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Governance and
Business Strategy
Saturday 25 April 2015
CIMA Conference: Essential management
accounting tools
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Has anything changed?…
“… the principal deficiencies in boards related much more to patterns of behaviour than to organisations. The sequence in board discussion on major issues should be: presentation by the executive, a disciplined process of challenge, decision on the policy or strategy to be adopted and then full empowerment… The essential “challenge” step in the sequence appears to have been missed in many board situations and needs to be unequivocally clearly recognised and embedded for the future...”
David Walker, UK Banking Review Chairman, November 2009
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Introductions
Louis CooperNon-Executive Directors’
Association
p: 07899 062125
• Corporate Governance
• Risk Management
• Compliance
• Assurance
• Strategy
• Business Reporting
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Agenda
APPROACH
• Your understanding
• Review of the overall concept
• CIMA Essential Tools
• Other standards and approaches
• Practical examples and case studies
TOPICS
1. Governance
2. Business Strategy
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1. Governance
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Governance and YOU…
1. What does it mean?
2. What is all the fuss about?
3. What is YOUR role in Governance?
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Corporate Governance in action
Board of
Directors
& Committees
Monitoring
Enterprise
Risk
Management
Disclosure &
Transparency
Business
Practices
& Ethics
Legal &
Regulatory
Communication
& Trust
But what is the missing link?... STRATEGY
©2015 Non-Executive Directors’ Association
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“Corporate governance… is the system by which
organisations are directed and controlled. It provides a
structure through which the organisation’s objectives are
set, as well as a basis of attaining those objectives and
monitoring performance.”
Key issues:
• Compliance vs. Performance focus
• Establishing a robust framework
• Understanding stakeholder needs
The meaning of corporate governance?
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Objectives of corporate governance
• The objectives of corporate governance should be to ensure that:
o the directors act in the best interests of the shareholders (and not in their own self-interest)
o the board provides suitable strategic leadership
o there is proper accountability of the directors to the shareholders, and a constructive relationship between the directors and shareholders
• To achieve these objectives, there must be principles, guidance or rules for companies to follow.
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The Good… the Bad… and the Ugly…
Problems
• Most issues seen in large public companies, where the separation of ownership and control is a major problem.
• History of corporate failures due largely or entirely to bad corporate governance + Misleading financial reporting
• A particular problem has been the domination of companies by an all-powerful CEO/chairman e.g. Maxwell and the Daily Mirror
Benefits• Better stakeholder relations• Enhanced reputation• Good communication• Better risk management • Market confidence from positive messages• More investor support when ‘non-compliant’ or when problems arise
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CIMA: Governance for Performance
Corporate governance practice must not losesight of its underlying purpose – the long-term sustainable success of the organisation.
The primary role of the board is to approve, oversee and determine:• short and long-term strategy• an effective business model• risk appetite.
Particular areas of focus where organisations andtheir boards need to focus are:• strategy and risk oversight• boardroom behaviours• the relationship between the board and
management.Frameworks and tools include the CIMA Strategic Scorecard®, the board mandate and the COSO Enterprise Risk Management Framework.
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CIMA: Enterprise Governance Framework
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CIMA: Boardroom Leadership Model
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CIMA: Further reading
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Governance in the UK and Ireland
• Listed companies need to make a statement about: (a) how they have adopted the UK Corporate Governance Code (updated Combined Code) ‘Principles’; and (b) comply with detailed Provisions, giving reasons for non-compliance - “comply or explain”
• The Code has been ‘adapted’ for a range of sectors – Private companies, NHS, Charities, Local Govt.
• Focus on ‘Guidance and best practice’, although some recent ‘regulation’ under the UK Listing Rules and CA 2006
• Compliance driven by the markets and to date no individual penalties….. the key driver is flexibility
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The UK Corporate Governance Code - updated 2010-12
SECTION PRINCIPLES PROVISIONS
A. Leadership [New] A.1 The role of the Board
A.2 Division of responsibilities
A.3 The Chairman [New]
A.4 Non-Executive Directors [New]
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1
1
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B. Effectiveness [New] B.1 The Composition of the Board
B.2 Appointments to the Board
B.3 Commitment [New]
B.4 Development
B.5 Information and support
B.6 Evaluation
B.7 Re-election
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4
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2
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3
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C. Accountability C.1 Corporate Reporting
C.2 Risk Management and Internal Control
C.3 Audit Committee and Auditors
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2
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D. Remuneration D.1 The level and make-up of Remuneration
D.2 Procedure
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E. Communication E.1 Dialogue with Shareholders
E.2 Constructive Use of AGM
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4
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Schedules A. Provisions on the design of performance related remuneration
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UK Corporate Governance Code 2014 (updated)
Main changes (September 2014)
• Going concern, risk management and internal control (C1 and C2)o Going concern basis of accountingo Principal risks - how managed and mitigatedo Solvency and liquidity riskso Disclosures in Strategic Report = ‘safe harbour’
• Remuneration (D1 and D2)o Policies for long-term success of companyo Recovery or withhold variable pay
• Shareholder engagement (E2)
• ‘Tone from the Top’ – culture and values
• Board diversity
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Quoted Companies Alliance (‘QCA’) 2013 Code
Growth in the long term1. Vision and strategy2. Risk management and internal control3. Corporate communication4. Needs of shareholders5. Stakeholders and social responsibilities6. Cost effective + added value
Flexible, efficient and effective framework7. Developed structures and processes8. Responsible and accountable9. Balance on the board10. Board skills and capabilities11. Board performance12. Information and support
http://www.theqca.com/shop/guides/
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Annual Report
Getting the basics right
A single story
How money is made
What worries the
board
Consistency Clarity
Summarise
Explain change
Cut the clutter
True and fair
The Strategic Report
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New Guides
http://www.oecd.org/daf/ca/Corporate-Governance-
Factbook.pdf.
CG structures summarised for over 40 countries
https://www.icsa.org.uk/assets/files/free-guidance-
notes/contents-list-for-the-annual-report-of-a-uk-
company.pdf.
Provides an indicative framework – for all companies
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Case study examples (1)
Corporate PLCs
NEDs and Committees
Risk management
Big 4 Auditors
Accounts = ‘War & Peace’
Corporate Private
Exec. Vs. NED
Regulators
Business Advisors
Vision and IP
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Case study examples (2)
Charity / NfP
Trustees and Committees
Risk management
Internal audit
The Charity Commission
Public Sector
Stakeholders and the board
HM Treasury guidance
Framework agreements
Annual Governance Statement
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A Practical Governance Framework
Culture, capability and ethics
Board procedures and oversight
Cleardirection
Assurance and audit provision
Internal control and risk management
Structures, policies and procedures
Compliance and investor relations
Information flow and reporting routines
Embedded workingpractices
Objective judgement
Independent review
1Leadership, strategy and guidance
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Business objectives
Annual disclosure
Stakeholder confidence
©2015 Non-Executive Directors’ Association
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2. Business Strategy
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Business strategy and YOU…
1. What does it mean?
2. Do you have to have one?
3. What is YOUR role in Strategy?
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Business Strategy
A Definition of Business Strategy
‘Business Strategy’ is a long term plan of action designed to achieve a particular goal or set of goals or objectives.
Strategy is management's game plan for strengthening the performance of the enterprise. It states how business should be conducted to achieve the desired goals - without a strategy management has no ‘roadmap’ to guide them.
Creating a business strategy is a core management activity. However, having a good strategy and executing the strategy well, does not guarantee success. Organisations can face unforeseen circumstances and adverse conditions through no fault of their own.
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Deliberate or Emergent?...
The deliberate strategy is analytical and structured - Vision Statement, Mission Statements, Strengths and Weaknesses (SWOT), Objectives etc.
On the other hand, the emergent strategy, as the name suggests occurs by chance or happens within the organisation without any long term planning. It occurs from the day to day decisions made to run the company at the tactical and routine level of the company.
“I dream… I test my dreams against my beliefs…
I dare to take risks… and I execute my vision
to make those dreams come through.”
Walt Disney
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Strategic Frameworks
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The Strategy Process
Corporate Appraisal
External analysis
Vision & Mission
Strategic Objectives
Strategy Implementation
Internal analysis
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Tools of the trade?…
PESTEL Analysis
SWOTAnalysis
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Stakeholder mapping
A
Minimal
Effort
B
Keep
Informed
C
Keep
Satisfied
D
Key
Players
Level of Interest
Power
High
High
Low
Low
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Critical success factors
CSFs are product features valued by customers where the business will (and must) outperform its rivals.
A business must develop Core Competencies which
enable it to have satisfy its customers requirements for its CSFs.
It should use key performance indicators (KPIs) to
measure its core competences
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CIMA: Strategic Framework ® Model
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CIMA: The “Balanced Scorecard”
Kaplan and Norton:1992
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CIMA: Strategic Mapping Tool
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CIMA: Management Accounting and Strategy
New CIMA ReportMarch 2015
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Forecasts vs. Uncertainties
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Strategy and ‘Futures’
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Case study example
Background
City Institution
Commercial vs. Charity
Execs. + NEDs + SMT
Committee structure
The Strategic Plan
4 Strategic Groups = 30+ meetings
Mission, Values, Culture
SWOT Analysis
Balanced Scorecard and Priorities
Business Planning
Make a difference / game changer?
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Turning a strategy into action
1. Start with the right frame of mind
2. Think about implementation
3. Involve and communicate
4. Pare down to essentials
5. Spend – invest in resources
6. Keep it simple
7. Measure success
8. Don’t panic… be disciplined
9. Be flexible and adapt
10. Persist and learn from mistakes
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Conclusion
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The role of ‘Finance’ is changing
EFFICIENCY INFORMATION INFLUENCE
DATA REPORTS ANALYSIS INSIGHT INFLUENCE IMPACT
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Finance professionals may play different roles in the ‘governance’ supply chain, for example:• Non-executive directors.
• CFO – either as an executive member of the board (for example, this is common in the UK) or a member of the executive management team with responsibility for briefing and advising the board.
The role of finance is so crucial to the board’s decision-making that finance professionals throughout the organisation, with responsibility for providing management information to support decision-making, will find themselves supporting the governance process.
Role of the Financial Professional
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NEDA: Who we are and what we do
A Handbook and guide to performing the NED role Training and education through courses and
seminars (Certificate linked to on-line test) Knowledge, news and technical updates Insurance cover (D&O) and risk management
advice Recruitment support for both the individual and
company Networking opportunities at regular events Mentoring and coaching with access to
experienced professionals Partner organisations…..
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THANK YOU
Louis Cooper
Non-Executive Directors’ Association
p: 07899 062125
©CIMA
