January 1948. Mohammad Ali Jinnah had decided to be adventurous and had pushed mujaheedeens in Kashmir Valley. India had just gained independence and was under charm of Lord Mountbatten and Mahatma Gandhi. Though it is ironical in many ways but Indians were under impression that only Mahatma Gandhi’s ahimsa has proven instrumental in gaining independence. Indians had drifted away from Krishna’s discourse to Arjuna on the battlefield and battle cries of Shivaji, Maharana Pratap and Guru Gobind Singh to defend motherland and pride associated with it.
Indians deliberated for two full days for action to be taken next. Indians had smoothly played into Mohammed Ali Jinnah’s hands who has decided to push mujaheedeens on the battle and had kept Pakistan’s militia away from the battlefield. Indians looked upon it as an internal problem rather than an external aggression. In those two important days, mujaheedeens (read Pakistan) had taken full control on three fifth of Kashmir Valley.
It was only when they were barely 50 kms away from Srinagar and Baramulla was brutally raped, Indians came to senses. Army was pushed onto the battlefield and further advances were stopped. Whilst Pakistan took control of majority of Kashmir, India was able to defend strategic part of Kashmir. The situation exist as same even today.
In those two days, Indians were going by rule book. Since Pakistan militia was not involved, Indians also deliberated whether to press own Army into action. Indians were following SOPs.
It was a classic case of Performance Vs. Conformance.
Don’t we face the same dilemma everyday at our work desk.
Organizations swear by internal controls now a days. ERM and COSO are the keywords which are prevalent and relevant in today’s corporate world. Today governance has become the top agenda not only in business but also in political scenario. Entire accountability structure of organizations is being recast today to bolster corporate governance. Even with such focus, we see failures on governance all around. In all this brouhaha, quite often, due to excessive obsession, one very important dimension of governance is forgotten. This dimension is called Performance.
None of the functions in organization can succeed if it does not move in strategic direction and ensure that top line objectives of business are achieved. Conformance, which emanates out of governance, must ensure that ERM constitute the entire accountability framework of the organization.
In a mature organization, performance metrics are constituted as a dimension of Corporate Governance. This dimension focuses on strategy and value creation within the organization. This dimension will identify the risk environment in the organization and create decision making points within this risk environment.
Quite often governance is confused with an Audit regime. But when a dimension of performance metrics is added to same, this boundary dissolves. Instead the function extends itself to the process of creating best practices tools and strategic enterprise systems that can be applied at various levels of organization.
Culture and tone at top, top management and internal control environment are few key corporate governance drivers which can decide the fate of the function. Though Enron’s undoing was improper accounting and corruption, the culprit was entrepreneurial culture in the organization. The organization failed because it relentlessly promoted entrepreneurship in shocking and daring absence of usual corporate checks and balances.
In an environment of growth, organization undergoes transformational changes. Many a times, organization gets into a trap of strategic oversight . In an aggressive growth environment if incremental changes in strategy fails to match incremental transformational changes, health of underlying business may deteriorate. This is so because organization will become reactive to change and may fail to question or challenge what is happening around. Enterprise governance will then not have a mechanism to detect the oversight. This is the point of time, when the ERM environment has to strike the right balance between Performance and Conformance.
Enterprise governance framework faciliatates key management personnel in organization to balance conformance requirements with the need to deliver longterm strategic success through performance. There is no guaranteed formula for business success. However greater attention to strategic oversight through the use of tools like Scorecard, enterprise risk management will go some way towards ensuring effective conformance and performance.
At the heart of enterprise governance is the argument that good corporate governance on its own cannot make a company successful. Achieving a mix of good corporate
governance that is linked strategically with performance management will enable companies to focus on the key drivers that move their business forward. This is both a
challenge and an opportunity.