GOOD GOVERNANCE IS NOT ENOUGH - GOOD STRATEGIES ARE ESSENTIAL
The damage caused by excessive pressures for narrow compliance with governance codes.
Two important pieces of research reveal how the pressures from investors and regulators for ever-tighter governance compliance is not safeguarding the interests of shareholders, but destroying value.
This apparent paradox is rooted in the fact that most value is destroyed by bad strategies and inept management, not a lack of probity. The scandals of Enron, Tyco and Worldcom are totally insignificant beside the value destroyed by poor strategic management.
The results of a research project led by Dr. John Roberts of the Judge Institute, Cambridge University and Don Young reveal in detail the negative effects of investor-driven governance on the strategic role of UK boards and an investigation by Booz Allen Hamilton reveals that nearly 90% of value destruction is caused by poor strategic management, not poor governance.
Said the Booz Allen report: Consider the 360 worst laggards (of 1200 firms with market capitalisations of more than $1 billion; between 1999 and 2003). Eighty-seven percent of the value lost by these firms was attributable to strategic mis-steps - management ineffectiveness in reacting to competitive pressures or forecasting customer demand - and operational blunders, such as cost overruns and M&A integration problems
Only 13 percent of the value destruction was caused by regulatory compliance failures or was the result of poor audit of company operations by corporate boards.
Still, the media went for headlines on compliance debacles......
The Roberts/Young study neatly complements Booz Allen by examining in detail how boards can create and destroy value and clearly defines the characteristics of high-performing boards. Their report has been sponsored by The Performance and Reward Centre and was released in mid-November 2005. Material available by contacting PARC at:
Click on the link below to access the Booz Allen research:
http://www.strategy-business.com/resiliencereport/resilience/rr00014?pg=all
