Tuesday, August 31, 2004

Balanced Scorecard and Corporate Governance

Robert Kaplan adds an additional role the Balanced Scorecard can play to its already impressive feature list. Kaplan's article

Recent failures (Enron, Tyco, WorldCom) triggered several regulatory and legislative responses, including the Sarbanes-Oxley Act and new Securities and Exchange Commission-approved NYSE and Nasdaq governance listing standards. Currently, prior to a typical board meeting, members receive reams of paper that are difficult to wade through and make sense of. Kaplan says the risk now is that boards will become overly focused on regulatory compliance and corporate governance issues. As a result monitoring the company's overall strategy might not get the attention it deserves.

Kaplan has spotted an opportunity for his Balanced Scorecard in this situation: with only limited time available to review the information before the meetings and to perform their monitoring and governance functions, board members must receive the information that is most relevant to their governance responsibilities and that will enable them to more effectively participate in board meeting discussions.

Extending the Balanced Scorecard and strategy map framework to board members will enable them to perform more effectively and efficiently. First, the board should use the corporate strategy map and Balanced Scorecard, which together describe the company's strategy, as prime information sources. Second, it should produce a board scorecard to make clear board responsibilities and accountabilities. This provides a mechanism for the board to set objectives and subsequently review its performance.

Should Mr. Kaplan's idea be considered a valuable contribution to ensuring boards maximize shareholder value or do you believe his article must primarily be considered as a skillfull salespitch?