“MAP Insights” Column in BUSINESSWORLD – 16 November 2010
RESPONSIBLE FINANCIAL REPORTING
AND CORPORATE GOVERNANCE
by Jesus P. Estanislao
Introduction
Corporate Governance
Corporate governance (CG) should lead to performance, and this is generally understood as one
leading to increased shareholder value over the long term.
Since the perspective of CG is long term, an essential demand it makes is for corporate strategy to be
formulated and properly executed. It is true that CG is often viewed as a set of expensive rules to comply
with: this is at the start of CG reforms; but once the standard of compliance with the rules has already
reached a high level, then the essential demand of CG kicks in.
In formulating and executing strategy, following the balanced scorecard framework, which we have
adapted into the Philippines and labeled as the performance governance system, a corporation is asked for
the following:
1.
A charter statement, which includes an articulation of the corporate core values, the corporate
mission, and the corporate vision;
2.
A strategy map, which inter-connects the different strategic priorities of the corporation;
3.
A governance scorecard, which lays out the key initiatives the corporation proposes to undertake, the
measures it uses to track progress, and the targets it commits to meet at each reporting period, which
generally is at least once a semester.
In the formulation of the strategy map, the balanced scorecard or the performance governance system
requires that before the financial perspective is considered, three other perspectives have to be brought into
the radar screen. These are: learning and growth (and the investment in people); internal processes (and how
well they compare with the efficiency and effectiveness of peer group processes); customers and other
constituencies (and how well these are being served and satisfied). It follows that the resulting strategy map
should include strategic priorities related to financial results AND those related to these three other
perspective. It also follows that in reporting, using the governance scorecard, the measures and targets
covered would include both financial AND non-financial elements. In addition to the usual financial
reporting, corporate reporting should include performance relative to the targets set for a few strategic
priorities under learning and growth; under internal processes; and under customer and other constituencies’
satisfaction.
Reporting, under a performance-oriented CG, is more balanced. It goes beyond the traditional financial
reporting. It covers the other facets, which also help secure the maximization of long-term shareholder value.
It is more comprehensive. It highlights the key elements that help determine the long-term over-all strength
and sustainability of the corporation itself.
Reporting on Performance
Such a balanced, more comprehensive reporting on performance becomes an occasion for a regular,
in-depth strategy review, which is undertaken at least once every semester. During such a strategy review
process, key issues come up:
1.
2.
3.
4.
5.
How is actual performance measuring up against the targets?
Is performance in line with the strategic priorities?
Are the milestones on the way towards realizing the corporate vision being reached?
Are operations and the results they are delivering consistent with corporate mission?
Is the actual manner of pursuing the different strategic priorities fully consistent with corporate core
values?
By facing up to these issues, every strategy review becomes an occasion for:
1.
Making an in-depth assessment of corporate performance, using the yardsticks not only the
traditional measures of financial reporting, but also the demands of making investments in people, of
raising the standards of efficiency of internal processes, and of satisfying both customers and other
constituencies.
2.
In considering these other demands, a corporation is forced to give due importance to the many
demands of a proper governance culture. These demands derive from the free and responsible
environment in any corporation; and that environment, therefore, should be suffused with ethics and
social responsibility.
3.
A culture of ethics and social responsibility---along with the breakthrough results from high level
corporate performance---is the best and final guarantee of maximized shareholder value and of longterm corporate strength and sustainability.
(The article reflects the personal opinion of the author and does not reflect the official stand of the Management
Association of the Philippines. The author is “MAP Management Man of the Year 2009” and Chair of the
Institute of Corporate Directors and the Institute for Solidarity in Asia. Feedback at map@globelines.com.ph.
For previous articles, please visit <map.org.ph>.)
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