Role of Corporate Governance in Strategy Implementation

 Corporate governance is the term for the system of rules, practices and expectations that determines how the company is directed and controlled. The board of directors is responsible for the governance of the business and thus is responsible for building a framework within which it will operate to ensure the needs of the stakeholders are being met.

Corporate governance structure is necessary to resolve any conflicts of interest or conflicting desires among the different stakeholders in the business. For example, shareholders are interested in profit, whereas upper management may prefer to reinvest revenue into the company to improve efficiency, working conditions or salary schedules.

Alternatively, executive management may prefer to make decisions in their own interest rather than the company’s interest. Shareholders need a way to check this kind of activity to keep the company’s business on track. The corporate governance document would detail the process the company will use to align the interests of executive management with the shareholders to obtain a workable compromise.

Corporate governance strategies are often developed by the board of directors, involving the shareholders and executive management as necessary to ensure buy-in. Together, the company’s operations policies are determined, and measures are put in place for conflict resolution in cases where major stakeholders might disagree. The corporate governance framework should also ensure that all business decisions are made ethically and as required by regulations and laws. These rules and policies are also meant to increase transparency and accountability within the company’s leadership structure to ensure ethical business operations by all parties.

The main principles associated with Board Leadership and Company Purpose are:

• The board should establish the company’s purpose, values and strategy, and satisfy itself that these and its culture are aligned. All directors must act with integrity, lead by example and promote the desired culture.
• The board should ensure that the necessary resources are in place for the company to meet its objectives and measure performance against them. The board should also establish a framework of prudent and effective controls, which enable risk to be assessed and managed.

Top management consist of the top-level executives of the organisation who takes the whole responsibility of the organization. The top-level management designs/ formulates various policies and strategies for the effectiveness of the organisation. It also defines the mission, vision, goals and objective of the organisation which frames the direction of operation to the entire enterprise. Top level management includes highest ranking executives like CEO, CFO, VP, MD, COO, President etc

CG provides the framework in which to establish the strategic objectives of the company and the means to attain and monitor those objectives. To start with, a corporate governance framework should protect owners‘ rights. It ends with the availability of transparent and relevant information concerning the corporation on a timely and regular basis. One of the most important roles of corporate governance is to ensure that strategic decisions are made in the interest of those with a stakeholder in successful outcomes. Boards have increasingly become more focused on corporate shareholders, but a shift may be beginning to occur. The interests of stakeholders, such as customers, potential customers and non-customers impacted by the decisions of a company, may begin to get attention as corporate governance plays an increasingly strategic role.

External Stakeholders

Recognizing your external stakeholders is an important part of the governance model in strategic management. External stakeholders include customers, suppliers, vendors and the community – all of those people who fall outside the internal workings of your business.

Strategically managing your relationships with external stakeholders is essential because these people place high value on a business' ability to offer high quality and fairly priced products and services. The old adage to "keep your customers happy and they'll keep coming back" is a wise approach to managing stakeholder expectations.

Internal Stakeholders

On the flip side, a business' corporate governance structure must also incorporate a focus on its internal stakeholders. These are the individuals within the business that have a direct impact on its daily operations, such as employees, the Board of Directors and the management.

Building strategic relationships with these people is important for ensuring the long-term success of the business including its profitability. The key is to keep your internal stakeholders informed and motivated; they should want the business to be the best it can be and they should always have the external stakeholders' interests in mind.

Accountability of Stakeholders

Once a business has clearly defined and recognized its internal and external stakeholders, the corporate governance structure can proceed to provide accountability plans for these stakeholder groups, according to Management Study Guide. Accountability is about managing obligations of the individual stakeholders and of the business as a whole.

Not only must your business be responsiblefor its financial matters, but also for following the law, for disclosing the results of business matters to key stakeholders and for keeping your practices transparent and ethical.

Planning teams and boards of directors focus primarily on developing strategy and less on actually implementing it. By means of a strategy implementation scorecard, they can identify desired outcomes or measures that become part of the firm's formal strategic plan. Considering such measures during the planning stage not only relates individual and department performance to strategy implementation, it also gives the board a more clearly defined role in strategy.