Reexamining Governance and Accountability with Management Science

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All business organizations should structure their management systems consistent with sound, scientific principles

good governance has profound implications for organizations in both the public and private sectors. The lack of it is why many business organizations have a crisis of confidence.

Speaking at the Department of Energy's Contractors' Internal Audit Directors Meeting at Sandia National Laboratories today, Gerald A. Kraines, M.D., president and CEO of The Levinson Institute, presented an innovative model for defining and auditing a business organization's governance. His talk, "Governance and Accountability" provided a powerful framework based on the significant, emerging management science called Strategic Organization.

Kraines, who is also on the faculty of Harvard Medical School, spoke about the elements of good governance and how it relates to large organizations such as Sandia National Laboratories. According to Kraines, enterprise governance is the "set of responsibilities and practices exercised by the board. Its goal is to set strategic direction, ensure that objectives are achieved, determine that risks are managed appropriately, and verify that an organization's resources are used responsibly. At issue is whether the governance entity also includes executive management or whether governance is solely the accountability of a board to exercise in relation to executive management."

Governance reflects the sometimes-conflicting accountabilities of governing boards: monitoring and strategy. A board needs to establish leadership independent of management, and only outside directors should serve on key committees like audit. Governance draws attention to the role of any executive management team. It also demonstrates the different accountabilities of an organization's chairman and CEO--and why these two roles need to be distinct and separate.

Kraines went on to say that "good governance has profound implications for organizations in both the public and private sectors. The lack of it is why many business organizations have a crisis of confidence." Kraines outlined some common roadblocks that almost all organizations encounter. He also demonstrated the great need for genuine organizational science, such as Strategic Organization, as a way of avoiding these governance pitfalls.

According to Kraines, "Strategic Organization allows organizations to accountably implement their strategies by fully leveraging the potential of their people. In order to accomplish this, business leaders need to design organizational structures that support vigorous, adaptive, and accountable processes. Structure and processes together must support an organization's strategy. These same scientific Strategic Organization principles become the basis for a comprehensive system that ensures the development of employees who have the capabilities to fill precisely defined roles now… and 10 years from now."

Kraines concluded his talk by saying that "governance and accountability must be clearly delineated and deployed for any organization to reliably deliver on strategy and to realize the full potential of its resources. Business success lies in an organization's leadership being held fully accountable for the smooth functioning of each core process. In this respect, the purpose of audit is different for the board and the CEO. For the board, the independent audit committee determines whether the CEO is effectively leading the organization and deploying its resources. For the CEO, the corporate audit function guides him or her as to where efforts for improvement are most required."

For a newly released white paper on Strategic Organization, please click here.

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David Jackson
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