Enterprise Governance Framework
The CIMA Strategic Scorecard™ was developed in response to the key findings that emerged from a project led by the International Federation of Accountants (IFAC) and CIMA to develop the framework of enterprise governance.
Enterprise governance defined
‘The set of responsibilities and practices exercised by the board and executive management with the goal of providing strategic direction, ensuring that objectives are achieved, ascertaining that risks are managed appropriately and verifying that the organisation’s resources are used responsibly.’ (IFAC/CIMA, 2004)
The key point to note about the framework is that enterprise governance encapsulates two dimensions of corporate governance processes i.e. conformance and performance that need to be kept in balance.
The conformance dimension covers issues such as board structures and roles as well as executive remuneration. Codes and/or standards can generally address this dimension with compliance being subject to assurance/audit.
The performance dimension centres on strategy and value creation. The focus is on helping the board to make strategic decisions, understand its appetite for risk and the key drivers of performance. This dimension does not lend itself easily to a regime of standards and audit.
Instead, it is desirable to develop a range of best practice tools and techniques, such as the CIMA Strategic Scorecard™, that can be applied intelligently within different types of organisations.
At the heart of the framework is the argument that good corporate governance can help to prevent failure, but it does not guarantee good business performance. As we have already seen, corporate failures led to significant efforts to reform the corporate governance side of the equation in the early 2000s, but, until more recently, there has not been as much attention on the performance side in terms of strategic decision making and implementation.What we are now seeing is that the pendulum is swinging back to a more healthy position. The enterprise governance framework helps us to understand the importance of both conformance and performance to the organisation’s long-term success.
The need for checks and balances
Another point to note – and one of particular relevance – is that both conformance and performance require robust board oversight mechanisms to ensure that each is working effectively.
Another point to note – and one of particular relevance – is that both conformance and performance require robust board oversight mechanisms to ensure that each is working effectively.
In the case of the conformance dimension, there are well-established oversight mechanisms for the board to ensure that good corporate governance processes are effective e.g. committees composed mainly or wholly of independent non-executive directors and, in particular, the audit committee or its equivalent in countries where the two-tier board system is the norm. Other committees are typically the nominations committee and the remuneration committee.
However, while it is true that strategy is the responsibility of the full board, there are no dedicated oversight mechanisms comparable to the audit committee. In other words, while issues such as remuneration and financial reporting are subject to particular scrutiny by a specialist board committee of independent non-executive directors and referred back to the full board, the crucial area of strategy does not receive the same dedicated attention. So there is an oversight gap in respect of strategy.
‘While most boards have processes for dealing with traditional audit and compensation issues because of the committees established for those purposes, they also need well-designed processes for engaging in strategy development ...’ (Carter and Lorsch, 2004).
One way of dealing with this would be to establish a strategy committee of similar status to the other board committees. However, this might put at risk the fundamental tenet that the board must take collective decisions on matters of strategy.
An alternative – and the one we propose here – is to use a pragmatic and flexible tool that helps directors to exercise effective oversight of the organisation’s strategic position and progress. This tool is the CIMA Strategic Scorecard™.