By Ron A. Carucci and Eric C. Hansen, authors of a new executive leadership study and book, Rising to Power: The Journey of Exceptional Executives. Eric Jackson, CEO of Ironfire Capital, ranked the best boards in America in 2009. Amazon.com, Inc. ( AMZN), Johnson & Johnson ( JNJ), and Berkshire Hathaway Inc. ( BRK).A ( BRK).B rose to the top based on key indicators Jackson uses to assess boards that drive strong share performance: equity ownership, independence and time to serve. In the debate over the impact of corporate governance on business performance, the Shareholder and the Stakeholder models are most often cited. The first focuses narrowly on the accountability of executives to shareholders while recognizing business ethics and broader stakeholder relations can impact the reputation and long term success of the corporation. The Stakeholder model considers and manages the broader network of formal and informal relations required for success while emphasizing contributions by stakeholders that can contribute to the long term performance of the firm and shareholder value. Moreover, the difference between these two models has become merely a matter of emphasis. Exceptional leadership: Does corporate governance impact business success While board governance and performance certainly impacts business success, equally important to sustained results is the internal governing bodies and coordinated system of organizational governance. However, despite the best of intentions, most companies struggle with too many priorities, muddy decision rights, indiscriminant resource allocation processes, and "executive-idol" approaches to key talent appointments. It's no wonder the ability of executives to make clear, impactful choices and stick with them is challenged. In the ten-year longitudinal study on effective executive performance that Navalent will release later this month, we found the capacity to construct sustainable enterprise choices as a key differentiator between exceptional and mediocre executive leadership.
Exceptional leadership: Internal governanceInternal governance is simply the right people, equipped with the right data and authority, making the right decisions, aligned against clear priorities, allocating the appropriate resources, and then holding the organization accountable for execution. Sadly, most organizations haven't established sufficient governance to execute their strategy. Yet aligning and integrating strategic, financial, and talent processes to effectively allocate authority, priorities, and resources are the most profoundly differentiating activities a company can undertake. This drives competitive positioning by maintaining proper focus on efficiency, effectiveness, and results.
Unfortunately, many organizations believe a proliferation of councils and committees constitute effective governance; or they pride themselves on being an "informal," organic company. Both are risky. Regardless of the organization, well designed governance defines and reinforces desirable behaviors and helps diminish negative ones. It clarifies leadership expectations, spheres of power, performance measures, and collaboration required at critical seams across the organization. Good governance defines how groups of leaders come together to make and execute decisions about:
- Priority objectives with requisite resource allocation,
- Targets, performance measures and accountability
- P&Ls and budgets, and
- Managing the portfolios of products, clients, and talent.