A model for internal corporate governance: Towards 3Is Effectiveness

Author: Dr. Justine Chinoperekweyi
The changes in the operating environment have led to significant shifts in the manner in which organizations are being managed and/or directed. The need to continuously reframe and refine internal corporate governance mechanisms cannot be overemphasized. Chaos and Complexity Theories are predominantly redefining corporate management and corporate governance. In view of the ongoing disruptions, it is more accurate than ever before to submit that organizations are in a constant state of disorganization. There are increasing tensions and disconnects between corporate management and corporate governance. In bridging the gap between theory and practice, more work need to be done in examining the corporate governance principles and practices that drive organizational effectiveness. My previous articles on corporate governance reinforced the need for a hybrid corporate governance model that is predominantly principles-based rather than models that are predominantly technical-rational, and pedantic rules-based model.

I had to review my doctoral dissertation in order to proffer an aiding model to enhancing corporate governance during periods of epochal change. My doctoral conceptual model encompasses the connection involving eight internal corporate governance variables and organizational effectiveness. These eight variables are Shareholders, Exceptional Boards, Leadership and Management, Strategic Planning, Organizational Learning, Employees (Workforce Optimization), Workplace Spirituality, and Corporate Financial Reporting. The model indicates that the principles and practices underlying these eight variables produce either organizational effectiveness or ineffectiveness. Most literature on Adaptive Leadership and Leading during Crises revolves around these eight variables.

During periods of epochal change, organizations need to adopt models that take a holistic approach to organization effectiveness/ineffectiveness. Under normal or evolutionary periods, businesses follow a linear approach of Establish-The-Business (ETB), Run-The-Business (GTB), Grow-The-Business (GTB), and Transform-The-Business (TTB). As business environments become unpredictable and uncertain, the concept of being agile needs to be emphasized as one key determinant of organizational effectiveness. During periods of disruptive changes (revolutionary periods), it is essential for businesses to be dominated by Transform-The-Business mindset as a way to facilitate adaptive leadership and organization ambidexterity competency. This TTB mindset should be supported by the VUCA-Prime concept and a broader view of organization effectiveness. Organizational effectiveness need to be considered at three levels: institutional effectiveness, industry effectiveness, and inclusive effectiveness. It is important to note that the measures of organizational effectiveness or ineffectiveness vary at each of these three levels. In line with shared value and embedded sustainability concepts, the determinants of organization effectiveness/ineffectiveness should integrate both the shareholder and stakeholder primacy perspectives. The framework (as depicted below) recognizes corporate governance deficiencies brought about by the exponential increase in laws, rules and regulations, and guidelines on corporate governance.

Source: Chinoperekweyi, J. (2018). Ph.D Dissertation. University of Lusaka

In view of the model above, the variables that determine organizational effectiveness are: exceptional boards, leadership and management, strategic (transformational) planning, organizational learning, employees, workplace spirituality, and corporate reporting. The pursuit of organizational effectiveness by any organization requires the development of sound principles and practices on each of these variables.

Using a linear approach, let’s look at the three levels of effectiveness: Institutional Effectiveness, Industry Effectiveness, and Inclusive Effectiveness (3Is Effectiveness).

At the initial stages of the organization’s life cycle, the main focus will be at Institutional Effectiveness. The business has to exist in the market. The business will pursue shareholder wealth maximization as the primary objective. Traditional measures of corporate performance such as RoA, RoE, Cost-to-Income ratio, Net interest margin etc. are the main metrics to determine organizational effectiveness. Organizations that stay long at this level will become ineffective.

From the institutional effectiveness level, organizations need to pursue Industry Effectiveness. The business has to emerge in the market. Industry effectiveness recognizes competition in the market. The business at this level needs to strategically position itself and increase its market share. Elements of stakeholder value creation start being incorporated into the business model in order to secure a sustainable competitive advantage. To measure industry effectiveness the business will prioritize economic and market-based measures of performance. At this stage there exists a mutual connection between institutional and industry effectiveness.

As the organization grows Inclusive Effectiveness becomes important. The businesses pursuing inclusive effectiveness excel and exceed expectations. Corporations should not be judged solely on financial metrics, but also on non-financial (Carroll, 1979). Carroll (2000) suggested that organizations have “four faces” to “fulfill to be good corporate citizens: economic, legal, ethical and philanthropic”. The inclusive effectiveness focuses predominantly on the stakeholder value creation objective. The triple bottom line reporting standards are important at this level.

To ensure long term sustainability organizations need to concurrently focus at all the three levels of effectiveness. Due to the rapid disruptions in the business environment, focusing on any one level of effectiveness for a long period of time without considering the other will lead to ineffectiveness. From an internal corporate governance perspective these three organizational effectiveness levels can be achieved through devising principles and practices along the following corporate governance variables: exceptional boards, leadership and management, strategic (transformational) planning, organizational learning, employees, workplace spirituality, and corporate reporting.

Author: Dr. Justine Chinoperekweyi is the CEO at the Centre for Organization Leadership and Development (COLD). He also serves as President of OLDN and Editor-in-Chief of the Organization Leadership and Development Quarterly (OLDQ). Dr. Justine also works as Academic Director in UAE. He holds numerous other international positions aligned to OD, Leadership and Governance. He can be contacted at justine@centreold.com or www.drjustine.net

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