So our Third Golden Rule of corporate governance is that good corporate governance requires an effective strategic management process to be in place.
By this we mean that the company is organised and run according to rules which
- set a goal which matches the duly considered expectations of the stakeholders
- work out a feasible strategy to achieve that goal
- put in place an organisation which can carry out the strategy and attain the goal
- set up a control and reporting function to permit management to drive the organisation effectively and make necessary adjustments to the strategy or even the goal
Anything less rigorous than the above strategic management definition will only achieve success by accident and will be vulnerable to all kinds of unexpected events. As we discussed on our best corporate governance practice page, good corporate governance is, or should not just be about compliance and risk management, but – more positively – good management. So let us explore for a moment the critical importance of strategic management to overall good management.
As Harvey MacKay said, “Failures don’t plan to fail; they fail to plan” (based on an old military proverb). And Thomas Edison famously said “Good fortune is what happens when opportunity meets with planning.” Examine any successful business and you will observe the high and disciplined level of planning which incontrovertibly led to that success – and the world is full of failures who failed to plan. Even many that have subsequently failed often did so because the importance of strategic management within the organisation diminished and with it the essential structure and visibility required to achieve goals and avoid pitfalls.
We planned this website itself for weeks before we even wrote a word and while content varies and is continuously added, we are very clear about what we want to achieve from it, how we will get there and regularly check progress towards those goals. Because of this, although at the time this page was first written we had completed less than a third of the initial sitemap, we were already being picked up by the search engines and receiving modest traffic (all with no marketing or promotion, even to friends and family).
This once again proves the importance of strategic management even on a small scale. Without this process the site, like so many websites and businesses, would still be on the drawing board or worse, in our heads while we think about all the good we know we can do with our applied corporate governance approach.
Permit us to go into a bit more detail to illustrate – we sat down and did a mini strategy consisting of:
- Setting detailed goals for content generation, new seminar bookings from the site, etc as well as deciding on an initial long term goal (subject to change following the Position Analysis)
- Analysing all our internal and external resources (the Position Analysis – where we are now) – the books, articles, seminar and workshop materials, etc, that we have written over the years, plus contacts, suitable locations, etc.
- Analysing our external envirnoment – the marketplace for corporate governance services, keyword research to identify what people search for (and how many) corporate governance and related terms, current developments and debate by the like of the UK’s Institute of Directors, the World Bank and OECD guidelines, etc
- Analysing stakeholder views – while very limited at this stage, this included gauging the views of actual and prospective partners to ensure our suggested approach would be well received (and indeed we made a few changes as a result to ensure buy-in and co-operation with our plans
- Formulating a strategy – involving generating options – for example we looked at fund managers as a possible angle, as well as the area of Non-Executive Directors/the Senior Independent Director – and making a choice
- Implementing the strategy – this website is one of the embodiments of this process
- Set up monitoring and reporting – initially this was limited to website analytics and use of time management tools to ensure enough time is spent developing the website/content; now it includes monitoring contact form enquiries, mailing list subscriptions, ebook course sales and goal tracking; you, the visitor, can also monitor this progress, of course, and as key stakeholders, we welcome your feedback!
This is a small example of the strategic management process in action to illustrate the importance of strategic management and detailed planning in any area (including personal goals) to ensure the best chance of success.
See the strategic management process and corporate governance graphic for our unique combined approach.
The importance of strategic management in the financial crisis
At the other end completely of the scale, we would argue that there was a major failure in strategic planning by almost all the major global financial institutions, as well as in the governance of these organisations as there was clearly not enough knowledge or information in key places which would have signalled – via the direct, or more often indirect connection to it – the risk that the sub-prime lending market was running. An almost blinkered attitude persisted that said “We don’t do sub-prime”, when due to the globalised nature of the financial system this risk affected them anyway, whether or not they had direct relationships with players or (re-)insurers in the sub-prime space. So we place a major part of the blame on those financial institutions, not just the sub-prime lenders themselves and the lending policy and bonus culture that actually provoked the credit crunch.
As we argue elsewhere on this site, had there been proper, regular and direct dialogue between the various stakeholders and especially trading partners of these institutions, and detailed analysis of the strategic positioning in relation to the sub-prime market, the greater part of the credit crunch could have been avoided. The resulting recession could therefore have been much less severe. We find it inconceivable that using our approach and independent market research (which would have picked up on affordability issues, for example), such risks would not have been picked up and acted upon. For us, therefore, what happened was a failure both of corporate governance and of strategic management.
In the current economic climate, whatever the size of your business or organisation, the importance of strategic management is particularly great. To avoid drifting into an iceberg flow, or if already there, to plan a way out and minimise the risk of actually hitting one, you need the visibility good strategic planning gives you. You may will suffer the same fate as the Titanic, but you stand a much better chance with it. And that you owe to ALL your stakeholders, so consider strategic management as vitally important to good corporate governance too.
This is the third in our series on Best Corporate Governance Practice – the Golden Rules of corporate governance:
Rule 1: Importance of Business Ethics
Rule 2: Towards a Common Goal – Align Business Goals
Rule 3: The Importance of Strategic Management
Rule 4: Organisational Effectiveness for Good Corporate Governance
Rule 5: The Importance of Corporate Communication