Enterprise Governance Methods

Enterprise governance is defined as the set of practices and responsibilities by board and executive management encompassing strategic direction, risk management, achievement of objectives and responsible usage of organizational resources (CIMA & IFA, 2004). International Federation of Accountants (IFA) and Chartered Institute of Management Accountants (CIMA) tested the framework of enterprise governance using 27 case studies, from 10 countries: Australia, France, Hong Kong, Malaysia, Thailand, the Netherlands, the United Kingdom, Canada, Italy, and the United States. Industries covered were retailing, energy, manufacturing, telecommunication, and financial services. Out of 27 case studies, 11 were successes and 16 were failures. Key issues observed from corporate governance perspective were ethics/culture at the top, Chief Executive Officer (CEO), Board of directors, internal control/compliance/risk management, and aggressive earnings management (CIMA & IFA, 2004).

Poor examples exhibited by executives, failure to maintain high ethical standards, secrecy culture, fraudulent behavior and rule breaking lead to prevalent bad culture and ethics at the top echelon thus lead to failure (CIMA & IFA, 2004). Enron and WorldCom are the prime examples of catastrophic failure of enterprise governance due to ethical and culture failure at the top. Chief executives with unchallenged influence and authority over board and other senior executives caused failures of companies. CEOs of Worldcom and Vivendi are examples of bad leadership contributed towards the failure of their respective companies. Weak board of directors with less influence on CEOs lead to failures of Cable & Wireless, which started from failed acquisition strategy (CIMA & IFA, 2004). For example, board of Marks and Spencer failed to split the role of Chairman and CEO by grooming internal candidate lead to failure. Absence of strong internal controls, compliance and risk management lead to failure of Enron where serious accounting irregularities were found as well as inexperienced managers were given too much power with limited oversight to gauge their performance. Aggressive earnings managements at Xerox, Worldcom and Enron lead to fraudulent accounting activities when goals were not met. On the other hand, corporate success was led by positive culture at the top, effective CEO, board of directors and internal controls/compliance/risk management. Southwest airline is a good example of corporate success stemmed from positive culture at the very fabric of company (CIMA & IFA, 2004). Financial success of Southwest airline is owing to its dedication to low-fare, point-to-point airline, using same type of aircrafts to simplify maintenance and training. Key areas influencing the strategic success are right and clear strategy, effective execution plan, responsiveness to changing conditions and effective risk management (CIMA & IFA, 2004).

References:

Chartered Institute of Management & International Federation of Accountants (2004). Enterprise Governance – Getting the right balance. Retrieved from https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=2ahUKEwiRp6SBjK7iAhXyKDQIHXm9D6IQFjAAegQIBBAC&url=https%3A%2F%2Fwww.cimaglobal.com%2FDocuments%2FResearch%2520and%2520Insight%2F2010-06-24-tech_execrep_enterprise_governance_getting_the_balance_right_feb_2004.pdf&usg=AOvVaw0QAIg2K3JyMldgjJMgRxVh