0:01
Big picture, we've been talking about strategy execution.
But what I want to spend a few moments discussing at this point
is this idea of strategy and governance.
And so you might think about a couple questions like,
what is corporate governance and why is it a strategic consideration?
That's what we're going to focus on here for a moment.
Now, look, a full treatment of the ideas around
corporate governance lies well beyond the scope of what we're doing here.
But what I want to do is just talk about it with you enough so
that you get a sense of why we need to think carefully about organizational
governance as it pertains to strategy, strategy formulation and execution.
So one place we might start is we might look at
the research that's being done on corporate governance.
And when we do that, what we observe is that the research that's being done there
falls into one of two camps.
There's a large body of interesting research being done by academics and
consultants and what not that focuses on
how effective governance can improve the organization's performance.
In other words,
it has to do directly with execution on the organization strategy, right?
And what we're focused on is how can we execute on that strategy more effectively?
How can we have fewer problems and that sort of thing.
But that tees up the second related body of research that focuses more directly
on how effective governance can help minimize problems in the organization,
misconduct or illegal actions or ethics issues.
And of course, again, these two things are not unrelated.
It turns out that if you're an organization that's plagued with
ethics problems and scandals and what not,
you probably aren't going to perform very well either.
So these things are of course interrelated.
But what we see from the research insights that emerge from the body of research
on governance is that effective governance can have an impact on the firm's
performance and it can also have an impact on the organization's ability to avoid
problems, misconduct-related problems, right?
So, this gives us some indication
of why governance is a strategic consideration, right?
2:10
But what is it?
What is organizational governance?
This is something you probably read about on the web or in the newspaper and
you see corporate governance, it can be in the news.
And so when an article or a when a commentator on TV talks about
this idea of organizational governance, what is it that they're talking about?
Well, there's a variety of aspects of corporate governance.
So they may be talking about governance as a system of checks and balances.
That's one way to think about governance, is that it's a set of systems,
organizational systems that involve checks and balances, and
internal controls, and that sort of thing.
I think that's absolutely true.
Governance is also really a set of processes in the organization.
It's sort of the way things are done around here, right?
So governance doesn't always have to be formal structures or
practices or checks and balances.
It can be sort of process-related.
It can involve, of course, the structure of the organization.
How are we organized, who has oversight of whom, and
what's the reporting structure and that sort of thing.
But it's more than just structure, right?
3:34
Corporate governance has to do with thinking deeply about how
to deal with external pressures.
Increasingly, in this global interconnected marketplace, organizations
can be under a lot of scrutiny and pressure from outside stakeholders,
the media and special interest groups and things like that.
And so governance can tell us something about how
to deal with those external pressures.
And of course, corporate governance can have to do with the importance of
things like trust and the culture of an organization, and
these are things that are hard to write down and codify.
But these are things that are very important in terms of how the organization
is able to proceed, how the organizational members interact and
execute on the business's strategy, right?
So I guess what I'm saying, if you zoom out a little bit,
is that governance is essentially the way we organize and
operate in order to help us accomplish our purpose.
That's what governance is all about.
So we describe it as corporate governance, so this is certainly true of businesses,
but we might think of nonprofits or other kinds of organizations that also need to
have effective governance practices.
Because again, it's the way that organization puts itself together and
operates on an ongoing basis in order to execute on its purpose and mission.
4:55
So what are the challenges associated with corporate governance?
First of all, it's important to recognize that
there are no uniform best practices to corporate governance.
This makes it very difficult to really understand
how a particular organization should approach governance,
because it's not as simple as having a check list, right?
It's not a one-size-fits-all kind of thing.
And success in terms of governance, therefore, depends on several things.
First of all, it depends on really understanding your external setting,
your context, the marketplace you're operating in, right?
So that's really important.
It's important to understand the interactions with key stakeholders.
Who's really important to your organization, and do we really understand
what those interactions are like, and what could make them better?
And success also depends, from a governance standpoint,
on really understanding and being purposeful about your processes for
strategy formulation and strategy execution.
So again, it's not one-size-fits-all,
it's not a check the box kind of thing where as long as you're doing
these five things, that means your organization will have strong governance.
It's not as easy as that, which is what makes it challenging.
But it's important, right?
I mean, corporate governance is deeply connected to organizational strategy.
And so when we think about it that way, there are several key themes that emerge,
both in the research and in the practice, as we think about governance and strategy.
First of all, this idea of long-term orientation.
It's really important for organizations to think not only about the short term,
but also about the long term.
And the way that they can position and orient themselves towards that
long-term vision can really be influenced by how the governance structures and
processes and practices are set up, right?
So long-term orientation, I think,
is something that effective governance can propel us towards.
Another thing that it can really help us think carefully about is
effective stakeholder management.
It's complicated in today's world to run an organization.
You might have all kinds of different stakeholders that are looking for
different kinds of value creation out of you.
And so well-governed organizations are able to deliver on that
value proposition to their stakeholders more effectively.
And finally, there's a focus on risk management.
Again, we need to think about risks, we need to think about our contingency plans,
and we need to be prepared for the things that could go wrong.
And a lot of governance ideas are oriented towards helping an organization do that.
So in this sense,
corporate governance is really tightly connected to strategy execution,
and especially the processes of strategy formulation and strategy implementation.
So I will encourage you to dig more deeply into
some of the ideas I've introduced here.
And there's lots of resources for
you to learn more about effective corporate governance practices, but
it's an important element of strategy execution that can't be overlooked.
Michael LenoxSenior Associate Dean and Chief Strategy Officer
Jared HarrisSamuel L. Slover Research Chair in Business Administration
Scott SnellE. Thayer Bigelow Research Professor in Business Administration
