CORPORATE GOVERNANCE Oracle’s Vision – Delivering better governance

The natural tension that exists between boards and management is highlighted in the findings of Massey University’s recently released research into board effectiveness (see The Director in this issue). The research suggests that around 64 percent of directors are, to greater or lesser degrees, “concerned about their reliance on management” for information.
The problem, explains Massey’s professor of corporate governance leadership Nick van der Walt who headed the research, is that directors recognise that management is the only effective source of the information they are given about the enterprise. They find themselves asking the question: “are we getting the complete picture?
“What they really need, and it is more systems issue, is way of helping them to obtain better information without undermining or second guessing management,” he adds. “A lot of the information they receive is driven by the reporting format and the board papers. Is there way of making that [reporting)]more flexible or accessible?”
Oracle, of course, thinks there is and hopes to prove it by backing initiatives like the Massey study.
“Governance is key [market] focus area for us right now,” says the company’s New Zealand chief executive Robert Gosling. “So this research was an obvious opportunity for us.”
“There are areas around compliance and strategy where we think we can help. Boards spend lot of time looking at numbers [often too much time if the Massey research is anything to go by], but numbers need context,” says Gosling. “Unless they are timely and audited to the original source (without any intermediate manipulation or distortion) they are not useful. Directors and management both need to know that the numbers are accurate and they are delivered as close to real time as possible.”
Directors and management should be able to source organisational data quickly and, if necessary, independently. And the processes for both establishing the data directors need and for delivering it should be both repeatable and based on best practice, according to Gosling. “Directors, and management for that matter, can’t drive by looking in mirror. They need information on relevant key performance indicators (KPIs) to give clear view of the future.”
Oracle sees the governance market as global business opportunity for its E-Business suite 11i and its integrated balanced scorecard applications that focus on helping companies improve their governance, compliance, risk management and performance drivers. “The Massey study gets us close to our market and expands our understanding of director needs,” says Gosling. “It has given us sound, independent information and some additional understanding of the issues that boards face at governance and compliance level.”
The introduction of America’s Sarbanes-Oxley Act strengthens Oracle’s database and reporting software. It decided to work balanced scorecard approach into its information applications and to build business opportunity around the suddenly rapidly growing governance and compliance market.
And the company is now reporting its first successes in selling its information systems to the New Zealand market. “Solid Energy now runs all their board reporting through our balanced scorecard product and 11i business suite,” says Gosling. “They say there is huge director comfort around the information because it all comes from the source rather than from number of spreadsheets which can be aggregated, consolidated and even manipulated.”
The Massey research also suggests, somewhat surprisingly, that some boards are short on financial understanding. “I though that was interesting given the make-up of most boards. If directors were given more timely and contextual information that (deficiency) might not be so important. They wouldn’t have to spend so much time slaving over and making sense of the figures they are given,” says Gosling. “It is the context of the information that is more relevant. The accounting content is less of an issue than how the information is presented. Governance is more about measuring the strategic rather than the financial output of an organisation.”
Gosling also seizes on the research’s conclusion that many directors feel compromised when it comes to influencing profitability. “If you think about it you can understand why they feel that way,” he says enthusiastically. “All they have got is last month’s sales report or the profit and loss statement and there they are struggling to engage with the organisation and its key strategic drivers. They simply don’t know how the business is performing against key measures and strategic targets.
“Organisations create strategy. The board ratifies it and within that strategy there needs to be measurements of performance against goals and that, in essence, is the whole balanced scorecard approach. The balanced scorecard has been around for years but the implementation has always been challenging. Part of that is because organisations have large number of disparate systems which work against the integration of the essential information that measures performance. There are too many sources of information and it is impossible to know which are true.”
Oracle backed the research also because, as Gosling puts it, he saw the relevance of it to Australia. “We could see Nick taking it there and so that was another reason to be involved,” he explains. “We see this as project we can perhaps take to the rest of our organisation. If we are going to talk about global compliance and governance perhaps this project can show us how to apply shareholder value for boards.”
Oracle New Zealand hasn’t yet taken its ideas to head office USA. “This is still regional strategy and we’ll see what comes from it.”
Gosling believes enlightened CEOs and directors are beginning to realise the potential that comes from better interaction between boards and management. But, he says, they need the right tools to work together, confident that the information they have is real, relevant and in the right context.
“Enlightened executives get it,” he says. “The CEO (Don Elder) was the sponsor of the programme we did at Solid Energy. He was the champion of the exercise. Now he says he can run his company from his desktop and knows with confidence that the mining operations are happening, that the machines are being maintained, that coal is being shipped out of the West Coast and that the company is making money selling the stuff. He knows that every day.”
CEOs, says Gosling, understand that balanced scorecard management reporting is the key to driving successful business. “The transfer of that information to the board says ‘you can be as aware of where the business is at as (management) is’ and then it comes down to developing the best strategy.” It is, he adds, case of moving from transactional processing systems to information systems that are real time driven.
“Good governance and good management frameworks aren’t things you can manage effectively manually,” he says. “By automating and integrating IT reporting systems with applications like the balanced scorecard, organisations become more cost effective and faster on their feet. That delivers competitive advantage.”