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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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Preparing For The Governance Backlash Slideshare

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see blog: http://www.e8consulting.com/blog/practiceareas/projectgovernance/preparing-directors-for-the-governance-backlash

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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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