Govern the Corporate Business to create Strategic Value and Prevent Financial Losses

Corporate governance of the actual business is essential to prevent losses

How many billions of dollars did US corporations spend conforming to the Sarbanes-Oxley Act of 2002, and how many trillion dollars more will the current economic crisis, stock price declines, and business losses cost; before we realize that the whole approach to corporate governance is wrong? Governments are considering a new series of regulations on financial institutions and corporations that may prevent some bad practices, but will not solve the fundamental problems that caused the economic crisis. Good corporate governance is not imposed from the outside. Good corporate governance is the proper management of the business to execute the strategies and plans approved by top corporate management and stakeholders.

Corporations govern by enforcing rules, because they cannot govern the business

Corporate governance is an unsolvable 20^th century management problem that arises because corporations, financial institutions, and other enterprises do not organize and manage the business, which is defined as “investments in capital as solutions of worth utilized for costs and effectiveness of performance to produce value and quality in results”. Corporations are made up of diverse divisions, units, subsidiaries, joint ventures, and other enterprises. Organization, strategy, business process, account, activity, performance management, administrative functions, and other generally-accepted structures are laid over the business in each corporate enterprise and prevent actual business management. Overlaid structures manage contrived entities, like department, object, activity, and account; and do not capture actual business data. Since the business is not organized, the business cannot be managed or governed. The various organizations of corporate enterprises cannot be consolidated into a manageable corporate business. Since corporations cannot govern the actual business, they can only govern the corporation by enforcing policies and rules. Authorities address corporate governance through strengthened accounting, auditing, and compliance reporting rules on the governance side, because they cannot strengthen business management on the corporate side.

Eliminate contrived 20^th century structures through actual business management

We need to look at governance from the “corporate” side to eliminate today’s generally-accepted structures that are laid over the business and complicate management. We must directly organize, plan, direct, control, and report the business to simplify management. Best corporate governance practices include having a well-defined and approved strategy to create planned corporate and customer value, and clearly measuring and governing the progress time period by period against the strategy. The means to do this is actual business management, as explained further in the article that addresses the problem “Seeking Good Corporate Governance by strengthening Bad Governance“.

Corporations can govern strategic value creation by managing the business

Rule No. 6 of the Ten Rules for 21^st Century Management states Plan and govern the transition from today’s value to approved strategic value.

Business management and governance is simplified and strengthened by organizing the corporation business at all levels through only three components that define the business:

• Results: Economic outputs of value produced by business performance
• Capital Solutions: Capital investments in specific solutions of investment cost and worth available to the business to produce results
• Performance Domains: A capital solution implemented to produce a result and utilized to incur costs in business performance

Results define the outputs that the board has approved in the management strategy, to create current and future value. Capital solutions define the human and other capital acquired and developed through investments that the board has approved, to enable the enterprise to produce results. Performance is the actual utilization of specific capital solutions to incur costs and create value in specific results. Time periods are defined to set result goals, capital budgets, and performance expectations on the way to the strategic business structure at the strategic horizon.

The business changes every time management decides to produce a new result, close a finished result, or utilize a different capital solution in performance, so these entities must be managed to manage the business and business change.

Corporations are composed of divisions, business units, and subsidiary companies around the world, and each has its own enterprise business. Within each enterprise business there are projects, programs, campaigns, etc that are managed as a business to produce a result in the enterprise business structure. All the enterprise business structures within the corporation consolidate into one corporation business structure to show all results produced and capital utilized by the corporation in one transparent structure used for all business planning, direction, control, reporting, and governance. Separate business structures can be used to manage groups of businesses within the corporation by region, industry, business line, etc.

Manage and govern the corporation in three dimensions

Once the corporation is organized, the corporation business and enterprise businesses within the corporation are managed in three dimensions:

• Result: Manage all capital solutions utilized for total performance costs for each specific result of value for value-added and quality along result chains leading to customer results
• Performance: Manage the implementation and cost-effective utilization of specific capital solutions for each result that utilizes the solution
• Management: Manage and govern the business by time period to plan and converge on the strategic business structure

Result value less total performance costs is result value-added. A result manager utilizes implemented capital solutions in the result dimension to add value and achieve specific goals for each result. Results are managed result by result along chains and across the business. Performance utilizes capital solutions to consume capital, incur costs, and contribute to result value-added. A performance manager is responsible to provide and support specific solutions that meet expectations in the performance dimension.

Managing the result and performance dimensions enables the corporation to create value-quality chains, where managed results are produced in sequence by utilizing managed capital solutions in managed performance result by result. Results are managed across the business to know and manage performance costs incurred by each solution utilized to produce a result to know full result costs, to manage result value-added in the result value less result costs, manage performance effectiveness to assure result quality, manage result value-added return on investments, manage ongoing changes in capital worth, and optimize corporate operations and development. The performance costs for each type of capital solution are managed against the budget planned for the type of solution or for a specific solution. The corporate enterprise can manage all capital to maintain current capital solution and total business worth and anticipate and manage potential capital worth write-downs that produce additional performance costs.

The third dimension is the management dimension over time periods selected for corporate planning and reporting. Investment managers are designated to manage result research and capital solution development and to manage the return on implemented development investments over time periods. Top management and the Board of Directors manage change and the creation of strategic value over time, according to plans that carry out the approved strategy. The corporate enterprise is managed in the management dimension month by month to the strategic horizon to achieve return on investment goals and is governed to achieve result value-creation and reach shareholder result value goals. Corporate governance manages the period by period convergence of the current business structure on the approved strategic business structure.

Result management manages each result for all capital solutions utilized to produce the result. Performance management manages each capital solution for all the results produced by the solution. Corporate management manages each month or other time period for all results produced against goals from the utilization of capital solutions in performance during the period. Business management can be instituted by defining result and capital solution entities in existing information systems. When we organize results and capital solutions and effectively manage the result, performance, and management dimensions, we will have a well-governed corporation through 21^st century business management.

Accounting must be transformed to professional records management

There is a need to revamp accounting to account for the actual business. Business management provides professional facility records management, which keeps complete financial records on capital worth, performance costs, and result value produced, in additional to conventional actual and accrued cash. Facility records management also manages all non-financial, documentation, and imaged records on results and performance. Facility records management provides the information solutions from records capital needed for effective corporate governance.

Internal auditing is incorporated into management tactics capital to ensure that approved strategic value is being created at a reasonable cost, that capital investment returns are gained, and that expected future result value created in utilization and disposal indicate accurate capital worth.

Eventually, corporations will be forced to organize and manage the business

Most corporations have suffered in the current economic crisis. Many corporations have pointed to problems managing the diverse units that comprise the corporation. But, corporate management and governance problems continue to be “solved” by more regulations rather than solving corporate management problems.  Instead of spending money on compliance, and enduring continuing crises and losses we must organize and manage the corporate business at all levels and institute guidelines for good corporate governance of actual business operations and development. Business owners, corporate shareholders, and representatives on the board must take the lead to govern the actual business to create strategic value and prevent more financial losses.

Result-performance Management (R-pM) provides the knowledge for actual business management

Result-performance Management (R-pM) is the only source of knowledge and expertise on how to manage the actual business. Forward-looking enterprises are now using R-pM guidance to organize and manage their business to gain breakthrough advantages over competitors burdened by unsolvable 20^th century management problems. Business management is explained and documented in the Business Management Toolkit. The Toolkit provides procedures for actual business management and maintains emerging 21^st century management conventions, definitions, and standards. Management consultants who base 21^st century business management services on R-pM knowledge are licensed to help enterprises learn, organize, and manage the actual business. R-pM and business management are supported at result-performance-management.com.

The Solution to the Economic Crisis is explained in free downloads

Three free white papers explain the dead-end 20^th century management problems, such as the failure to plan, account for, and manage the actual business, that caused the economic crisis, the way to eliminate the problems, and a government program to address the crisis by stimulating the economy, solving the problems, building a structure for financial and economic management, and organizing local businesses to flourish in the eventual recovery.

• How to Eliminate Problems that caused the Economic Crisis explains the major unsolvable 20^th century management problems and the solution to eliminate the problems
• Business management; the only Solution to the Economic Crisis explains how to plan and manage the business to capture business data and provide management the information needed for actual business, corporation, industry, and economic management
• A Government Business Management Program to Answer the Economic Crisis outlines a government program to encourage business management, stimulate the economy, restore confidence, organize businesses to flourish in the recovery, and manage economic cycles to prevent future crisis

These three white paper downloads are available to R-pM Community Members at result-performance-management.com. There is no cost or obligation to join the R-pM Community. Join by entering your email address and personal password. Your email address is protected and used only for download problems, product updates, and occasional R-pM Member news and white papers.