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search Corporate governance is the set of processes, customs, policies, laws and institutions affecting the way a corporation is directed, administered or controlled. Corporate governance also includes the relationships among the many players involved (the stakeholders) and the goals for which the corporation is governed. The principal players are the shareholders, management and the board of directors. Other stakeholders include employees, suppliers, customers, banks and other lenders, regulators, the environment and the community at large. Corporate governance is a multi-faceted subject. An important theme of corporate governance is to ensure the accountability of certain individuals in an organization through mechanisms that try to reduce or eliminate the principal-agent problem. A related but separate thread of discussions focus on the impact of a corporate governance system in economic efficiency, with a strong emphasis on shareholders welfare. There are yet other aspects to the corporate governance subject, such as the stakeholder view and the corporate governance models around the world (see section 9 below). There has been renewed interest in the corporate governance practices of modern corporations since 2001, particularly due to the high-profile collapses of a number of large U.S. firms such as Enron Corporation and Worldcom. In 2002, the US federal government passed the Sarbanes-Oxley Act, intending to restore public confidence in corporate governance. Contents [hide] 1 Definition 2 History 2.1 Impact of Corporate Governance 2.2 Role of Institutional Investors 3 Parties to corporate governance 4 Principles 5 Mechanisms and controls 5.1 Internal corporate governance controls 5.2 External corporate governance controls 6 Systemic problems of corporate governance 7 Role of the accountant 8 Regulation 8.1 Rules versus principles 8.2 Enforcement 8.3 Action Beyond Obligation 9 Corporate governance models around the world 9.1 Anglo-American Model 9.2 Non Anglo-American Model 10 Codes and guidelines 11 Corporate governance and firm performance 11.1 Board composition 11.2 Remuneration/Compensation 12 See also 13 References 14 External links  Definition In A Board Culture of Corporate Governance business author Gabrielle O'Donovan defines corporate governance as 'an internal system encompassing policies, processes and people, which serves the needs of shareholders and other stakeholders, by directing and controlling management activities with good business savvy, objectivity and integrity. Sound corporate governance is reliant on external marketplace commitment and legislation, plus a healthy board culture which safeguards policies and processes'. O'Donovan goes on to say that 'the perceived quality of a company's corporate governance can influence its share price as well as the cost of raising capital. Quality is determined by the financial markets, legislation and other external market forces plus the international organisational environment; how policies and processes are implemented and how people are led. External forces are, to a large extent, outside the circle of control of any board. The internal environment is quite a different matter, and offers companies the opportunity to differentiate from competitors through their board culture. To date, too much of corporate governance debate has centred on legislative policy, to deter fraudulent activities and transparency policy which misleads executives to treat the symptoms and not the cause.' It is a system of structuring, operating and controlling a company with a view to achieve long term strategic goals to satisfy shareholders, creditors, employees, customers and suppliers, and complying with the legal and regulatory requirements, apart from meeting environmental and local community needs. Report of SEBI committee (India) on Corporate Governance defines corporate governance as the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. It is about commitment to values, about ethical business conduct and about making a distinction between personal & corporate funds in the management of a company.” The definition is drawn from the Gandhian principle of trusteeship and the Directive Principles of the Indian Constitution. Corporate Governance is viewed as ethics and a moral duty.  History In the 19th century, state corporation lawless enhanced the rights of corporate boards to govern without unanimous consent of shareholders in exchange for statutory benefits like appraisal rights, to make corporate governance more efficient. Since that time, and because most large publicly traded corporations in the US are incorporated under corporate administration friendly Delaware law, and because the US's wealth has been increasingly securitized into various corporate entities and institutions, the rights of individual owners and shareholders have become increasingly derivative and dissipated. The concerns of shareholders over administration pay and stock losses periodically has led to more frequent calls for corporate governance reforms. In the 20th century fox in the immediate aftermath of the Wall Street Crash of 1929 legal scholars such as Adolf Augustus Berle, Edwin Dodd, and Gardiner C. Means pondered on the changing role of the modern corporation in society. Berle and Means' monograph "The Modern Corporation and Private Property" (1932, Macmillan) continues to have a profound influence on the conception of corporate governance in scholarly debates today. From the Chicago school of economics, Ronald Coase's "Nature of the Firm" (1937) introduced the notion of transaction costs into the understanding of why firms are founded and how they continue to behave. Fifty years later, Eugene Fama and Michael Jensen's "The Separation of Ownership and Control" (1983, Journal of Law and Economics) firmly established agency theory as a way of understanding corporate governance: the firm is seen as a series of contracts. Agency theory's dominance was highlighted in a 1989 article by Kathleen Eisenhardt (Academy of Management Review). US expansion after World War II through the emergence of multinational corporations saw the establishment of the managerial class. Accordingly, the following Harvard Business School management professors published influential monographs studying their prominence: Myles Mace (entrepreneurship), Alfred D. Chandler, Jr. (business history), Jay Lorsch (organizational behavior) and Elizabeth MacIver (organizational behavior). According to Lorsch and MacIver "many large corporations have dominant control over business affairs without sufficient accountability or monitoring by their board of directors." Since the late 1970’s, corporate governance has been the subject of significant debate in the U.S. and around the globe. Bold, broad efforts to reform corporate governance have been driven, in part, by the needs and desires of shareowners to exercise their rights of corporate ownership and to increase the value of their shares and, therefore, wealth. Over the past three decades, corporate directors’ duties have expanded greatly beyond their traditional legal responsibility of duty of loyalty to the corporation and its shareowners. In the first half of the 1990s, the issue of corporate governance in the U.S. received considerable press attention due to the wave of CEO dismissals (e.g.: IBM, Kodak, Honeywell) by their boards. CALPERS led a wave of institutional shareholder activism (something only very rarely seen before), as a way of ensuring that corporate value would not be destroyed by the now traditionally cozy relationships between the CEO and the board of directors (e.g., by the unrestrained issuance of stock options, not infrequently back dated). In 1997, the East Asian Financial Crisis saw the economies of Thailand, Indonesia, South Korea, Malaysia and The Philippines severely affected by the exit of foreign capital after property assets collapsed. The lack of corporate governance mechanisms in these countries highlighted the weaknesses of the institutions in their economies. In the early 2000s, the massive bankruptcies (and criminal malfeasance) of Enron and Worldcom, as well as lesser corporate debacles, such as Adelphia Communications, AOL, Arthur Andersen, Global Crossing, Tyco, and, more recently, Fannie Mae and Freddie Mac, led to increased shareholder and governmental interest in corporate governance. This culminated in the passage of the Sarbanes-Oxley Act of 2002. But, since then, the stock market has greatly recovered, and shareholder zeal has waned accordingly.  Impact of Corporate Governance The positive effect of good corporate governance on different stakeholders ultimately is a strengthened economy, and hence good corporate governance is a tool for socio-economic development. After East Asian economies collapsed in the late 20th century, the World Bank's president warned those countries, that for sustainable development, corporate governance has to be good. Economic health of a nation depends substantially on how sound and ethical businesses are.  Role of Institutional Investors Many years ago, worldwide, buyers and sellers of corporation stocks were individual investors, such as wealthy businessmen or families, who often had a vested, personal and emotional interest in the corporations whose shares they owned. Over time, markets have become largely institutionalized: buyers and sellers are largely institutions (e.g., pension funds, insurance companies, mutual funds, hedge funds, investor groups, and banks). The rise of the institutional investor has brought with it some increase of professional diligence which has tended to improve regulation of the stock market (but not necessarily in the interest of the small investor or even of the naïve institutions, of which there are many). Note that this process occurred simultaneously with the direct growth of individuals investing indirectly in the market (for example individuals have twice as much money in mutual funds as they do in bank accounts). However this growth occurred primarily by way of individuals turning over their funds to 'professionals' to manage, such as in mutual funds. In this way, the majority of investment now is described as "institutional investment" even though the vast majority of the funds are for the benefit of individual investors. Program trading, the hallmark of institutional trading, is averaging over 60% a day in 2007. Unfortunately, there has been a concurrent lapse in the oversight of large corporations, which are now almost all owned by large institutions. The Board of Directors of large corporations used to be chosen by the principal shareholders, who usually had an emotional as well as monetary investment in the company (think Ford), and the Board diligently kept an eye on the company and its principal executives (they usually hired and fired the President, or Chief executive officer— CEO). Nowadays, if the owning institutions don't like what the President/CEO is doing and they feel that firing them will likely be costly (think "golden handshake") and/or time consuming, they will simply sell out their interest. The Board is now mostly chosen by the President/CEO, and may be made up primarily of their friends and associates, such as officers of the corporation or business colleagues. Since the (institutional) shareholders rarely object, the President/CEO generally takes the Chair of the Board position for his/herself (which makes it much more difficult for the institutional owners to "fire" him/her). Occasionally, but rarely, institutional investors support shareholder resolutions on such matters as executive pay and anti-takeover measures. Finally, the largest pools of invested money (such as the mutual fund 'Vanguard 500', or the largest investment management firm for corporations, State Street Corp.) are designed simply to invest in a very large number of different companies with sufficient liquidity, based on the idea that this strategy will largely eliminate individual company financial or other risk and, therefore, these investors have even less interest in a particular company's governance. Since the marked rise in the use of Internet transactions from the 1990s, both individual and professional stock investors around the world have emerged as a potential new kind of major (short term) force in the direct or indirect ownership of corporations and in the markets: the casual participant. Even as the purchase of individual shares in any one corporation by individual investors diminishes, the sale of derivatives (e.g., exchange-traded funds (ETFs), Stock market index options , etc.) has soared. So, the interests of most investors are now increasingly rarely tied to the fortunes of individual corporations. But, the ownership of stocks in markets around the world varies; for example, the majority of the shares in the Japanese market are held by financial companies and industrial corporations (there is a large and deliberate amount of cross-holding among Japanese keiretsu corporations and within S. Korean chaebol 'groups') , whereas stock in the USA or the UK and Europe are much more broadly owned, often still by large individual investors.  Parties to corporate governance Parties involved in corporate governance include the regulatory body (e.g. the Chief Executive Officer, the board of directors, management and shareholders). Other stakeholders who take part include suppliers, employees, creditors, customers and the community at large. In corporations, the shareholder delegates decision rights to the manager to act in the principal's best interests. This separation of ownership from control implies a loss of effective control by shareholders over managerial decisions. Partly as a result of this separation between the two parties, a system of corporate governance controls is implemented to assist in aligning the incentives of managers with those of shareholders. With the significant increase in equity holdings of investors, there has been an opportunity for a reversal of the separation of ownership and control problems because ownership is not so diffuse. A board of directors often plays a key role in corporate governance. It is their responsibility to endorse the organisation's strategy, develop directional policy, appoint, supervise and remunerate senior executives and to ensure accountability of the organisation to its owners and authorities. The Company Secretary, known as a Corporate Secretary in the US and often referred to as a Chartered Secretary if qualified by the Institute of Chartered Secretaries and Administrators (ICSA), is a high ranking professional who is trained to uphold the highest standards of corporate governance, effective operations, compliance and administration. All parties to corporate governance have an interest, whether direct or indirect, in the effective performance of the organisation. Directors, workers and management receive salaries, benefits and reputation, while shareholders receive capital return. Customers receive goods and services; suppliers receive compensation for their goods or services. In return these individuals provide value in the form of natural, human, social and other forms of capital. A key factor in an individual's decision to participate in an organisation e.g. through providing financial capital and trust that they will receive a fair share of the organisational returns. If some parties are receiving more than their fair return then participants may choose to not continue participating leading to organizational collapse.  Principles Key elements of good corporate governance principles include honesty, trust and integrity, openness, performance orientation, responsibility and accountability, mutual respect, and commitment to the organization. Of importance is how directors and management develop a model of governance that aligns the values of the corporate participants and then evaluate this model periodically for its effectiveness. In particular, senior executives should conduct themselves honestly and ethically, especially concerning actual or apparent conflicts of interest, and disclosure in financial reports. Commonly accepted principles of corporate governance include: Rights and equitable treatment of shareholders: Organizations should respect the rights of shareholders and help shareholders to exercise those rights. They can help shareholders exercise their rights by effectively communicating information that is understandable and accessible and encouraging shareholders to participate in general meetings. Interests of other stakeholders: Organizations should recognize that they have legal and other obligations to all legitimate stakeholders. Role and responsibilities of the board: The board needs a range of skills and understanding to be able to deal with various business issues and have the ability to review and challenge management performance. It needs to be of sufficient size and have an appropriate level of commitment to fulfill its responsibilities and duties. There are issues about the appropriate mix of executive and non-executive directors. The key roles of chairperson and CEO should not be held by the same person. Integrity and ethical behaviour: Ethical and responsible decision making is not only important for public relations, but it is also a necessary element in risk management and avoiding lawsuits. Organizations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision making. It is important to understand, though, that reliance by a company on the integrity and ethics of individuals is bound to eventual failure. Because of this, many organizations establish Compliance and Ethics Programs to minimize the risk that the firm steps outside of ethical and legal boundaries. Disclosure and transparency: Organizations should clarify and make publicly known the roles and responsibilities of board and management to provide shareholders with a level of accountability. They should also implement procedures to independently verify and safeguard the integrity of the company's financial reporting. Disclosure of material matters concerning the organization should be timely and balanced to ensure that all investors have access to clear, factual information. Issues involving corporate governance principles include: oversight of the preparation of the entity's financial statements internal controls and the independence of the entity's auditors review of the compensation arrangements for the chief executive officer and other senior executives the way in which individuals are nominated for positions on the board the resources made available to directors in carrying out their duties oversight and management of risk dividend policy  Mechanisms and controls Corporate governance mechanisms and controls are designed to reduce the inefficiencies that arise from moral hazard and adverse selection. For example, to monitor managers' behaviour, an independent third party (the auditor) attests the accuracy of information provided by management to investors. An ideal control system should regulate both motivation and ability.  Internal corporate governance controls Internal corporate governance controls monitor activities and then take corrective action to accomplish organisational goals. Examples include: Monitoring by the board of directors: The board of directors, with its legal authority to hire, fire and compensate top management, safeguards invested capital. Regular board meetings allow potential problems to be identified, discussed and avoided. Whilst non-executive directors are thought to be more independent, they may not always result in more effective corporate governance and may not increase performance. Different board structures are optimal for different firms. Moreover, the ability of the board to monitor the firm's executives is a function of its access to information. Executive directors possess superior knowledge of the decision-making process and therefore evaluate top management on the basis of the quality of its decisions that lead to financial performance outcomes, ex ante. It could be argued, therefore, that executive directors look beyond the financial criteria. Remuneration: Performance-based remuneration is designed to relate some proportion of salary to individual performance. It may be in the form of cash or non-cash payments such as shares and share options, superannuation or other benefits. Such incentive schemes, however, are reactive in the sense that they provide no mechanism for preventing mistakes or opportunistic behaviour, and can elicit myopic behaviour.  External corporate governance controls External corporate governance controls encompass the controls external stakeholders exercise over the organisation. Examples include: demand for and assessment of performance information (especially financial statements) debt covenants government regulations media pressure takeovers competition managerial labour market telephone tapping  Systemic problems of corporate governance Supply of accounting information: Financial accounts form a crucial link in enabling providers of finance to monitor directors. Imperfections in the financial reporting process will cause imperfections in the effectiveness of corporate governance. This should, ideally, be corrected by the working of the external auditing process. Demand for information: A barrier to shareholders using good information is the cost of processing it, especially to a small shareholder. The traditional answer to this problem is the efficient market hypothesis (in finance, the efficient market hypothesis (EMH) asserts that financial markets are efficient), which suggests that the shareholder will free ride on the judgements of larger professional investors. Monitoring costs: In order to influence the directors, the shareholders must combine with others to form a significant voting group which can pose a real threat of carrying resolutions or appointing directors at a general meeting.  Role of the accountant Financial reporting is a crucial element necessary for the corporate governance system to function effectively. Accountants and auditors are the primary providers of information to capital market participants. The directors of the company should be entitled to expect that management prepare the financial information in compliance with statutory and ethical obligations, and rely on auditors' competence. Current accounting practice allows a degree of choice of method in determining the method of measurement, criteria for recognition, and even the definition of the accounting entity. The exercise of this choice to improve apparent performance (popularly known as creative accounting) imposes extra information costs on users. In the extreme, it can involve non-disclosure of information. One area of concern is whether the accounting firm acts as both the independent auditor and management consultant to the firm they are auditing. This may result in a conflict of interest which places the integrity of financial reports in doubt due to client pressure to appease management. The power of the corporate client to initiate and terminate management consulting services and, more fundamentally, to select and dismiss accounting firms contradicts the concept of an independent auditor. Changes enacted in the United States in the form of the Sarbanes-Oxley Act (in response to the Enron situation as noted below) prohibit accounting firms from providing both auditing and management consulting services. Similar provisions are in place under clause 49 of SEBI Act in India. The Enron collapse is an example of misleading financial reporting. Enron concealed huge losses by creating illusions that a third party was contractually obliged to pay the amount of any losses. However, the third party was an entity in which Enron had a substantial economic stake. In discussions of accounting practices with Arthur Andersen, the partner in charge of auditing, views inevitably led to the client prevailing. However, good financial reporting is not a sufficient condition for the effectiveness of corporate governance if users don't process it, or if the informed user is unable to exercise a monitoring role due to high costs (see Systemic problems of corporate governance above).  Regulation Companies law Basic forms: Sole proprietorship Partnership (General · Limited · LLP) Corporation (LLC · S · C) Cooperative United States: Business trust LLLP · Series LLC Delaware corporation Nevada corporation European Economic Area, including European Union: SE · SCE United Kingdom / Commonwealth / Ireland: Limited company (By shares · By guarantee) (Public · Proprietary) Community interest company Civil law countries: AB · AG · ANS · A/S · AS · ОAO·VAT K.K. · N.V. · OY · S.A. · GmbH Doctrines Corporate governance Limited liability · Ultra vires Business judgment rule Internal affairs doctrine De facto corporation and corporation by estoppel Piercing the corporate veil Rochdale Principles Related areas of law Contract · Civil procedure  Rules versus principles Rules are typically thought to be simpler to follow than principles, demarcating a clear line between acceptable and unacceptable behaviour. Rules also reduce discretion on the part of individual managers or auditors. In practice rules can be more complex than principles. They may be ill-equipped to deal with new types of transactions not covered by the code. Moreover, even if clear rules are followed, one can still find a way to circumvent their underlying purpose - this is harder to achieve if one is bound by a broader principle. Principles on the other hand is a form of self regulation. It allows the sector to determine what standards are acceptable or unacceptable. It also pre-empts over zealous legislations that might not be practical.  Enforcement Enforcement can affect the overall credibility of a regulatory system. They both deter bad actors and level the competitive playing field. Nevertheless, greater enforcement is not always better, for taken too far it can dampen valuable risk-taking. In practice, however, this is largely a theoretical, as opposed to a real, risk.  Action Beyond Obligation Enlightened boards regard their mission as helping management lead the company. They are more likely to be supportive of the senior management team. Because enlightened directors strongly believe that it is their duty to involve themselves in an intellectual analysis of how the company should move forward into the future, most of the time, the enlightened board is aligned on the critically important issues facing the company. Unlike traditional boards, enlightened boards do not feel hampered by the rules and regulations of the Sarbanes-Oxley Act. Unlike standard boards that aim to comply with regulations, enlightened boards regard compliance with regulations as merely a baseline for board performance. Enlightened directors go far beyond merely meeting the requirements on a checklist. They do not need Sarbanes-Oxley to mandate that they protect values and ethics or monitor CEO performance. At the same time, enlightened directors recognize that it is not their role to be involved in the day-to-day operations of the corporation. They lead by example. Overall, what most distinguishes enlightened directors from traditional and standard directors is the passionate obligation they feel to engage in the day-to-day challenges and strategizing of the company. Enlightened boards can be found in very large, complex companies, as well as smaller companies.  Corporate governance models around the world Although the US model of corporate governance is the most notorious, there is a considerable variation in corporate governance models around the world. The intricated shareholding structures of keiretsus in Japan, the heavy presence of banks in the equity of German firms, the chaebols in South Korea and many others are examples of arrangements which try to respond to the same corporate governance challenges as in the US.  Anglo-American Model There are many different models of corporate governance around the world. These differ according to the variety of capitalism in which they are embedded. The liberal model that is common in Anglo-American countries tends to give priority to the interests of shareholders. The coordinated model that one finds in Continental Europe and Japan also recognizes the interests of workers, managers, suppliers, customers, and the community. Both models have distinct competitive advantages, but in different ways. The liberal model of corporate governance encourages radical innovation and cost competition, whereas the coordinated model of corporate governance facilitates incremental innovation and quality competition. However, there are important differences between the U.S. recent approach to governance issues and what has happened in the U.K.. In the United States, a corporation is governed by a board of directors, which has the power to choose an executive officer, usually known as the chief executive officer. The CEO has broad power to manage the corporation on a daily basis, but needs to get board approval for certain major actions, such as hiring his/her immediate subordinates, raising money, acquiring another company, major capital expansions, or other expensive projects. Other duties of the board may include policy setting, decision making, monitoring management's performance, or corporate control. The board of directors is nominally selected by and responsible to the shareholders, but the bylaws of many companies make it difficult for all but the largest shareholders to have any influence over the makeup of the board; normally, individual shareholders are not offered a choice of board nominees among which to choose, but are merely asked to rubberstamp the nominees of the sitting board. Perverse incentives have pervaded many corporate boards in the developed world, with board members beholden to the chief executive whose actions they are intended to oversee. Frequently, members of the boards of directors are CEOs of other corporations, which some see as a conflict of interest. The U.K. has pioneered a flexible model of regulation of corporate governance, known as the "comply or explain" code of governance. This is a principle based code that lists a dozen of recommended practices, such as the separation of CEO and Chairman of the Board, the introduction of a time limit for CEOs' contracts, the introduction of a minimum number of non-executives Directors, of independent directors, the designation of a senior non executive director, the formation and composition of remuneration, audit and nomination committees. Publicly listed companies in the U.K. have to either apply those principles or, if they choose not to, to explain in a designated part of their annual reports why they decided not to do so. The monitoring of those explanations is left to shareholders themselves. The tenet of the Code is that one size does not fit all in matters of corporate governance and that instead of a statuary regime like the Sarbanes-Oxley Act in the U.S., it is best to leave some flexibility to companies so that they can make choices most adapted to their circumstances. If they have good reasons to deviate from the sound rule, they should be able to convincingly explain those to their shareholders. The code has been in place since 1993 and has had drastic effects on the way firms are governed in the U.K. A study by Arcot, Bruno and Faure-Grimaud from the Financial Markets Group at the London School of Economics shows that in 1993, about 10% of the UK companies member of the FTSE 350 were compliants on all dimensions while they were more than 60% in 2003. The same success was not achieved when looking at the explanation part for non compliant companies. Many deviations are simply not explained and a large majority of explanations fail to identify specific circumstances justifying those deviations. Still, the overall view is that the U.K.'s system works fairly well and in fact is often branded as a benchmark, followed by several countries.  Non Anglo-American Model In East Asian countries, family-owned companies dominate. A study by Claessens, Djankov and Lang (2000) investigated the top 15 families in East Asian countries and found that they dominated listed corporate assets. In countries such as Pakistan, Indonesia and the Philippines, the top 15 families controlled over 50% of publicly owned corporations through a system of family cross-holdings, thus dominating the capital markets. Family-owned companies also dominate the Latin model of corporate governance, that is companies in Mexico, Italy, Spain, France (to a certain extent), Brazil, Argentina, and other countries in South America. Europe and Asia exemplify the insider system: Shareholder and stakeholder • a small number of listed companies, • an illiquid capital market where ownership and control are not frequently traded • high concentration of shareholding in the hands of corporations, institutions, families or government . • the insider model uses a system of interlocking networks and committees. At the same time that developing countries are undergoing a process of economic growth and transformation, they are also experiencing a revolution in the business and political relationships that characterize their private and public sectors. Establishing good corporate governance practices is essential to sustaining long-term development and growth as these countries move from closed, market-unfriendly, undemocratic systems towards open, market-friendly, democratic systems. Good corporate governance systems will allow organizations to realize their maximum productivity and efficiency, minimize corruption and abuse of power, and provide a system of managerial accountability. These goals are equally important for both private corporations and government bodies. Because of the implicit relationship between private interests and the larger government, good corporate governance practices are essential to establishing good governance at the national level in developing countries. A number of ties the keep the public and private sectors closely linked. On one hand, judiciary and regulatory bodies as well as legislatures play a role in corporate management and oversight. At the same time cartels and large corporate interests use their size to exert not only economic, but also political power. These two sectors are so intertwined that a country cannot significantly change one without simultaneously instituting changes in the other. According to Nicolas Meisel, there are four priorities which developing countries should concentrate on while experimenting with new forms of corporate and public governance. The first is to focus on improving the quality of information and increasing the speed at which it is created and distributed to the public. Good communication is important to the functioning of any organization. The second is to allow individual actors more autonomy while at the same time maintaining or increasing accountability. Thirdly, if a hierarchical organization used to orient private activities toward the general interest, new countervailing powers should be encouraged to fill this role. Finally, the part the state plays and how government officials are selected must be considered if a developing economy is to achieve sustainable growth. This may involve making it easier for newcomers with new ideas incumbents who may hold to older, possibly outdated, models.  Codes and guidelines Corporate governance principles and codes have been developed in different countries and issued from stock exchanges, corporations, institutional investors, or associations (institutes) of directors and managers with the support of governments and international organizations. As a rule, compliance with these governance recommendations is not mandated by law, although the codes linked to stock exchange listing requirements may have a coercive effect. For example, companies quoted on the London and Toronto Stock Exchanges formally need not follow the recommendations of their respective national codes. However, they must disclose whether they follow the recommendations in those documents and, where not, they should provide explanations concerning divergent practices. Such disclosure requirements exert a significant pressure on listed companies for compliance. In the United States, companies are primarily regulated by the state in which they incorporate though they are also regulated by the federal government and, if they are public, by their stock exchange. The highest number of companies are incorporated in Delaware, including more than half of the Fortune 500. This is due to Delaware's generally business-friendly corporate legal environment and the existence of a state court dedicated solely to business issues (Delaware Court of Chancery). Most states' corporate law generally follow the American Bar Association's Model Business Corporation Act. While Delaware does not follow the Act, it still considers its provisions and several prominent Delaware justices, including former Delaware Supreme Court Chief Justice E. Norman Veasey, participate on ABA committees. One issue that has been raised since the Disney decision in 2005 is the degree to which companies manage their governance responsibilities; in other words, do they merely try to supersede the legal threshold, or should they create governance guidelines that ascend to the level of best practice. For example, the guidelines issued by associations of directors (see Section 3 above), corporate managers and individual companies tend to be wholly voluntary. For example, The GM Board Guidelines reflect the company’s efforts to improve its own governance capacity. Such documents, however, may have a wider multiplying effect prompting other companies to adopt similar documents and standards of best practice. One of the most influential guidelines has been the 1999 OECD Principles of Corporate Governance. This was revised in 2004. The OECD remains a proponent of corporate governance principles throughout the world. Building on the work of the OECD, other international organisations, private sector associations and more than 20 national corporate governance codes, the United Nations Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) has produced voluntary Guidance on Good Practices in Corporate Governance Disclosure. This internationally agreed benchmark consists of more than fifty distinct disclosure items across five broad categories: Board and management structure and process Ownership structure and exercise of control rights Financial transparency and information disclosure Auditing Corporate responsibility and compliance The World Business Council for Sustainable Development WBCSD has done work on corporate governance, particularly on accountability and reporting, and in 2004 created an Issue Management Tool: Strategic challenges for business in the use of corporate responsibility codes, standards, and frameworks.This document aims to provide general information, a "snap-shot" of the landscape and a perspective from a think-tank/professional association on a few key codes, standards and frameworks relevant to the sustainability agenda.  Corporate governance and firm performance In its 'Global Investor Opinion Survey' of over 200 institutional investors first undertaken in 2000 and updated in 2002, McKinsey found that 80% of the respondents would pay a premium for well-governed companies. They defined a well-governed company as one that had mostly out-side directors, who had no management ties, undertook formal evaluation of its directors, and was responsive to investors' requests for information on governance issues. The size of the premium varied by market, from 11% for Canadian companies to around 40% for companies where the regulatory backdrop was least certain (those in Morocco, Egypt and Russia). Other studies have linked broad perceptions of the quality of companies to superior share price performance. In a study of five year cumulative returns of Fortune Magazine's survey of 'most admired firms', Antunovich et al found that those "most admired" had an average return of 125%, whilst the 'least admired' firms returned 80%. In a separate study Business Week enlisted institutional investors and 'experts' to assist in differentiating between boards with good and bad governance and found that companies with the highest rankings had the highest financial returns. On the other hand, research into the relationship between specific corporate governance controls and firm performance has been mixed and often weak. The following examples are illustrative.  Board composition Some researchers have found support for the relationship between frequency of meetings and profitability. Others have found a negative relationship between the proportion of external directors and firm performance, while others found no relationship between external board membership and performance. In a recent paper Bagahat and Black found that companies with more independent boards do not perform better than other companies. It is unlikely that board composition has a direct impact on firm performance.  Remuneration/Compensation The results of previous research on the relationship between firm performance and executive compensation have failed to find consistent and significant relationships between executives' remuneration and firm performance. Low average levels of pay-performance alignment do not necessarily imply that this form of governance control is inefficient. Not all firms experience the same levels of agency conflict, and external and internal monitoring devices may be more effective for some than for others. Some researchers have found that the largest CEO performance incentives came from ownership of the firm's shares, while other researchers found that the relationship between share ownership and firm performance was dependent on the level of ownership. The results suggest that increases in ownership above 20% cause management to become more entrenched, and less interested in the welfare of their shareholders. Some argue that firm performance is positively associated with share option plans and that these plans direct managers' energies and extend their decision horizons toward the long-term, rather than the short-term, performance of the company. However, that point of view came under substantial criticism circa in the wake of various security scandals including mutual fund timing episodes and, in particular, the backdating of option grants as documented by University of Iowa academic Erik Lie and reported by James Blander and Charles Forelle of the Wall Street Journal. Even before the negative influence on public opinion caused by the 2006 backdating scandal, use of options faced various criticisms. A particularly forceful and long running argument concerned the interaction of executive options with corporate stock repurchase programs. Numerous authorities (including U.S. Federal Reserve Board economist Weisbenner) determined options may be employed in concert with stock buybacks in a manner contrary to shareholder interests. These authors argued that, in part, corporate stock buybacks for U.S. Standard & Poors 500 companies surged to a $500 billion annual rate in late 2006 because of the impact of options. A compendium of academic works on the option/buyback issue is included in the study Scandalby author M. Gumport issued in 2006. A combination of accounting changes and governance issues led options to become a less popular means of remuneration as 2006 progressed, and various alternative implementations of buybacks surfaced to challenge the dominance of "open market" cash buybacks as the preferred means of implementing a share repurchase plan.  See also Agency cost Agency Theory Basel II Business ethics Business Motivation Model Certified Business Manager Corporate behaviour Corporate benefit Corporate crime Compliance and Ethics Programs Corporate Law Economic Reform Program Cadbury Report Corporate Social Responsibility Corporation Foreign Corrupt Practices Act Institutional fund management Golden Parachute Governance King I King II Legal origins theory Risk management Sarbanes-Oxley Act Stakeholder theory Takeovers and poison pills  References ^ For a good overview of the different theoretical perspectives on corporate governance see Chapter 15 of Dignam, A and Lowry, J (2006) Company Law, Oxford University Press ISBN-13: 978-0-19-928936-3 ^ Corporate Governance International Journal, "A Board Culture of Corporate Governance, Vol 6 Issue 3 (2003) ^ Crawford, Curtis J. (2007). The Reform of Corporate Governance: Major Trends in the U.S. Corporate Boardroom, 1977-1997. doctoral dissertation, Capella University.  ^ SSRN-Good Coporate Governance: An Instrument for Wealth Maximisation by Vrajlal Sapovadia ^ Bhagat & Black, "The Uncertain Relationship Between Board Composition and Firm Performance", 54 Business Lawyer) ^ National Association of Corporate Directors (NACD) – Directors Monthly, “Enlightened Boards: Action Beyond Obligation”, Vol. 31Number 12 (2007), Pg 13.  ^ Theyrule.net ^ Business for Development: Fostering the Private Sector. OECD Development Centre. Paris: OECD Publications, 2007 (149-152). ^ Nicolas Meisel, Governance Culture and Development (Paris: OECD Publishing, 2004) SourceOECD, 27 July 2007
(12). ^ Corporate Governance in Development: The Experiences of Brazil, Chile, India, and South Africa. ed. Charles P. Oman. OECD Development Centre and CIPE, 2006. ^ Nicolas Meisel, Governance Culture and Development (Paris: OECD Publishing, 2004) SourceOECD, 27 July 2007
(120). ^ The Disney Decision of 2005 and the precedent it sets for corporate governance and fiduciary responsibility, Kuckreja, Akin Gump, Aug 2005 ^ http://www.unctad.org/en/docs/c2isard31_en.pdf ^ http://www.unctad.org/Templates/Page.asp?intItemID=2920&lang=1 Arcot, Sridhar, Bruno, Valentina and Antoine Faure-Grimaud, "Corporate Governance in the U.K.: is the comply-or-explain working?" (December 2005). FMG CG Working Paper 001. Becht, Marco, Patrick Bolton, Ailsa Röell, "Corporate Governance and Control" (October 2002; updated August 2004). ECGI - Finance Working Paper No. 02/2002. Brickley, James A., William S. Klug and Jerold L. Zimmerman, Managerial Economics & Organizational Architecture, ISBN Cadbury, Sir Adrian, "The Code of Best Practice", Report of the Committee on the Financial Aspects of Corporate Governance, Gee and Co Ltd, 1992. Available online from  Cadbury, Sir Adrian, "Corporate Governance: Brussels", Instituut voor Bestuurders, Brussels, 1996. Claessens, Stijn, Djankov, Simeon & Lang, Larry H.P. (2000) The Separation of Ownership and Control in East Asian Corporations, Journal of Financial Economics, 58: 81-112 Clarke, Thomas (ed.) (2004) "Theories of Corporate Governance: The Philosophical Foundations of Corporate Governance," London and New York: Routledge, ISBN-X Clarke, Thomas (ed.) (2004) "Critical Perspectives on Business and Management: 5 Volume Series on Corporate Governance - Genesis, Anglo-American, European, Asian and Contemporary Corporate Governance" London and New York: Routledge, ISBN Clarke, Thomas & dela Rama, Marie (eds.) (2006) "Corporate Governance and Globalization" London and Thousand Oaks, CA: SAGE, ISBN Colley, J., Doyle, J., Logan, G., Stettinius, W., What is Corporate Governance ? (McGraw-Hill, December 2004) ISBN Crawford, C. J. (2007). Compliance & conviction: the evolution of enlightened corporate governance. Santa Clara, Calif: XCEO. ISBN 0-976-90190-9 9780976901914 Easterbrook, Frank H. and Daniel R. Fischel, The Economic Structure of Corporate Law, ISBN Erturk, Ismail, Froud, Julie, Johal, Sukhdev and Williams, Karel (2004) Corporate Governance and Disappointment Review of International Political Economy, 11 (4): 677-713. Garrett, Allison, "Themes and Variations: The Convergence of Corporate Governance Practices in Major World Markets," 32 Denv. J. Int’l L. & Pol’y). Holton, Glyn A (2006). Investor Suffrage Movement, Financial Analysits Journal, 62 (6), 15–20. Monks, Robert A.G. and Minow, Nell, Corporate Governance (Blackwell 2004) ISBN Monks, Robert A.G. and Minow, Nell, Power and Accountability (HarperBusiness 1991), full text available online New York Society of Securities Analysts, 2003, Corporate Governance Handbook, OECD (1999, 2004) Principles of Corporate Governance Paris: OECD) Özekmekçi, Abdullah, Mert (2004) "The Correlation between Corporate Governance and Public Relations", Istanbul Bilgi University. Whittington, G. "Corporate Governance and the Regulation of Financial Reporting", Accounting and Business Research, Vol. 2, 1993, Corporate Governance Special Issue, pp. 311-319. World Business Council for Sustainable Development WBCSD (2004) Issue Management Tool: Strategic challenges for business in the use of corporate responsibility codes, standards, and frameworks Sapovadia, Vrajlal K., "Critical Analysis of Accounting Standards Vis-À-Vis Corporate Governance Practice in India" (January 2007). Available at SSRN: http://ssrn.com/abstract=712461  External links The external links in this article may not follow Wikipedia's content policies or guidelines. Please improve this article by removing excessive or inappropriate external links. A Comparative Bibliography: Regulatory Competition on Corporate Law The Corporate Library European Corporate Governance Institute (ECGI) Collection of Corporate Governance Documents from Global Accountancy Bodies (IFACnet) Collection of Corporate Governance Codes (Full Text, Free Access) ICSA (The Institute of Company Secretaries and Administrators) ICGN (The International Corporate Governance Network) The National Association of Corporate Directors KPMG's Audit Committee Institute OCEG: A Nonprofit Standards Organization that Integrates Governance, Risk and Compliance Principles The Global Corporate Governance Forum Issue Management Tool: Strategic challenges for business in the use of corporate responsibility codes, standards, and frameworks Arthur and Toni Rembe Rock Center for Corporate Governance at Stanford University The Millstein Center for Corporate Governance and Performance at the Yale School of Management World Bank Corporate Governance Reports Governance Focus: the full range of governance, ethics, CSR, social responsibility, development and compliance, in English & Spanish The French Corporate Governance Institute CG@LSE The Corporate Governance research programme at the Financial Markets Group An Introduction to Corporate Regulation The Society of Corporate Secretaries & Governance Professionals The Center for International Private Enterprise: Corporate Governance The Conference Board Governance Center The National Association of Corporate Directors(NACD) The Institute of Directors' website Retrieved from "Corporate_governance"
search For other uses, see Training (disambiguation). An astronaut in training for an extra-vehicular activity mission using an underwater simulation environment.The term training refers to the acquisition of knowledge, skills, and competencies as a result of the teaching of vocational or practical skills and knowledge that relate to specific useful competencies. It forms the core of apprenticeships and provides the backbone of content at technical colleges and polytechnics. In addition to the basic training required for a trade, occupation or profession, observers of the labor-market[who?] recognise today the need to continue training beyond initial qualifications: to maintain, upgrade and update skills throughout working life. People within many professions and occupations may refer to this sort of training as professional development. Some commentators use a similar term for workplace learning to improve performance: training and development. One can generally categorize such training as on-the-job or off-the-job: On-the-job training takes place in a normal working situation, using the actual tools, equipment, documents or materials that trainees will use when fully trained. On-the-job training has a general reputation as most effective for vocational work. Off-the-job training takes place away from normal work situations — implying that the employee does not count as a directly productive worker while such training takes place. Off-the-job training has the advantage that it allows people to get away from work and concentrate more thoroughly on the training itself. This type of training has proven more effective in inculcating concepts and ideas. Training differs from exercise in that people may dabble in exercise as an occasional activity for fun. Training has specific goals of improving one's capability, capacity, and performance. Compare: Education Learning Contents [hide] 1 Types of training 1.1 Physical training 1.2 Religion and spirituality 1.3 Artificial-intelligence feedback 2 Training methodologies 3 External links 4 See also 5 References  Types of training  Physical training Physical training concentrates on mechanistic goals: training-programs in this area develop specific skills or muscles, often with a view to peaking at a particular time. Fartlek training offers flexible techniques which trainers can adapt to suit almost any athlete. In military use, training means gaining the physical ability to perform and survive in combat, and learning the many skills needed in a time of war. These include how to use a variety of weapons, outdoor survival skills, and how to survive capture by the enemy, among others. See military education and training. For psychological or physiological reasons, people who believe it may be beneficial to them can choose to practice relaxation training, or autogenic training, in an attempt to increase their ability to relax or deal with stress. While some studies have indicated relaxation training is useful for some medical conditions, autogenic training has limited results or has been the result of few studies.  Religion and spirituality In religious and spiritual use, training may mean purifying mind, heart, understanding and actions to obtain a variety of spiritual goals such as closeness to God or freedom from suffering. Note for example the institutionalized spiritual training of Buddhism, the Threefold Training.  Artificial-intelligence feedback Researchers have developed training-methods for artificial-intelligence devices as well. Evolutionary algorithms, including genetic programming and other methods of machine learning, use a system of feedback based on "fitness functions" to allow computer programs to determine how well an entity performs a task. The methods construct a series of programs, known as a “population” of programs, and then automatically test them for "fitness", observing how well they perform the intended task. The system automatically generates new programs based on members of the population that perform the best. These new members replace programs that perform the worst. The procedure repeats until the achievement of optimum performance. In robotics, such a system can continue to run in real-time after initial training, allowing robots to adapt to new situations and to changes in themselves, for example, due to wear or damage. Researchers have also developed robots that can appear to mimic simple human behavior as a starting point for training.  Training methodologies This section requires expansion. There are several methods which are possible but only one thing counts - what the trainee learns. (Benjamin Rankin)  External links Training Journal - An industry-specific magazine
search This article does not cite any references or sources. (June 2007) Please help improve this article by adding citations to reliable sources. Unverifiable material may be challenged and removed. For other uses, see Consultant (disambiguation). A consultant (from the Latin consultare means "to discuss" from which we also derive words such as consul and counsel) is a professional who provides advice in a particular area of expertise such as accountancy, the environment, technology, law, human resources, marketing, medicine, finance, economics, public affairs, communication, engineering, graphic design, or waste management. A consultant is usually an expert or a professional in a specific field and has a wide knowledge of the subject matter. A consultant usually works for a consultancy firm or is self-employed, and engages with multiple and changing clients. Thus, clients have access to deeper levels of expertise than would be feasible for them to retain in-house, and to purchase only as much service from the outside consultant as desired. It is generally accepted good corporate governance to hire consultants as a check to the Principal-Agent problem. 'Consultant' is also the term used to denote the most senior medical position in the United Kingdom, Australia and Ireland (e.g., a consultant surgeon).  Ways in which consultants work Often a consultant provides expertise to clients who require a particular type of knowledge or service for a specific period of time, thus providing an economy to the client. In other situations, companies implementing a major project may need additional experienced staff to assist with increased work during that period. More recently the term is also used euphemistically for temporary staff. That resource is only temporarily employed by a company to augment the company's core set of employees without providing any unique expertise. This usually indicates that the consultant could be expended when demand for that particular skill diminishes, though this expendability is sometimes recompensed with higher pay. In this usage, the consultant is usually employed through a limited company which they themselves own, or through an umbrella company. Consulting has come under some criticism because of staff augmentation and the high amount of jargon consultants use, also known as consultantese. Sometimes a consultant is not an independent agent but is a partner or an employee of a consultancy, that is a company that provides consultants to clients on a larger scale or in multiple, though usually related, skill areas. This has advantages both to the client and to the consultant by: Providing a pool of talent that can be quickly mobilized as required Reassuring the client about the quality of the consultants supplied Giving the client access to the experience and methodologies of the whole consultancy rather than an individual Introducing the consultant to new experiences and techniques which may, eventually, permeate through the consultancy as a whole A consultant giving career advice and training to an individual or a team is often termed a coach, and a consultant assisting an organization to develop a new strategy or solve a particular problem is sometimes referred to as a facilitator. Strategy consultants are common in upper management in many industries. There are also independent consultants who act as interim executives with decision-making power under corporate policies or statutes. They may sit on specially constituted boards or committees.
How to Start a Consulting Business
Everyone has an untapped reservoir of knowledge. Put yours to work for you as an independent consultant by teaching your skills to others. Adds Article to your Entrepreneur Assist Bookmark page. Article Contents Introduction Target Market Location and Employees Income & Billing Marketing Resources Editor’s note: This article was excerpted from our Consulting Business start-up guide, available from SmallBizBooks.com. The dictionary defines a consultant as "an expert in a particular field who works as an advisor either to a company or to another individual." Sounds pretty vague, doesn't it? But unless you've been in a coma for the past decade, you probably have a good idea what a consultant is. Businesses certainly understand what consultants are. In 1997 U.S. businesses spent just over $12 billion on consulting. According to Anna Flowers, spokesperson for the Association of Professional Consultants in Irvine, California, the association has recently noticed an increase in calls for information from people who want to get into the business. "The market is opening up for [the consulting-for-businesses] arena," Flowers says. Content Continues Below -------------------------------------------------------------------------------- Business Guides Categories Automotive Business Svcs. Children's Products/Svcs. Cleaning & Maintenance Computer & Tech Education & Training Financial Services Food & Restaurants Health & Personal Care Home Products/Svcs. Maintenance Services Pet Businesses Professional Svcs. Recreation Svcs. Retail Specialty Prods. Sports/Recreation Training Svcs. Travel & Lodging Visit Entrepreneur.com's Opportunity Finder for more franchise and business opportunities! Premier Opportunities Match Point CertaPro Painters WSI Entrepreneur.com Melinda P., an independent consultant in Arlington, Virginia, thinks more people are getting into the consulting field because technology has made it easier to do so. "The same technology that has helped me to be successful as a consultant has made it easier for others to do the same," she says. A consultant's job is to consult. Nothing more, nothing less. It's that simple. There's no magic formula or secret that makes one consultant more successful than another one. But what separates a good consultant from a bad consultant is a passion and drive for excellence. And--oh yes--a good consultant should be knowledgeable about the subject he or she is consulting in. That does make a difference. You see, in this day and age, anyone can be a consultant. All you need to discover is what your particular gift is. For example, are you very comfortable working around computers? Do you keep up with the latest software and hardware information, which seems to be changing almost daily? And are you able to take that knowledge you have gained and turn it into a resource that someone would be willing to pay money for? Then you would have no trouble working as a computer consultant. Or are you an expert in the fund-raising field? Maybe you have worked for nonprofit agencies in the field of fund-raising, marketing, public relations or sales, and over the years you have discovered how to raise money. As someone who has turned a decade of fund-raising successes into a lucrative consulting business, I can tell you that fund-raising consulting is indeed a growing industry. Things to Consider Before You Become a Consultant What certifications and special licensing will I need? Depending upon your profession, you may need special certification or a special license before you can begin operating as a consultant. For example, fund-raising consultants don't need special certification, although you can become certified through the National Society of Fund Raising Executives. And in some states, you may need to register as a professional fund-raising consultant before starting your business. Am I qualified to become a consultant? Before you hang out your shingle and hope that clients begin beating your door down to hire you, make sure you have the qualifications necessary to get the job done. If you want to be a computer consultant, for example, make sure you are up to date in the knowledge department with all the trends and changes in the computer industry. Am I organized enough to become a consultant? Do I like to plan my day? Am I an expert when it comes to time management? You should have answered "yes" to all three of those questions! Do I like to network? Networking is critical to the success of any type of consultant today. Begin building your network of contacts immediately. Have I set long-term and short-term goals? And do they allow for me to become a consultant? If your goals do not match up with the time and energy it takes to open and successfully build a consulting business, then reconsider before making any move in this direction! Top 20 Consulting Businesses Thriving Today Although you can be a consultant in just about any field these days, the current top 20 consulting businesses include: 1. Accounting: Accounting is something that every business needs, no matter how large or small. Accounting consultants can help a business with all of its financial needs. 2. Advertising: This type of consultant is normally hired by a business to develop a good strategic advertising campaign. 3. Auditing: From consultants who audit utility bills for small businesses to consultants who handle major work for telecommunications firms, auditing consultants are enjoying the fruits of their labor. 4. Business: Know how to help a business turn a profit? If you have a good business sense, then you'll do well as a business consultant. After computer consulting, people in this field are the next most sought after. 5. Business writing: Everyone knows that most businesspeople have trouble when it comes to writing a report--or even a simple memo. Enter the business writing consultant, and everyone is happy! 6. Career counseling: With more and more people finding themselves victims of a corporate downsizing, career counselors will always be in demand. Career counselors guide their clients into a profession or job that will help them be both happy and productive as an employee. 7. Communications: Communications consultants specialize in helping employees in both large and small businesses better communicate with each other, which ultimately makes the business more efficient and operate smoothly. 8. Computer consulting: From software to hardware, and everything in between, if you know computers, your biggest problem will be not having enough hours in the day to meet your clients' demands! 9. Editorial services: From producing newsletters to corporate annual reports, consultants who are experts in the editorial field will always be appreciated. 10. Executive search/headhunter firms: While this is not for everyone, there are people who enjoy finding talent for employers. 11. Gardening: In the past decade the demand for gardening consultants has blossomed (pun intended) into a $1 million-a-year business. Not only are businesses hiring gardening consultants; so are people who are too busy to take care of their gardens at home. 12. Grantsmanship: Once you learn how to write a grant proposal, you can name your price. 13. Human resources: As long as businesses have people problems (and they always will), consultants in this field will enjoy a never-ending supply of corporate clients, both large and small. (People-problem prevention programs could include teaching employees to get along with others, respect and even violence prevention in the workplace.) 14. Insurance: Everyone needs insurance, and everyone needs an insurance consultant to help them find the best plan and pricing for them. 15. Marketing: Can you help a business write a marketing plan? Or do you have ideas that you feel will help promote a business? If so, why not try your hand as a marketing consultant? 16. Payroll management: Everyone needs to get paid. By using your knowledge and expertise in payroll management, you can provide this service to many businesses, both large and small. 17. Public relations: Getting good press coverage for any organization is a real art. When an organization finds a good PR consultant, they hang on to them for life! 18. Publishing: If you're interested in the publishing field, then learn everything you can and you, too, can be a publishing consultant. A publishing consultant usually helps new ventures when they are ready to launch a new newspaper, magazine, newsletter--and even websites and electronic newsletters. 19. Taxes: With the right marketing and business plan (and a sincere interest in taxes), your career as a tax consultant can be very lucrative. A tax consultant advises businesses on the legal methods to pay the least amount of tax possible. 20. Writing services: Anything related to the written word will always be in demand. Find your specialty in the writing field, and the sky will be the limit!
What is the Balanced Scorecard?
About the Balanced Scorecard Articles & White Papers Examples & Success Stories The Nine Steps to Success® Performance Measurement Balanced Scorecard Software Cascading: Creating Alignment FAQs BSC Links The balanced scorecard is a strategic planning and management system that is used extensively in business and industry, government, and nonprofit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals. It was originated by Drs. Robert Kaplan (Harvard Business School) and David Norton as a performance measurement framework that added strategic non-financial performance measures to traditional financial metrics to give managers and executives a more 'balanced' view of organizational performance. While the phrase balanced scorecard was coined in the early 1990s, the roots of the this type of approach are deep, and include the pioneering work of General Electric on performance measurement reporting in the 1950’s and the work of French process engineers (who created the Tableau de Bord – literally, a "dashboard" of performance measures) in the early part of the 20th century. The balanced scorecard has evolved from its early use as a simple performance measurement framework to a full strategic planning and management system. The “new” balanced scorecard transforms an organization’s strategic plan from an attractive but passive document into the "marching orders" for the organization on a daily basis. It provides a framework that not only provides performance measurements, but helps planners identify what should be done and measured. It enables executives to truly execute their strategies. This new approach to strategic management was first detailed in a series of articles and books by Drs. Kaplan and Norton. Recognizing some of the weaknesses and vagueness of previous management approaches, the balanced scorecard approach provides a clear prescription as to what companies should measure in order to 'balance' the financial perspective. The balanced scorecard is a management system (not only a measurement system) that enables organizations to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results. When fully deployed, the balanced scorecard transforms strategic planning from an academic exercise into the nerve center of an enterprise. Kaplan and Norton describe the innovation of the balanced scorecard as follows: "The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation." The balanced scorecard suggests that we view the organization from four perspectives, and to develop metrics, collect data and analyze it relative to each of these perspectives: The Learning & Growth Perspective This perspective includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement. In a knowledge-worker organization, people -- the only repository of knowledge -- are the main resource. In the current climate of rapid technological change, it is becoming necessary for knowledge workers to be in a continuous learning mode. Government agencies often find themselves unable to hire new technical workers, and at the same time there is a decline in training of existing employees. This is a leading indicator of 'brain drain' that must be reversed. Metrics can be put into place to guide managers in focusing training funds where they can help the most. In any case, learning and growth constitute the essential foundation for success of any knowledge-worker organization. Kaplan and Norton emphasize that 'learning' is more than 'training'; it also includes things like mentors and tutors within the organization, as well as that ease of communication among workers that allows them to readily get help on a problem when it is needed. It also includes technological tools; what the Baldrige criteria call "high performance work systems." The Business Process Perspective This perspective refers to internal business processes. Metrics based on this perspective allow the managers to know how well their business is running, and whether its products and services conform to customer requirements (the mission). These metrics have to be carefully designed by those who know these processes most intimately; with our unique missions these are not something that can be developed by outside consultants. In addition to the strategic management process, two kinds of business processes may be identified: a) mission-oriented processes, and b) support processes. Mission-oriented processes are the special functions of government offices, and many unique problems are encountered in these processes. The support processes are more repetitive in nature, and hence easier to measure and benchmark using generic metrics. The Customer Perspective Recent management philosophy has shown an increasing realization of the importance of customer focus and customer satisfaction in any business. These are leading indicators: if customers are not satisfied, they will eventually find other suppliers that will meet their needs. Poor performance from this perspective is thus a leading indicator of future decline, even though the current financial picture may look good. In developing metrics for satisfaction, customers should be analyzed in terms of kinds of customers and the kinds of processes for which we are providing a product or service to those customer groups. The Financial Perspective Kaplan and Norton do not disregard the traditional need for financial data. Timely and accurate funding data will always be a priority, and managers will do whatever necessary to provide it. In fact, often there is more than enough handling and processing of financial data. With the implementation of a corporate database, it is hoped that more of the processing can be centralized and automated. But the point is that the current emphasis on financials leads to the "unbalanced" situation with regard to other perspectives. There is perhaps a need to include additional financial-related data, such as risk assessment and cost-benefit data, in this category. -------------------------------------------------------------------------------- The Balanced Scorecard and Measurement-Based Management The balanced scorecard methodology builds on some key concepts of previous management ideas such as Total Quality Management (TQM), including customer-defined quality, continuous improvement, employee empowerment, and -- primarily -- measurement-based management and feedback. Double-Loop Feedback In traditional industrial activity, "quality control" and "zero defects" were the watchwords. In order to shield the customer from receiving poor quality products, aggressive efforts were focused on inspection and testing at the end of the production line. The problem with this approach -- as pointed out by Deming -- is that the true causes of defects could never be identified, and there would always be inefficiencies due to the rejection of defects. What Deming saw was that variation is created at every step in a production process, and the causes of variation need to be identified and fixed. If this can be done, then there is a way to reduce the defects and improve product quality indefinitely. To establish such a process, Deming emphasized that all business processes should be part of a system with feedback loops. The feedback data should be examined by managers to determine the causes of variation, what are the processes with significant problems, and then they can focus attention on fixing that subset of processes. The balanced scorecard incorporates feedback around internal business process outputs, as in TQM, but also adds a feedback loop around the outcomes of business strategies. This creates a "double-loop feedback" process in the balanced scorecard. Outcome Metrics You can't improve what you can't measure. So metrics must be developed based on the priorities of the strategic plan, which provides the key business drivers and criteria for metrics that managers most desire to watch. Processes are then designed to collect information relevant to these metrics and reduce it to numerical form for storage, display, and analysis. Decision makers examine the outcomes of various measured processes and strategies and track the results to guide the company and provide feedback. So the value of metrics is in their ability to provide a factual basis for defining: Strategic feedback to show the present status of the organization from many perspectives for decision makers Diagnostic feedback into various processes to guide improvements on a continuous basis Trends in performance over time as the metrics are tracked Feedback around the measurement methods themselves, and which metrics should be tracked Quantitative inputs to forecasting methods and models for decision support systems Management by Fact The goal of making measurements is to permit managers to see their company more clearly -- from many perspectives -- and hence to make wiser long-term decisions. The Baldrige Criteria (1997) booklet reiterates this concept of fact-based management: "Modern businesses depend upon measurement and analysis of performance. Measurements must derive from the company's strategy and provide critical data and information about key processes, outputs and results. Data and information needed for performance measurement and improvement are of many types, including: customer, product and service performance, operations, market, competitive comparisons, supplier, employee-related, and cost and financial. Analysis entails using data to determine trends, projections, and cause and effect -- that might not be evident without analysis. Data and analysis support a variety of company purposes, such as planning, reviewing company performance, improving operations, and comparing company performance with competitors' or with 'best practices' benchmarks. A major consideration in performance improvement involves the creation and use of performance measures or indicators. Performance measures or indicators are measurable characteristics of products, services, processes, and operations the company uses to track and improve performance. The measures or indicators should be selected to best represent the factors that lead to improved customer, operational, and financial performance. A comprehensive set of measures or indicators tied to customer and/or company performance requirements represents a clear basis for aligning all activities with the company's goals. Through the analysis of data from the tracking processes, the measures or indicators themselves may be evaluated and changed to better support such goals." Why Implement a Balanced Scorecard? Increase focus on strategy and results Improve organizational performance by measuring what matters Align organization strategy with the work people do on a day-to-day basis Focus on the drivers of future performance Improve communication of the organization’s Vision and Strategy Prioritize Projects / Initiatives Additional Resources: A Balancing Act by BSCI Executive Director Howard Rohm A seminal article on how to implement the balanced scorecard. Read More >> Sustaining New Directions by Howard Rohm and Larry Halbach Sequel to A Balancing Act -- an article. Read More >> The Balanced Scorecard -- Not Just Another Project by Paul Arveson The balanced scorecard management system is not just another project. It is fundamentally different from project management in several respects. A Sample of Balanced Scorecard Adopters Definitions of Balanced Scorecard Strategic Planning & Management Terms Definitions of General Management Terms Using the Balanced Scorecard to Align Your Organization by Howard Rohm Balanced Scorecards, when developed as strategic planning and management systems, can help align an organization behind a shared vision of success. Read More (free registration required) >> Friends of the Institute NEW! Join here to discuss and read about issues and lessons-learned related to balanced scorecard and performance management experiences on the Institute's new discussion board and blog. Upcoming Training Events Balanced Scorecard Bootcamp Apr. 21-25 in Atlanta, GA Certificate Program Apr. 28-May 9 in Washington, DC Introduction to the Balanced Scorecard May 13-15 in Washington, DC Advanced Balanced Scorecard: Train the Trainer Jun. 3-5 in Washington, DC NEW! TRAINING IN SPANISH Introducción al Balanced Scorecard: Nueve pasos para el éxito June 2-4 in Miami, FL Introduction to the Balanced Scorecard Jun. 10-12 in Chicago, IL NEW! WEST COAST LOCATION Introduction to the Balanced Scorecard July 16-18 in Los Angeles, CA More Upcoming Events>>