Devarajan Swaminathan & Co.

Cost Accountants - aligning costs with strategies

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Enterprise Governance

In the wake of various scams around the world and the recent Satyam fiasco in India.

Is there an urgent need to shift focus from Corporate Governance to a more comprehensive Enterprise Governance which includes Conformance (Corporate Governance) and Performance.

It is argued that Corporate Governance on its own cannot make a Company successful. It must balance Conformance with Performance.

What is Enterprise Governance? It is a set of responsibilities and practices exercised by the Board and Executive Management with the goal of providing strategic direction, ensuring that the objectives are achieved, ascertaining that the risks are managed appropriately and verifying that the resources of the organisation are used responsibly.

Corporate governance is about how companies are directed and controlled. It is focused on conformance with regulations. This conformance is important but a governance structure should also support an organization’s efforts to improve performance. It has to come out of a check-list mentality which leads to governance in form and not in substance (as was amply evident in the Satyam case). There is an urgent need to move from compliance governance to business governance which also happens to be the view of the International Federation of Accountants (IFAC) (Report on Financial Reporting Supply Chain).

The governance structure has to expand its horizon to include a system that ensures optimal utilisation of resources for the benefit of shareholders while meeting societal expectations. There has to be a shift from compliance or rule based governance to a performance management framework with enterprise governance.

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