Strategic Control the Relevance

of Corporate Governance
• Strategy consists of three parts- Planning,
Implementation and Control
• Control is the process of ensuring that plans
are actually achieved
• Implementation requires understanding of
the three levers viz. Context, Systems and
Action.
 Context Levers

• These have to do with the various forms of

formal and informal organization
• Formal options depend on the size and
complexity of an organization and with its
stage of evolution
• These could be simple, functional,
divisional and matrix forms
• Each has its advantages and disadvantages
 Informal groups
• It is well known that informal groups can be very
effective in solving specific problems
• Equally importantly informal groups play an
important role in sharing, bonding and evolving
and sustaining orgnl. Culture
• However informal grouping betray a lack of
systems and are less accountable in the long run
e.g. task forces at Tata Motors
• Also group biases tend to vitiate the overall orgnl.
performance
 Systems Levers
• Systems can be seen as entities comprised by
resources and activities which when integrated
create optimum results for a firm
• Systems should be seen as a continuum of
objectives, outputs, inputs and processes
• We must accept that for optimum systems,
objectives should be clear, outputs properly
specified
• Relevant and adequate inputs to be ensured. If this
is done the process would be automatic and
optimal e.g. Vendor Payment Process, Inventory
Management
 Systems Implementation
• Strategic planning should start with long term
objective e.g. Market share leadership in 5 years
• Key result areas(KRAs) should be established for
Marketing, sales, Manufacturing
• Targets to be set I.e. what, how in specific time
frame
• Targets to be broken down into action plans(who
does what when or by when)
• Objectives should have time frame min. 3 years,
Targets max. 1 year, action plans monthly, weekly
even daily
 Strategic Control
• This is the process of ensuring that strategic plans
are actually achieved.
• Levers provide the tools, enablers for ensuring this
• Regular, systematic monitoring and correction,
modification ensures that action plans, targets and
objectives are progressively achieved in that
sequence
• Resource enhancement, allocation is part of the
process e.g. Timex market share enhancement
• How key functions Marketing, Sales, after sales
and manufacturing played their part
 Reporting and Review
• Actual performance should be reported in regular
and systematic manner
• Review should be regular and periodicity to be
specified depending on review level
• Top management priority to be on objectives,
goals and targets in that order
• Senior/Middle management priority on action
plans. Exception based logic to be followed-Titan
experience and how Timex learned from it
 Corporate Governance

• Definition: Corporate Governance deals with laws,

procedures, practices and implicit rule
• These determine a company’s ability to take
managerial decisions viz. a viz. its claimants
• Claimants are stakeholders viz. shareholders,
customers, employees, vendors, creditors,
regulators, associates, and the larger societal
group
 Objective of C.G.
• General consensus that good C.G. should be
aimed at maximizing long term shareholder’s
value(s.v.)
• Justification: maximizing s.v. would maximize
corporate prosperity and enable the firm to meet
other stakeholder claims
• In reality, total focus is on protecting shareholder
rights to the neglect of other shareholders
 Corporate Governance
Codes/conventions/laws
• United States Sarbanes Oxley Act- legislation
• In U.K. Cadbury Code- convention
• In India two sources CII code 1998 and SEBI code
1999 resulted in formal adoption into SEBI rules
through clause 49
• Clause 49 covers compliance requirements on
C.G. for listed companies and those seeking listing
 Coverage of C.G. (SEBI)
• Board composition, min. no. of meetings, min. no.
of independent directors, max. no. of directorships
per person, audit committees, addressing director
and senior management remuneration
• Public disclosure of key information including,
operating plans, budgets, manpower and overhead
budgets
• Disclosures also include interest of Directors in
other companies including stakeholder ventures
like vendors
Evaluation of Current C.G. codes
• Without exception all codes, conventions
and acts put huge priority on the
shareholder interests and pay lip service to
other stakeholder groups
• Result is that true C.G. has not been
adequately implemented
• What is required is an objective review and
going back to basics
 How to make C.G. truly
workable
• We must understand who a true stakeholder is viz.
one with long term interest and long term
commitment e.g. short term shareholder, employee
and vendor
• Each stakeholder group has distinct expectations
e.g. employees, vendors
• The most important stakeholder who starts with
neither interest nor commitment. His interest and
commitment must be earned
 How to make C.G. truly
workable
• The rightful expectations of each stakeholder
group, to be understood, accepted and built into
plans and targets to be met
• The shareholder is the residual claimant. Only if
and after all other claimants expectations are met
can a firm meet the shareholder expectations
optimally. Not any other way.
• If all other claimants expectations are met
including the customer, firm will maximize profits
and Return to Shareholder
 How to make C.G. truly
workable
• Based on vision statement and environmental
analysis the strategic plan should be developed
• Make sure that every stakeholder groups
expectations feature in the plan
• Apply the implementation and control logic
described earlier
• Use benchmarking to ensure you are ahead of the
competition
 An illustration –The Timex
Experience
• I highlight three areas viz. Vendors, Regulators
and Customers
• At that time C.G. as a formal framework was not
available. We used simple strategic thinking, an
ethical approach and huge sense of purpose
• Results were outstanding stakeholder satisfaction
with direct benefit to the company
 Conclusion
• Strategy and Business ethics(which C.G. primarily
addresses) are two sides of the Corporate coin
• Far from being mutually incompatible, they can be
considered two ways of looking at and ensuring
business success(long term profit maximization)
• This needs to be developed into a central
management paradigm for current and future
managers in all areas and forms of business