Enterprise Governance
                                                                                                         Getting the Balance Right
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               Enterprise Governance
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               This booklet was prepared by the Professional Accountants
               in Business Committee (PAIB) of IFAC.The PAIB Committee           Copies of this report may be downloaded free of charge 
               serves IFAC member bodies and the more than one million           from the IFAC website at www.ifac.org.
               professional accountants worldwide who work in commerce,
               industry, the public sector, education, and the not-for-profit    ISBN: 1-931949-24-7
               sector. Its aim is to enhance the profession by encouraging
               and facilitating the global development and exchange of
               knowledge and best practices. It also works to build public
               awareness of the value of professional accountants.The PAIB
               Committee was formerly called the Financial and
               Management Accounting Committee.
               Members of the PAIB Committee, 2003
               Bill Connell,Chair    Santiago C Lazzati       John Petty
               UK                    Argentina                Australia
               Gerhard Prachner      Raymond G Darke          Patrick Rochet
               Austria               Canada                   France
               Edward K F Chow       Srinivasan Ramanathan    Abolghasem Fakharian
               Hong Kong             India                    Iran
               Rodolfo Di Dato       Yeo Tek Ling             Peter A M Sampers
               Italy                 Malaysia                 Netherlands
               Pichai Chunhavajira   Recep Pekdemir           William L Brower
               Thailand              Turkey                   USA
                                                                                 Copyright © February 2004 by the International Federation of
                                                                                 Accountants.All rights reserved.With the exception of IFAC member
                                                                                 bodies, no part of this publication may be reproduced, stored in a
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                                                                                 electronic, mechanical, photocopying, recording, or otherwise without
                                                                                 the prior written permission of the International Federation of
                                                                                 Accountants.Translation requests should be submitted to IFAC.
                                                                                                                                                            1
                Introduction
                The Professional Accountants in Business Committee (PAIB)          This report:
                of the International Federation of Accountants (IFAC) was          •  defines and explains the concept of enterprise governance;
                asked by the IFAC Board in October 2002 to explore the             •  provides a brief summary of the case study findings and
                emerging concept of enterprise governance.A particular                identifies key areas for attention;
                focus of the project was to consider why corporate                 •  proposes ways of addressing these priority areas and;
                governance often fails in companies and, more importantly,         •  introduces the concept of a strategic scorecard.
                what must be done to ensure that things go right.
                                                                                   We focus on what goes right and wrong in listed companies.
                This report complements an earlier IFAC report, Rebuilding         However, most of our recommendations are relevant to
                Public Confidence in Financial Reporting:An International          other public-interest entities and small and medium-sized
                Perspective which looked at ways of restoring the credibility      enterprises.
                of financial reporting and corporate disclosure. The
                international perspective distinguishes both these reports         The focus is on the processes inside a company. External
                from other literature in this field.                               processes such as external audit and regulatory compliance
                                                                                   are important but they are not covered in this report.
                The PAIB established a steering committee comprising
                representatives from five countries: France, Hong Kong, Italy,     In developing this report, we have drawn on a considerable
                the United Kingdom and the United States.The members of            body of earlier work, particularly in the field of corporate
                the steering committee are listed on page 2.We undertook           governance.We have not duplicated this work, but built on
                a series of case studies covering ten countries and ten            it. We emphasise that it is important to balance good
                market sectors.The case studies considered both corporate          corporate governance with the creation of sustainable value.
                governance and strategic issues.                                   A summary of key corporate governance developments is
                                                                                   provided in Appendix 2.
                Another important feature is that we considered success
                stories and well-known failures such as Enron and
                WorldCom. It became very apparent to us that while the
                heavy emphasis on corporate governance issues has been
                necessary in the light of recent scandals, it is important to
                remember that good governance on its own cannot make a
                company successful. Companies need to balance
                conformance with performance.This is a fundamental
                component of enterprise governance.
                The Professional Accountants in Business Committee (PAIB) of
                IFAC was asked by the IFAC Board in October 2002 to explore
                the emerging concept of enterprise governance.A particular focus
                of the project was to consider why corporate governance often
                fails in companies and, more importantly, what must be done to
                ensure that things go right.
    2           Enterprise Governance Introduction
                The steering committee is grateful to all those in IFACs          Steering Committee
                member bodies who assisted in researching and preparing
                the case studies and in particular to Jasmin Harvey, Gillian       United Kingdom Bill Connell (Chairman)
                Lees and Richard Mallett in the technical department of the                          Richard Mallett
                Chartered Institute of Management Accountants (CIMA)                                 Chartered Institute of Management
                who provided invaluable project management support.                                  Accountants (CIMA)
                Particular thanks also go to Richard Sharman and David
                Smith of KPMG who prepared the section on enterprise risk          France            Patrick Rochet
                management.                                                                          Association Française des Entreprises
                                                                                                     Privées (AFEP)
                This report reflects the personal views of the members of
                the PAIB steering committee and not necessarily the views          Hong Kong         Edward Chow
                of the organisations of which they are members.                                      Hong Kong Society of Accountants (HKSA)
                Bill Connell FCMA                                                  Italy             Luca Savino
                Chairman, IFAC PAIB Committee                                                        Consiglio Nazionale dei Dottori Commercialisti
                Chairman, CIMA Technical Committee                                                   Consiglio Nazionale dei Ragionieri e Periti Commerciali
                February 2004                                                      United States     Priscilla Payne
                                                                                                     Institute of Management Accountants
                                                                                                     (IMA™)