Governance tools for board members: adopting strategy maps and balanced score cards

Tools

Sankaran, Kizhekepat (2011) Governance tools for board members: adopting strategy maps and balanced score cards. In: HBMeU Annual Congress, 2011-02-01 - 2011-02-02. (Unpublished)

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Abstract

The accountabilities of the members of the board of directors (BoD) of companies have increased over the years. In nearly every country there is a spate of legislation that holds board members to far greater liability than in the past. Some courts in the US, for instance, are questioning the adequacy of “business judgment rule”. What this means is that increasingly it is not just deliberate misconduct of directors that is attracting legal actions, but also acts construed as negligence. World over, negligence, including lack of knowledge or inattention to firm supervision, is increasingly being considered a violation of the directorial fiduciary responsibilities. Corresponding to these developments, there are no adequate tools and frameworks available to the directors to influence, monitor and control managerial behaviour. This paper would examine how Balanced Score Card (BSC) and Strategy Maps could be modified to be use for the purpose. Strategy Score Cards originally specified four perspectives. These perspectives are by themselves useful in addressing the various stakeholder concerns. Equally important is the way the various perspectives tie together to create “coherence”. Strategy maps are complex set of hypotheses that the company holds as true, even if temporarily, that needs to be continuously checked for its veracity. For directorial control, it is possible to extend the idea of score cards and strategy maps. This paper would show how this is possible. First, it is possible to examine the various measures, adopt and extend some of them for directorial control. For instance, if the BoD decides to be more active about the environment, then the scorecards would need to be modified to incorporate the environmental factors. These may be incorporated in the Internal Process perspective (one of the famous four perspectives originally proposed by Kaplan and Norton), “internal” here implying not just “internal to the firm” but also the “inter-organizational system”. Or such factors could be introduced separately under a new “perspective”; something that should be done in a conceptually sound manner. What is important is that while introducing, in this case, environment, the strategy map has to be correspondingly modified in the cause-effect scheme. Tracking the strategy map by BoD over time provides for convenient monitoring. Take the case of an investment made in the past to, say, enhance consumer satisfaction (say, as claimed previously and appropriately represented as a cause-effect relationship in the strategy map). The BoD can now examine effectiveness of the investment based on the cause-effect claims that the strategy map makes. This paper would make a distinction between action variables and monitoring variables. Monitoring variables will be further divided based on two considerations; whether a) results met or not and b) whether causative factors met the expected levels or not. Based on this, ways to relook at how the monitoring variables could be more completely and accurately specified will be discussed with implications for directorial recommendations to the executive.

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