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Integrating the parts... Seeing things whole. ECOA Conf presentation wm bojan 20110921

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Presentation by William Bojan, Founder and CEO of Integrated Governance Solutions, to the Ethics and Compliance Officers Association 19th Annual Conference in Seattle on Sept. 21, 2011.

Presentation by William Bojan, Founder and CEO of Integrated Governance Solutions, to the Ethics and Compliance Officers Association 19th Annual Conference in Seattle on Sept. 21, 2011.

Published in: Business, Economy & Finance

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  • 1. NEXT GENERATION GOVERNANCEIntegrating the parts… Seeing things whole
  • 2. Speaker Biography William S. Bojan, Jr. • Founder and CEO of Integrated Governance Solutions, LLC • Chief Ethics Officer, UnitedHealth Group • Chief Risk Officer, UnitedHealth Group • General Auditor, UnitedHealth Group • Risk Consulting Partner, Arthur Andersen • Vice President, Internal Audit, Kemper Financial Group • Audit Manager, Ernst & Young © 2011 Integrated Governance Solutions, LLC All Rights Reserved
  • 3. “The Governance Triangle” Shareholders © 2011 Integrated Governance Solutions, LLC All Rights Reserved
  • 4. “The Governance Triangle” What’s wrong with this picture? Shareholders © 2011 Integrated Governance Solutions, LLC All Rights Reserved
  • 5. The Three Dimensions of Sound GovernanceBusiness Leadership Board of Directors Stakeholders(Leadership and Results) (Policies and Oversight) Monitoring System (Assessment and Monitoring) © 2011 Integrated Governance Solutions, LLC All Rights Reserved
  • 6. 10 Key Issues Plaguing Governance TodayIssue: Resulting in:Lack of role clarity (board, committees) Overlaps, gaps and confusionInformation overload Distractions from core responsibilities & strategic opportunitiesLack of healthy, robust debate Compromised decision-making processContinually expanding board agenda Inability to address critical topicsBoard/management culture issues Diminished productivity, compromised outcomesInconsistent process for board reporting Management is burdened and board lacks confidence in the information it receivesSiloed information channels No cohesive view of organizational health and issuesIncomplete risk picture Less tangible but equally critical risks overlookedLagging risk competencies Increased exposure and liabilityRisk predominantly downside-focused Missed opportunities to create new value © 2011 Integrated Governance Solutions, LLC All Rights Reserved
  • 7. Next Generation Monitoring System – “Connectivity” RISK BUSINESS COORDINATION COLLABORATION “Increasing “Informing Risk Intelligence” Risk Decisions” ™ MONITORING INTEGRATION “Enhancing Risk Agility” © 2011 Integrated Governance Solutions, LLC All Rights Reserved
  • 8. Setting Strategic Risk Context RISKCOORDINATION “IncreasingRisk Intelligence” Business External/ Process/ People/ Financial/ Technology/ Strategies/ Environment Execution Culture Reporting Data Policies 1. Competitor 6. Strategy & Innovation 11. Operations - Planning 22. Leadership 29. Performance 36. Technology 2. Legal & Regulatory 7. Capital Allocation 12. Operations – Process Development & Management Infrastructure/Architecture 3. Catastrophic Loss 8. Business/Product Portfolio Design Succession Planning 30. Budgeting/Financial 37. Data Relevance & Integrity 4. Cost Trends 9. Organization Structure 13. Operations – Process 23. Skills/Competency Planning 38. Data Processing Integrity 5. Customer Expectations 10. Organization Policies Execution & Continuity 24. Change Readiness 31. Accounting/Tax 39. Technology Reliability & 14. Resource Capacity & 25. Communication Information Recovery Allocation 26. Performance 32. External Reporting & 40. IT Security 15. Vendor/Partner Reliance Incentives Disclosure 16. Channel Effectiveness 27. Accountability 33. Pricing/Margin 17. Interdependency 28. Fraud & Abuse 34. Market Intelligence 18. Customer Satisfaction 35. Contract Commitment 19. Regulatory Compliance & Privacy 20. Knowledge/Intellectual Capital 21. Change Integration Reputation Market Share Revenue Growth Financial Performance • Brand Value • Market Penetration • New Sources of Revenue • Profitability • Public Perception • Total Customers • Account Growth • Cash Flow • Shareholder Relations • Innovation • Customer Growth • Avoiding Surprises Mission Stakeholders Returns Achieving organizational mission Appropriately serving all stakeholders Delivering solid returns to owners © 2011 Integrated Governance Solutions, LLC All Rights Reserved
  • 9. Risk Threats vs. Opportunities BUSINESSCOLLABORATION “Informing Enterprise Risk Risk Decisions” Assessment Mitigating Leveraging DOWNSIDE UPSIDE Business Major Risk Plan Change Risk Threats Performance Events Opportunities • Prevent • Identify • Detect • Mobilize • Mitigate • Leverage Chronic Under- Emerging Performing Risks Areas © 2011 Integrated Governance Solutions, LLC All Rights Reserved
  • 10. Holistic Monitoring SystemMONITORINGINTEGRATION Do we set and maintain an ethical Do we effectively identify, assess and culture and behavior to achieve manage the risks which can threaten our “Enhancing high trust? execution and success (but at a Risk Agility” manageable level of detail)? Ethics Risk Monitoring Monitoring Organization Model Components: Mission, Vision, and Strategy Execution Controls Values Why are we here? How do we get it done? How do we stay on course? What will drive success for our • What are we trying to • People • Operational controls stakeholders? achieve? • Processes • Financial controls • Short-term (1 year) • What do we stand • Technology/Systems • Compliance controls • Longer-term (3-5 years) for in getting there? • Reporting CSR Compliance Monitoring Monitoring Do we achieve success for our stakeholders Do we effectively identify, assess and in a socially responsible and sustainable maintain the controls needed to sustain an manner? ethical, compliant, well-managed, resilient, mission-driven, and economically successful enterprise? © 2011 Integrated Governance Solutions, LLC All Rights Reserved
  • 11. Board Risk Oversight Qualities 10 Key Board Elements 20 Essential Board Qualities (Bolded = Directly impacts risk oversight) Element 1: 1.A. Independent leadership for the board has been established.OBJECTIVE Objective Board & Mgmt. Leadership 1.B. The tone and culture set by the board promotes organizational integrity, stewardship, accountability and transparency. Element 2: 2.A. Legal obligations and fiduciary duties are well understood by all board members and “C-suite” officers of the organization. Clear Understanding of Legal 2.B. Mechanisms exist to reinforce the fulfillment of legal obligations and fiduciary duties of all board members and “C-suite” officers & Fiduciary Duties of the organization. Element 3: 3.A. Board and board committee structure is effective and functional. 3.B. Mechanisms exist to ensure that the board and committee structures are highly responsive toALIGNED Effective Board & Committee Structure the oversight of governance and risk management in the aggregate. 4.A. Clear roles and responsibilities are established between board chair and CEO. Element 4: Clear Roles & Responsibilities 4.B. Clear roles and responsibilities are established across members, committees, and full board. 5.A. Board members represent diverse and extensive competencies and perspectives. Deep competencies exist in: executive, Element 5: financial, operational, governance, legal, human resources, industry, and other areas of specialized expertise and background.EQUIPPED Diversified Board Composition 5.B. Specialized risk management and risk oversight competencies and resources exist within the board. Element 6: 6.A. Formal orientation is conducted for all new board members to enhance their effectiveness. Structured Training & Development 6.B. A formal, ongoing training curriculum and other development mechanisms exist for all board members, with a strong focus on fulfillment of legal obligations and fiduciary duties. 7.A. Key business monitoring disciplines - which include ethics, social responsibility/sustainability, Element 7: risk management, and audit/compliance - are coordinated and integrated to create a monitoring Integrated & Reliable system that produces independent, accurate, comprehensive and timely information for the Monitoring InformationINFORMED board. 7.B. Mechanisms exist to ensure and periodically reassess the reliability of the monitoring system and related information delivery channels to the board. Element 8: 8.A. Management employs an integrated board reporting approach to accurately communicate a holistic, accurate and timely view of Integrated & Reliable enterprise performance and health. Management Information 8.B. Mechanisms exist to ensure and periodically reassess the reliability of management’s board reporting. 9.A. The board process is centered on fulfillment of legal obligations and fiduciary duties, thereby creating the appropriate focus for Element 9: board and committee execution. Fiduciary Duties Consistently FulfilledENGAGED 9.B. Mechanisms exist to assess whether board committee capabilities and performance merit confidence, in compliance with applicable law. 10.A. Well-designed and documented board and committee meeting minutes, including written actions by consent, are created that Element 10: clearly demonstrate and evidence fulfillment of all applicable legal obligations and fiduciary duties. Transparency to Stakeholders 10.B. Mechanisms exist to transparently demonstrate effective and accountable board oversight to all stakeholder interests, clearly evidencing that the board is objective, aligned, equipped, informed, and engaged. © 2011 Integrated Governance Solutions, LLC All Rights Reserved
  • 12. Board Risk Oversight Red Flags Unclear Oversight Ownership • Unclear ownership by the board of risk/ Poor Risk/Monitoring Information monitoring oversight – both components • Lack of organizational sophistication, competency, and holistic and overall reporting mechanisms • Weaknesses around risk aggregation, interdependencies, and portfolio concentrations No Assessment Mechanism • No effective mechanisms to assess the risk/monitoring system and information quality Reactionary Posture • Tendency not to listen or respond to early warnings of risks/monitoring issues until it is too late to avoid a crisis • Most prevalent when current performance and performance trend is favorable Inadequate Risk Expertise • Inadequate level of deep risk/monitoring expertise on the board (member and advisory) © 2011 Integrated Governance Solutions, LLC All Rights Reserved
  • 13. Integrated Risk Reporting and Decision Framework Strategy Identify key assumptions impacting execution of the strategy. Assumptions Agility Appetite Alignment Risk IncentivesRisk appetite agreed upon by board Incentive/compensation structures and programs and management. to drive operational execution consistent with company strategy and risk appetite. © 2011 Integrated Governance Solutions, LLC All Rights Reserved
  • 14. Hitting the Target – A Polished Arrow A Power Source A Vessel A Target Bow Polished Arrow Outcomes Connection Leadership Culture Structure Achievement of (Alignment) (Stability) (Identity) (Direction) Mission, Vision, Values • Wisdom • Integrity • Authority • Courage • Stewardship • Governance• Mission • Fairness • Accountability • Truth• Vision • Discipline • Transparency • Principles• Values © 2011 Integrated Governance Solutions, LLC All Rights Reserved
  • 15. Summary of Key Points 1. The current paradigm of the “Governance Triangle” is fundamentally flawed and not a solid foundation for the future. 2. Independent and “connected” monitoring systems need to take their rightful place in the checks and balances structures of corporate America. 3. This will result in increased: • Integrity (of decisions and actions) • Stewardship (of the enterprise for the long term) • Accountability (of leadership and the board) • Transparency (internally and externally) 4. This “paradigm shift” is critical for achieving restored trust, revitalized organizational performance, and sustainable economic health. © 2011 Integrated Governance Solutions, LLC All Rights Reserved