“Management cannot control that which it cannot see.” – Robert Angelone, Ph.D.
When corporations grow, it is natural for senior management, the true decision makers, become insulated from the fundamental operation of the business. Lower level managers function and as long as they are not receiving alternative instructions, they continue on a steady path, no matter where it may lead. Reporting back to senior management diminishes and in time, leadership becomes blind to what’s actually happening within the company. Ultimately, this results in poor decision making by management and can lead to the failure of the business. Recent examples of this fill the headlines of business papers and magazines, world-wide.
In search of proper governance, we believe that the most important emerging theme is the imperative to align business strategies and communications with management’s increasingly complex needs. This theme is especially critical in five areas:
Accounting and Finance
Traditionally, financial reporting and accounting are the primary resources for data collection within companies. The Chief Financial Officer obtains the records, prepares them and presents them to the Board. While it still works this way, numbers don’t tell the true story of a condition existing within a company. What may appear sound on paper could easily have a different picture in an independent detailed report. Coordinating management reports with financial reports is a quintessential component of contemporary management.
Product and Service Sales
Consumers are faced every day with new, competitive brands, tempting them away from established favorites. When management fails to react, swiftly, through a variety of means to counter the effect of new products, it’s easy for these new brands to capture marketshare. Thus, it essential that both senior and junior management keep an eye on the marketplace and accurately report on changes or current conditions “up the chain”. To do this, one must counter the normal ‘fear’ lower level managers face of speaking up.
Many companies are already finding themselves hard pressed to manage the scale and diversity of their businesses. These strains will only intensify as institutions expand the geographies and customer segments they serve. Moreover, many existing structures are proving inadequate to the needs of enterprises whose primary assets are talented individuals. Accordingly, to meet these demands, even the best-managed companies may require different organizational approaches to decrease complexity, increase productivity, and facilitate the development and exchange of knowledge.
Companies today rely upon marketing efforts to bring their message clearly to the public, though recent news reports have shown how companies will conduct a marketing campaign that fails to match the quality of the product or service being promoted. This stems from a communication disconnect and management’s lack of direct inspection. When the disconnect is disclosed, the company’s reputation may be destroyed, and senior management takes the responsibility. Communication, independent review and analysis and direct inspection by senior management is critical to ensuring that marketing efforts succeed.
As the market evolves to become more flexible and dynamic, institutions should also reexamine their risk management practices, which currently tend to focus on risk avoidance and mitigation. In so doing, companies forgo the rewards that risk can offer. Instead, institutions should balance risk and reward under a portfolio approach, which can accommodate a variety of risk profiles while providing the opportunity to increase returns markedly.