Preparing for the governance backlash Presented by: Dr Raymond Young [email_address]
Tough questions will soon be asked.  <ul><li>The financial crisis has regulators, governments, and the media focused on ec...
A brief history of corporate governance <ul><li>Sarbanes-Oxley (2002) </li></ul><ul><li>Hampel (1998),Turnbull (1999) </li...
Tough questions will soon be asked  What’s wrong with our governance regimes? <ul><li>No one doubts effective governance  ...
After GFC: New levels of scrutiny expected Real Project Failure Rate Exposed Oversight  blind (29%)  or nil (16%) Increasi...
<ul><li>¾ of mergers and acquisitions never pay off </li></ul><ul><li>2/3 of IT projects deliver no benefits whatsoever </...
How does that affect me? Governance must add value <ul><li>Value post GFC: </li></ul><ul><ul><li>Reduce cost,  </li></ul><...
The value of Project Governance Current Performance (68% under) Reduce cost  36.6m 47.6m 86m-124m Improve customer service...
What is governance?  The real role of the board is to  ask the right questions More strategic value has been destroyed in ...
Governance Evaluate Direct &  Monitor The right questions HB280, AS8016 Investment: benefits or terminate? Strategy/capabi...
Preparing for the governance backlash have the right information ready before you are asked <ul><li>Examples from  </li></...
Conclusion Preparing for the governance backlash <ul><li>Current governance practices will almost certainly be questioned ...
Questions & Discussion Governance  harmonisation map
Governance vs Management   The ITG Harmonisation Map Val IT CobiT ITIL ISO20000 PMBOK PRINCE2 Etc. Automation C.M. CMM CMM...
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see blog: http://www.e8consulting.com/blog/practiceareas/projectgovernance/preparing-directors-for-the-governance-backlash

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  • I was warned by Keith (today’s last speaker) that Bill would blow my mind with all his graphs. What impressed me the most was … My job is not so much to impress, but to provide a sober word. I was asked to provide a brief history of governance to explain how we got to the situation we’re in today and suggest how we could respond. Before I start, a brief word about e8 Consulting because you’ve probably not heard of us until today. We’re a sister company of The Frame Group which has been a strong supporter of ISACA over the years. e8 provides business advice at the board level and I lead the project governance practice.
  • You may have noticed some of these words on the flyer to today’s summit. They’re the same words from a corporate governance conference to be held in Toronto later this year. The key point is that we’re all working frantically to make sure we survive this crisis, but it won’t be long before some very tough questions will be asked, and it won’t be just the financial sector that that gets unwelcome attention. We’ve all spent a huge amount on governance over this past decade. Why didn’t it stop the crisis or minimise the fallout?
  • Let’s have a look at how corporate governance developed. Our modern ideas of corporate governance followed the spectacular period of economic growth and the equally spectacular corporate collapses in the 1980’s. This was the period Gordon Gecko proclaimed “Greed is Good” and Junk Bonds and easy finance lead to a string of massive corporate takeovers. The symbol on the page is supposed to represent a pendulum. Rothwells (1986), Elders (1986), Bond (1987), Tricontinental (1989), Pyramid Building Society  (1990), Quintex (1990) State Bank of VIC (1991), State Bank of SA (1992), AWA (1992)
  • Management of large-scale expenditures is a fiduciary duty requiring careful oversight. However a Deloitte survey of boardroom directors revealed oversight of IT projects was either “blind” (29% with inadequate information) or non-existent (16%) [i] . They warned in 2007 that the results were “tantamount to negligence” and the AICD have long reported statistics suggesting the problem is more widespread [ii ] (Figure 1). My own research suggests that as many as two out of three projects fail to deliver the expected benefits [iii ] . Increased scrutiny could reveal the real failure rate. However what might be worse in the current financial environment is to have two out of three strategic initiatives fail to increase revenue, enhance customer service or reduce cost and threaten survival. [i] What the Board Needs to Know About IT: Phase II Findings (Deloitte, 2007), http://www.deloitte.com/dtt/article/0,1002,sid=36692&amp;cid=151800,00.html [ii] D. Lovalla and D. Kahneman, “Delusions of success: how optimism undermines executive&apos;s decisions, Harvard Business Review,” Harvard Business Review July (2003): 58 [iii] R. Young, “What is the ROI for IT Project Governance? Establishing a benchmark.,” in 2006 IT Governance International Conference (Auckland, New Zealand, 2006)
  • Management of large-scale expenditures is a fiduciary duty requiring careful oversight. However a Deloitte survey of boardroom directors revealed oversight of IT projects was either “blind” (29% with inadequate information) or non-existent (16%) [i] . They warned in 2007 that the results were “tantamount to negligence” and the AICD have long reported statistics suggesting the problem is more widespread [ii ] (Figure 1). My own research suggests that as many as two out of three projects fail to deliver the expected benefits [iii ] . Increased scrutiny could reveal the real failure rate. However what might be worse in the current financial environment is to have two out of three strategic initiatives fail to increase revenue, enhance customer service or reduce cost and threaten survival. [i] What the Board Needs to Know About IT: Phase II Findings (Deloitte, 2007), http://www.deloitte.com/dtt/article/0,1002,sid=36692&amp;cid=151800,00.html [ii] D. Lovalla and D. Kahneman, “Delusions of success: how optimism undermines executive&apos;s decisions, Harvard Business Review,” Harvard Business Review July (2003): 58 [iii] R. Young, “What is the ROI for IT Project Governance? Establishing a benchmark.,” in 2006 IT Governance International Conference (Auckland, New Zealand, 2006)
  • NO ONE wants to hear anymore about the latest set of new rules that directors have to comply with. Gilding the Lily – Sydney University Accounting Professors are questioning Accounting Standards .. Yeah but what else… $1B was spent on Sarbanes-Oxley compliance in 2006(?)
  • To survive, thrive and also to minimise the governance backlash, the first step must be to get the right information needed to govern effectively. The board bears the responsibility to set clear guidelines and expectations about the kinds of information they want to see filter up. What benefits are being targeted? [how is this consistent with our strategic priorities?] Do we have the organisational capacity to realise these benefits and what other risks are involved? How will we measure success? Do we have the right person driving the change? Are there any warning signs that the project is going off track? Are the benefits being realised? These questions seem simple but none of the directors I have spoken to had an effective process to terminate failing projects. Benefits are usually quantified (66%), but they are often overstated (27%) [i] , change is not always considered (40%) [ii] , individuals are not held accountable (5-23%) and few organisations track benefits through to realisation (10%) [iii] . Organisations do not focus on the true determinants of success. [i] Chad Lin, Graham Pervan, and Donald McDermid, “IS/IT investment evaluation and benefits realization issues in Australia,” Journal of Research and Practice in Information Technology 37, no. 3 (2005): 235-251 [ii] KPMG, “Global IT Project Management Survey: How committed are you?,” 2005, http://www.kpmg.com.au/Portals/0/irmprm-global-it-pm-survey2005.pdf [iii] John Thorp, “Unlocking Value - Delivering on the Promise of Information Technology,” in Delivering Value , 2008, http://www.isaca.org.au/modules.php?op=modload&amp;name=News&amp;file=article&amp;sid=28
  • Preparing For The Governance Backlash Slideshare

    1. 1. Preparing for the governance backlash Presented by: Dr Raymond Young [email_address]
    2. 2. Tough questions will soon be asked. <ul><li>The financial crisis has regulators, governments, and the media focused on economic stimulus. </li></ul><ul><li>However tough questions will soon be asked about what went wrong. </li></ul><ul><li>Ineffective governance will be one of the first targets, and it won’t be just the financial sector that faces increased scrutiny. </li></ul><ul><li>2009 Corporate Governance Conference. Toronto 6- 7 May </li></ul>
    3. 3. A brief history of corporate governance <ul><li>Sarbanes-Oxley (2002) </li></ul><ul><li>Hampel (1998),Turnbull (1999) </li></ul><ul><ul><li>Directors should have responsibility for all aspects of control and a duty to establish a robust system of risk management </li></ul></ul><ul><li>COSO, COCO, King, Bosch (1995) </li></ul><ul><ul><li>tough penalties against directors who breach their duties of care, diligence or do not comply with the legislation </li></ul></ul><ul><li>Cadbury (1992) </li></ul><ul><ul><li>“ Directors responsibilities include safeguarding the assets of the company and preventing and detecting fraud and other irregularities” </li></ul></ul>1991 BCCI, Maxwell, Polly Peck, Rothwells(1986) Elders, Bond, Tricontinental, Pyramid, Quintex, State Bank of VIC/SA, AWA (1992) Zeebrugge Ferry (1987), Kings Cross Fire(1987), Lockerbie air disaster (1988) 2001 Enron, Worldcom, Adelphia, Tyco, Qwest, Parmalat, HIH, One.Tel, Ansett Greed is Good 1980’s Reactive – to reassure public
    4. 4. Tough questions will soon be asked What’s wrong with our governance regimes? <ul><li>No one doubts effective governance has value </li></ul><ul><ul><li>10-12% higher share price (McKinsey 2002) </li></ul></ul><ul><ul><li>EPS, ROA, one year sales growth http://www.treasury.gov.au/contentitem.asp?NavId=035&ContentID=1495 </li></ul></ul><ul><li>but to paraphrase Warren Buffet “the tide has gone out, and Sarbanes-Oxley for example, looks like it was swimming naked”. </li></ul><ul><ul><li>Investor confidence has not increased, management accountability is being called into question and the tens of billions spent by boards for compliance has not stopped or prevented the crisis. </li></ul></ul><ul><ul><li>Young (2009) Preparing directors for the governance backlash. </li></ul></ul><ul><li>few governance prescriptions actually improve performance or reduce risk </li></ul>
    5. 5. After GFC: New levels of scrutiny expected Real Project Failure Rate Exposed Oversight blind (29%) or nil (16%) Increasing degrees of negligence Level of scrutiny (benign economy) 1:5 projects perceived to fail 2:3 projects fail New levels of scrutiny <ul><li>M anagement of large-scale expenditures is a fiduciary duty requiring careful oversight. The results were “tantamount to negligence”. Deloitte( 2007) What the Board Needs to Know About IT: Phase II Findings </li></ul>
    6. 6. <ul><li>¾ of mergers and acquisitions never pay off </li></ul><ul><li>2/3 of IT projects deliver no benefits whatsoever </li></ul><ul><li>most large capital projects fail to live up to expectations </li></ul><ul><li>majority of efforts to enter new markets are abandoned in a few years </li></ul><ul><li>70% of new manufacturing plants are closed in their first decade </li></ul>After GFC: New levels of scrutiny expected Real Project Failure Rate Exposed Level of scrutiny (benign economy) 1:5 projects perceived to fail New levels of scrutiny <ul><li>“ A pay structure that rewards origination without regard to investment outcomes is not appropriate” Michael Larkin, CEO Babcock and Brown (AFR 11 Nov 2008, p 84) </li></ul>
    7. 7. How does that affect me? Governance must add value <ul><li>Value post GFC: </li></ul><ul><ul><li>Reduce cost, </li></ul></ul><ul><ul><li>Improve customer service, </li></ul></ul><ul><ul><li>Increase revenue </li></ul></ul><ul><li>An example of not adding value: audits of system X at a major bank </li></ul><ul><li>Steering through major global trends </li></ul><ul><ul><li>Shakeout, survival of the fittest ( The great depression ahead 2009) </li></ul></ul><ul><ul><li>second industrial revolution </li></ul></ul><ul><ul><ul><li>new organisational and business models to create the next leap in innovation … elimination of waste through real time production (Natural Capitalism 1999) </li></ul></ul></ul><ul><ul><li>Alternative model of production </li></ul></ul><ul><ul><ul><li>that can harness human skill, ingenuity, and intelligence more efficiently and effectively than traditional firms Wikinomics (2006) </li></ul></ul></ul>
    8. 8. The value of Project Governance Current Performance (68% under) Reduce cost 36.6m 47.6m 86m-124m Improve customer service Increase revenue OK Some No Fail ROI 30% OK Some Fail ROI 135% Better Performance (43% under)
    9. 9. What is governance? The real role of the board is to ask the right questions More strategic value has been destroyed in the past five years as a result of strategic mismanagement and poor execution… than was lost in all of the recent compliance scandals combined Booz Allen 2004 In 2003: Fraud cost companies over $300 billion but performance failures cost companies over $3 trillion CEO of Bain & Co To ensure management is focussed on above average returns taking account of risk (Hilmer) #1 Performance #2 Conformance ValIT Accounting Sarbox, ASX COBIT
    10. 10. Governance Evaluate Direct & Monitor The right questions HB280, AS8016 Investment: benefits or terminate? Strategy/capability: how much change is required? Investment & Strategy: Benefits / alignment? Responsibility: Project Sponsor? Performance & Behaviour: measures and motivation? 67%->40% 40% 5-23% 33-67% 0-13% ITIL, COBIT Projects PMBOK, PRINCE2, etc Conformance & Behaviour: culture for issues to be raised? ??% Business processes ICT Operations Support Changed Business Processes Changed ICT Operations Initiate
    11. 11. Preparing for the governance backlash have the right information ready before you are asked <ul><li>Examples from </li></ul><ul><li>NSW Agency </li></ul><ul><li>VIC Agency </li></ul>
    12. 12. Conclusion Preparing for the governance backlash <ul><li>Current governance practices will almost certainly be questioned </li></ul><ul><li>New governance requirements are likely to be introduced </li></ul><ul><ul><li>Historically new requirements are introduced reactively </li></ul></ul><ul><ul><li>There is a risk new requirements will not add value </li></ul></ul><ul><li>We should anticipate these developments </li></ul><ul><ul><li>It takes longer for management to respond than for the board to ask </li></ul></ul><ul><ul><li>Project governance is one area worthy of attention </li></ul></ul><ul><ul><li>We should identify the key areas that need to be governed (eg. HB280, AS8016) </li></ul></ul><ul><ul><li>We should check we have effective systems to monitor the key areas, and introduce new mechanisms where necessary </li></ul></ul>
    13. 13. Questions & Discussion Governance harmonisation map
    14. 14. Governance vs Management The ITG Harmonisation Map Val IT CobiT ITIL ISO20000 PMBOK PRINCE2 Etc. Automation C.M. CMM CMMI CobiT Spice Etc. The 6 Principles ISO38015 © Brian O. Cusack

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