
We believe the key to success is a synthesis of the agency and stewardship approaches to corporate governance integrating governance, strategy, risk, and corporate social responsibility. Further, governance must be practiced in a performance-based context as a powerful enabler of the strategic management process, increasing interdependence between the board and management on behalf of the firm’s stakeholders.
This combination of experience, discipline, and science has enabled us to create our firm’s top ten principles of strategic governance:
1. The Purpose of Governance
2. The Purpose of Strategy
3. The Essence of Risk
4. The Relationship Between Governance, Strategy, and Risk
5. The Relationship Between Boards, Governance and Shareholders
6. The Relationship Between Boards, Management, and Shareholders
7. The Relationship Between Boards, Strategy, and Culture
8. The Relationship Between Boards, Management, and Strategy
9. The Purpose of Culture
10. The Relationship Between Organizational Design and Strategy
While this system of principles should be considered as fundamental, we expect it will require additions and perhaps slight modifications depending on the country or geographic region in question. However, these principles are all integral parts of a holistic approach to corporate governance proven to cause business success under vast amounts of varying business conditions, and should generally be viewed as universally effective in their application.
Biography of Author: Mark W. Sickles, an adviser to corporate directors and officers, is founding principal of Mark W. Sickles, LLC. He is author of Shareholder Value Assurance-The Cure for Enronitis and numerous articles published by Directors Monthly, Directors & Boards Magazine, and Investor Relations Update. Mark has served as an adjunct professor and faculty member at The Singapore Institute of Management, American Management Association, and Rutgers University. He currently serves on advisory boards of Inside the Boardroom at Drexel University’s Lebow College of Business, Trestle Group, and The Rothman Institute of Entrepreneurial Studies.
Contact Information:
Email: mark@nacdnj.org
Address:
Mark W. Sickles, LLC
PO Box 91
Brielle, NJ 08720, USA
C: 1-201-315-3653
The current global economic crisis is a failure of past and present governance systems. In response, we are introducing a new approach to governance designed to fulfill its fundamental purpose. This principle-based approach to corporate governance may serve as the foundation for a globally recognized standard for this vital discipline.
Article
In October of 2008, Carl Icahn charged that boards aren’t doing their jobs. Warren Buffett in effect said the same thing in 2003. And in 1976, Peter Drucker said the board of directors has failed as an institution in nearly every major fiasco over the last 50 years. Having been deeply involved in board education and corporate governance over the last 5 years, I can see why: There is far too little discipline and science applied to this critical function. Governance needs to be governed, and the role of the board needs to be transformed.
In response to this unmet need, we are introducing to the global business community a new approach to corporate governance designed to fulfill its most fundamental purpose: Assuring long-term success for the firm and all of its stakeholders through alignment of their interests and efforts. Created at the systems level of thought and action, this principle-based, strategic approach to corporate governance is intended to serve as the foundation for the establishment of a globally recognized standard for this vital business discipline.
We believe the key to success is a synthesis of the agency and stewardship approaches to corporate governance integrating governance, strategy, risk, and corporate social responsibility. Further, governance must be practiced in a performance-based context as a powerful enabler of the strategic management process, increasing interdependence between the board and management on behalf of the firm’s stakeholders.
This combination of experience, discipline, and science has enabled us to create our firm’s top ten principles of strategic governance:
1. The Purpose of Governance
2. The Purpose of Strategy
3. The Essence of Risk
4. The Relationship Between Governance, Strategy, and Risk
5. The Relationship Between Boards, Governance and Shareholders
6. The Relationship Between Boards, Management, and Shareholders
7. The Relationship Between Boards, Strategy, and Culture
8. The Relationship Between Boards, Management, and Strategy
9. The Purpose of Culture
10. The Relationship Between Organizational Design and Strategy
While this system of principles should be considered as fundamental, we expect it will require additions and perhaps slight modifications depending on the country or geographic region in question. However, these principles are all integral parts of a holistic approach to corporate governance proven to cause business success under vast amounts of varying business conditions, and should generally be viewed as universally effective in their application.
Biography of Author: Mark W. Sickles, an adviser to corporate directors and officers, is founding principal of Mark W. Sickles, LLC. He is author of Shareholder Value Assurance-The Cure for Enronitis and numerous articles published by Directors Monthly, Directors & Boards Magazine, and Investor Relations Update. Mark has served as an adjunct professor and faculty member at The Singapore Institute of Management, American Management Association, and Rutgers University. He currently serves on advisory boards of Inside the Boardroom at Drexel University’s Lebow College of Business, Trestle Group, and The Rothman Institute of Entrepreneurial Studies.
Contact Information:
Email: mark@nacdnj.org
Address:
Mark W. Sickles, LLC
PO Box 91
Brielle, NJ 08720, USA
C: 1-201-315-3653
Sunday, March 15, 2009
The Purpose and Need For Shareholder Value Assurance
When a product is truly a solution to a critical problem, truly an opportunity to achieve the extraordinary, there should be clear, compelling, and independent evidence supporting these assertions. The following excerpt from Sir Adrian Cadbury’s book, The Company Chairman, clearly and powerfully describes the purpose and need for the Shareholder Value Assurance methodology and software.
“Corporate Governance is the way in which the organization is directed and controlled by the board. Strategy is a classic board responsibility, and it is therefore in the Chairman’s field. Equally, the Chairman is responsible for seeing that the company has an identifiable sense of purpose, and that this purpose is regularly reviewed. In addition, the Chairman is likely to have the task of putting across the company’s aim to outside audiences. For all these reasons, the chairman needs to be involved in the development of the enterprise strategy.
Chief executives in their turn will be responsible for preparing the strategic options and for putting them to the board. Since chief executives will be in charge of carrying out the agreed strategy, it has to be one in which, in its final shape, they are committed personally and absolutely. Hammering out a strategy is an iterative process in which ideas and plans move backwards and forwards between the board and the various levels of management. It is a process which has to be approached from the bottom up as well as from the top down.
The board sets the boundaries within which operating units draw up their individual forward plans. In doing so, the operating units can be expected to put forward proposals which build on their existing activities. It is for the board, however, to take an overall view of the future shape of the company and to decide which of the existing activities should be developed and which should not. It is the synthesis of these two views of the company that the chief executive will put to the board – a synthesis which may only be arrived at after considerable internal discussion.
The strategic proposals which come to the board will represent the considered judgment of those within the company as to the direction which the business should be taking. These proposals then have to be reviewed by the board as a whole, where the outside directors will see them through different eyes, since they are outside the company looking in. In practice, it is FAR FROM EASY to involve all board members usefully in a discussion of strategy. It requires IMAGINATIVE EFFORT by both the Chairman and Chief Executive to present strategic issues to board members early enough in the process for them to have real influence over the outcome, and in a form which encourages them to contribute positively to the development of the final strategy.”
Recently, The National Association of Corporate Directors urged boards to “assess whether they are effectively taking advantage of technological advances which provide opportunities to share information and enable informal commentary between meetings.” Our product, Shareholder Value Assurance, is the most effective technological advance for this purpose that is the result of an “imaginative effort” to create a reliable, valid, and systematic way to practice this “far from easy” strategic approach to corporate governance.
Mark W. Sickles, LLC
www.markwsickles.com
mark@nacdnj.org
201-315-3653
“Corporate Governance is the way in which the organization is directed and controlled by the board. Strategy is a classic board responsibility, and it is therefore in the Chairman’s field. Equally, the Chairman is responsible for seeing that the company has an identifiable sense of purpose, and that this purpose is regularly reviewed. In addition, the Chairman is likely to have the task of putting across the company’s aim to outside audiences. For all these reasons, the chairman needs to be involved in the development of the enterprise strategy.
Chief executives in their turn will be responsible for preparing the strategic options and for putting them to the board. Since chief executives will be in charge of carrying out the agreed strategy, it has to be one in which, in its final shape, they are committed personally and absolutely. Hammering out a strategy is an iterative process in which ideas and plans move backwards and forwards between the board and the various levels of management. It is a process which has to be approached from the bottom up as well as from the top down.
The board sets the boundaries within which operating units draw up their individual forward plans. In doing so, the operating units can be expected to put forward proposals which build on their existing activities. It is for the board, however, to take an overall view of the future shape of the company and to decide which of the existing activities should be developed and which should not. It is the synthesis of these two views of the company that the chief executive will put to the board – a synthesis which may only be arrived at after considerable internal discussion.
The strategic proposals which come to the board will represent the considered judgment of those within the company as to the direction which the business should be taking. These proposals then have to be reviewed by the board as a whole, where the outside directors will see them through different eyes, since they are outside the company looking in. In practice, it is FAR FROM EASY to involve all board members usefully in a discussion of strategy. It requires IMAGINATIVE EFFORT by both the Chairman and Chief Executive to present strategic issues to board members early enough in the process for them to have real influence over the outcome, and in a form which encourages them to contribute positively to the development of the final strategy.”
Recently, The National Association of Corporate Directors urged boards to “assess whether they are effectively taking advantage of technological advances which provide opportunities to share information and enable informal commentary between meetings.” Our product, Shareholder Value Assurance, is the most effective technological advance for this purpose that is the result of an “imaginative effort” to create a reliable, valid, and systematic way to practice this “far from easy” strategic approach to corporate governance.
Mark W. Sickles, LLC
www.markwsickles.com
mark@nacdnj.org
201-315-3653
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