Corporate governance has been the subject of many and intense discussion in recent years. Spurred by scandals involving companies such as Enron, Ahold, Worldcom and Parmalat, investors, regu- lators and the public demanded that something be done about the apparent lack of effective controls on executive power. To regain the trust of stake- holders, corporations are raising corporate gover- nance standards, and governments have drafted new regulations such as the Sarbanes-Oxley Act in the United States, the Tabaksblat Code in the Nether- lands, the Combined Code in the United Kingdom and the Cromme Code in Germany. But as with all complex issues, there is no quick fix.

The new regulations and codes focus pre- dominantly on compliance and accountability for the corporation’s current performance and on the roles different stakeholders play in this context. Limited explicit attention is given to the future value creation potential of the company through such means as strategy setting. This is also reflected in the scope and focus of activities of the non- executive board—which has seen a gradual build-up of conformance-related tasks. Many seasoned non- executive board members we spoke to consider this balance to have become worryingly unhealthy. The true extent of this situation could be even more distressing than it appears at first sight. What if the current performance of a corporation, which we so diligently try to address with sound corporate governance practices, tells less and less about the likely future performance of the corporation? In other words, what if we are trying to fix the accuracy of the numbers—but the numbers are becoming increasingly irrelevant for assessing busi- ness risk because the game has been changed?

There are many signs indicating that this could indeed be the case. The strategic freedom corpo- rations enjoy has reached unprecedented levels through the use of all sorts of new business config- urations, such as outsourcing, off-shoring, supply chain pooling, contract manufacturing, co-devel- oping, co-branding, co-marketing, licensing and joint venturing. By definition, this freedom of choice cannot be captured in today’s performance of the corporation, but does increasingly impact the corporation’s future performance, positively or negatively. At the same time, the sheer number of these (potential) initiatives increasingly makes exis- ting strategic Corporate Governance processes out- dated. This would also imply that the corporate governance discussion could be made more effec- tive by defining explicit ways to evaluate new strategic opportunities and new sources of business risk.

Article published in Strategy & Leadership: Issue #5 2004  “What’s the board’s role in strategy development?: A strategic reference framework for the board”