The report by Cristiano Busco et al. uses the case of GE Oil & Gas as an example and suggests that there is a need for direct involvement of finance experts in connecting corporate governance with strategy execution. The report suggests that these can be achieved through the finance professionals actively being involved in transforming governance principles into two strategic systems, that is, strategic decision-making as well as strategic performance management systems. The outcomes obtained can be generalized throughout the GE organization not just on Oil and Gas.
Compliance isn’t sufficient for efficient governance. Rather, corporations should undertake implementation of efficient business policies as well as long-term goals which correspond to the scope of effective governance. The designed policies and goals must offer the basis via which the organization formulates objectives, the effective strategy to attain the objectives, as well as necessary guidelines that can be used to monitor performance. Moreover, the organization’s Board of Directors ought to play a more involving ole in the strategic planning rather than strategy approval as well as monitoring management behavior. Thus, Corporate governance can influence the performance of the organization since it can influence the organization’s strategic management.
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Additionally, numerous bodies involved in professional accounting have stated the necessity for a strategic perspective in corporate governance. For example, they have addressed the issue in documents such as “Enterprise Governance, Getting the Balance Right,” which CIMA and IFAC published while IFAC’s Professional Accountants did its preparation . According to the document, enterprise governance is the practices and responsibilities applied by the executive management and the board to provide a strategic route. Rules conformation is just but a single element of the broad enterprise governance. The other element entails performance whose key parameters are value creation and strategy.
The company applied in this case GE Oil & Gas, which is under the flagship of the massive multinational GE, comprises of eight companies which specialize in the availing products as well as services for the oil and gas industry. Additionally, the companies offer integrated solutions for all the industry’s sections applications ranging from consumers to wellheads.
Controllership Initiative
The Controllership Initiative of GE is the main program that its top management formulated to apply for the last decade in order to develop a culture that is dedicated to accomplishing excellent results with honesty. The regulations, as well as principles, are published for every employee in a booklet. The booklet has guidelines outlining GE’s procedures and policies encompassing performance management, ethics as well as integrity. These standards are also applied to independent contractors, consultants, and agents. The initiative is integral in the GE’s corporate governance. Furthermore, controllership principal aim is to realize enhanced financial management’s straightforwardness plus correctness. Similarly, enforcement of the accountability of the top management is another objective of controllership. Overall, the main controllership initiative’s outputs include observance of relevant rules, principles, along with organization policies, thorough performance measurement processes, communications integrity, as well as knowledge and communications sharing.
Linking Controllership with Strategy and Budgeting
The benefits associated with the Controllership Initiative include broadening of the Finance and Operations’ collaboration in comprehending risks involved as well as potential opportunities in the business. The annual business plan for GE organization entails three major phases. The first phase is the Growth Playbook (GPB). The phase commences at the corporate level characterized by senior teams and executive meetings. Its role is to assess the strategic position of the business, market trends, the company’s competitor moves, as well as the customer’s behavior. The second phase is known as Session II. It is the basis of the drafting the proceeding year’s budget in regards to the project targets in addition to estimates of sales and contribution margins. The third phase is the Operating Plan which involves a quarter-to-quarter revision of Session II that result to the New Year’s budget approval.
Furthermore, the Growth Playbook assist the management know key market trends and integrate them in the 3-4 years strategy planning. Specifically, a team comprising of divisional managers and Financial Planning and Analysis (FP&A) take part in the execution of daily Controllership operations. To observe the implementation of existing strategies as well as offer CFOs, CEOs, and the board of directors with precise facts regarding risks and opportunities of business, the FP&A depends on metrics such as contribution and operating margins, as well as cash flow and all important financial measures.
Therefore, there is a necessity to integrate governance matters today. The case study offers a snapshot of key processes linking governance with strategic decision-making and implementation. It means that linking governance to strategy diffusion of governance principles and its enactment in the daily operations should be done across the organization. Additionally, the finance organization plays an integral pivotal function, that is, be the access point for shared measurement language drawing correct financial accounting and reporting by collecting and communicating the appropriate business’ performance and make sure that its actions align with the board’s vision.
Reference
Busco, C., Frigo, M. , Giovannoni, E. , Franceschi, D., & Riccaboni, A. (2007). Linking governance to strategy: the role of the Finance Organization . Strategic Finance , 9 , 23-28.
