Specific Problems with Organization and Management Methods

Seeking Good Corporate Governance by strengthening Bad Governance

We cannot enable good corporate governance by strengthening the methods that produce bad corporate governance.

By: Harry Greene

Corporate governance problems arise because conventional methods do not organize, manage, and report the corporation business. Instead, the corporation is managed by laying contrived organization, strategy, business process, performance management, accounting, administration, and information system structures over the business, and reporting on contrived departments, objectives, stations, activities, objects, etc. We do not have one fundamentally correct way to organize and manage the business that everyone accepts and follows. So, we contrived a myriad of different structures that are used for corporate management and a myriad of different ways any corporation can be presented. We govern by enforcing rules and regulations, because we cannot directly organize, plan, manage, and report the business.

R-pM organizes the business for good Corporate Governance

Result-performance Management (R-pM) is the only way to organize the corporate business and enable good corporate governance. R-pM organizes business results produced and capital solutions utilized in performance in one integrated business organization structure. R-pM plans and reports strategic results produced and capital solutions utilized in operations and development by defined time periods to the strategic horizon. R-pM manages enterprises such as suppliers for input results, solution providers for external or outsourced solutions, and customers for utilization of final output results.

That is all that needs to be managed for transparent corporate management and good governance. All other contrived entities obscure the business and report misleading information not produced by the business.

20th century structures do not protect corporate investors

20th century management structures laid over the business prevent good management and governance. Overlaid structures do nothing to protect the interest of investors, shareholders, and stakeholders. They do not even allow the best-intentioned corporation to adequately analyze and plan investments and to manage the return on their own investments. Corporations are forced to either spend or speculate with investment funds.

Financial management and accounting administer cash and accruals

Financial management and accounting are separated out to focus on cash and accruals. The focus on cash and accruals means that the bulk of our capital of greater worth is neglected and not managed for utilization, cost generation, or value creation. Much is labeled "intangible", rather than being professionally managed. So, we know the book assets are not the true assets of the corporation.

Accounts can be defined and redefined in different ways. A contrived chart of accounts is laid over the business, instead of accurately recording business activity. Accountants follow rules and limit what they will record, instead of professionally recording the business. It is very difficult to understand what is presented in statutory reports beyond taking what is shown at face value.

We account and report from the point we receive money until the point we spend or invest the money. Good corporate governance also requires financial records solutions from the dark side of accounting, from the point we spend or invest money until the point we have created something of value to receive money.

Internal and external audit sees that rules are followed

Internal audit, generally, has settled into a routine of seeing that certain rules are being followed, without understanding anything of deeper significance. Recent cases have demonstrated the reliability of external auditors to ensure good corporate governance.

Corporate Governance cannot be solved from the Governance side

Recent exposures have focused attention on the problem. We now see that financial institution executives gave themselves bonuses that were far in excess of past result value-added produced directly by their performance, which should control all human personnel capital reward. Experts write about the measures that are being taken to strengthen accounting, audit practices, and compliance reporting to solve the problem once and for all. Every time corporate malpractices are disclosed, the experts strengthen the methods that produce the malpractices.

We always try to solve the corporate governance problem from the governance side. We can strengthen the methods we use and even sink billions of dollars of shareholder funds into modifying processes and systems for reporting compliance. All we can do is address the symptoms of problems. We can never solve the problems.

Corporate Governance must be solved from the Corporate side

The only way to gain good corporate governance is to solve the problem from the corporate side. We need to simplify our 21st century corporations by clearing away contrived structures. We need to organize and manage the business using the one right way that is easy to understand. We need the proper metrics and a frame of reference to know what is going on, so we can manage substance in addition to enforcing rules. We need to accurately report the actual business, and discontinue contrived reports that do not accurately report the business.

R-pM manages the business for good Corporate Governance

The solution needed for good corporate governance is provided by Result-performance Management (R-pM), to organize the business for 21st Century Management.

Every corporation business is defined by only three entities:

  • Results: The specific economic outputs of value and quality that management and the board want produced by the business
  • Capital Solutions: The specific capital of worth the corporation invests in and must utilize to produce specific results
  • Performance Domains: Capital solutions implemented to produce specific results to incur costs and provide effectiveness in performance

R-pM organizes business results, capital solutions, and performance as one integrated business structure for all management. The business structure shows specific capital solutions that are utilized to produce specific results. All corporate costs, including executive compensation and external contracts, must be charged against the value created in approved results.

R-pM manages the corporation business in three dimensions:

  • Result: Manage economic output to create value and maximize revenues
  • Performance: Manage invested capital to control costs and gain returns
  • Management: Manage by time period to develop capital and execute the strategy

R-pM measures and records business data not recorded today for performance costs, result value, result value-added, and capital worth. R-pM manages facility records capital to provide integrated financial and non-financial records and reports on planned and actual capital consumed in performance and value-quality created in results.

R-pM reports and manages specific performance costs, effectiveness, utilization, and expectations against specific result value, quality, volume, and goals, as needed, to enable management to optimize the business.

Good corporate governance ensures creation of strategic value in the strategic business structure

The enterprise strategy is defined by a strategic business structure that shows the result value to be created and costs of performance to produce approved strategic results. Result goals and performance expectations are planned time period by period to the strategic horizon. Capital development projects are planned to add planned value to strategic results through the cost of developing specific capital solutions needed. The return on investment is managed by measuring actual result value created less performance costs of solutions utilized to give result value added compared to projected result value-added with no development..

Corporate governance oversees the transition period by period from result value-added in the current business structure to the approved and latest estimated result value-added in the strategic business structure. Any change in strategy and planned strategic result value requires a new and approved strategic business structure.

Govern the corporation through transparent Corporate Management

R-pM enables good corporate governance through 21st Century Management of the corporate business. Following are some principles employed in R-pM to aid corporate governance:

  • Organize corporations based on results produced across the complete corporation: not just products, sales, revenues, etc.
  • Define results and the means to understand the value of results between what the corporation pays for input results and what the customer pays for final results
  • Organize and manage the capital solutions utilized to produce results to capture performance costs to determine result value-added
  • Manage the relationships among results produced to define value-quality chains to reach the final products, services, revenues, and profits
  • Set a clear strategy for improving the value and quality of existing results and producing valuable new results to create customer and shareholder value
  • Establish performance management responsibility for providing qualified cost-effective capital solutions to meet expectations and produce results
  • Establish separate result management responsibility for utilizing capital solutions to produce result value and quality and reach goals
  • Establish time periods for planning and reporting within the approved strategy with the result goals and performance expectations that carry out the strategy
  • Organize capital, including financial supply, utilized to produce results into categories so that it can be managed professionally
  • Manage the utilization and costs of all tangible and intangible capital solutions to produce value in results
  • Justify all investments in new capital as specific solutions by the value to be added to the specific results that will utilize the solution
  • Manage capital development to develop valuable new capital solutions as project results to know the investment in each solution
  • Utilize new capital solutions in operation to add planned result value to provide the benefits and return
  • Manage the performance cost of all capital consumed, including executive compensation and external contracts, against the value created in the results produced to manage result value-added across the business
  • Manage the return on capital solution investments in the attributed result value-added produced by the solution
  • Manage capital solution worth in the future attributed result value-added over the remaining solution life plus the current result value in the disposal of the solution
  • Set up stakeholder and shareholder value as managed results with tracking by period against goals and estimates
  • Establish professional facility records management based on accurate and comprehensive official records including all metrics, qualitative measures, and documentation of results and performance
  • Expand the financial records sub-set from cash and accruals to provide governance solutions on result value and evaluations, performance costs and assessments, result-performance value-added, capital worth, strategic estimates, etc
  • Professionally manage all capital for costs incurred and value created, incorporating financial management for cash and accruals, within the appropriate category of capital
  • Establish tactical management results to evaluate results, assess performance, optimize results and performance, anticipate and report result symptoms and performance problems, and recommend management actions
  • Assess the worth of the corporation business in terms of the capability to produce results of value over future periods

We can never enable good corporate governance until we organize the business to utilize capital in performance to produce value in results, and govern by time period to create strategic result value. We also need to revisit all of the rules and regulations that dictate arbitrary compliance and prevent good corporate governance.

Use R-pM for transparent management and good Corporate Governance

We can prevent malpractices and achieve good corporate governance by employing R-pM for 21st Century Corporate Management, to manage the substance of cost-effective performance producing value-quality results period by period on the planned and approved road to strategic value creation.