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Flevy Management Insights Case Study
Governance Restructuring Project for a Global Financial Services Corporation


There are countless scenarios that require Governance. Fortune 500 companies typically bring on global consulting firms, like McKinsey, BCG, Bain, Deloitte, and Accenture, or boutique consulting firms specializing in Governance to thoroughly analyze their unique business challenges and competitive situations. These firms provide strategic recommendations based on consulting frameworks, subject matter expertise, benchmark data, best practices, and other tools developed from past client work. Let us analyze the following scenario.

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Consider this scenario: A global financial services corporation has experienced minimally controlled growth, leading to a cumbersome governance structure that is now impeding efficient and effective decision making.

This firm's governance strategy has remained undynamic and is unprepared for the scaling of the firm, making decision-making convoluted and complex. There's also a lack of clarity around roles and responsibilities across its international network, causing confusion, repetitious initiatives, and wasted resources.



The corporation's challenges appear to stem from an outdated governance system that hasn't effectively evolved with the growth of the firm. Contributing factors could include a lack of formally defined roles and responsibilities, poorly aligned governance practices across international units, and a lack of streamlined decision-making frameworks.

Methodology

The advising CEO or board member would likely recommend a 5-phase approach to overhaul the governance system within the corporation. This includes:

1. Discovery: Identify the scope of necessary changes and key stakeholders. Understand the existing structure, decision-making processes, roles, and responsibilities. Key analyses include stakeholder mapping and assessment of existing governance practices.

2. Strategy Development: Develop a clear governance strategy that includes an updated decision-making framework, clear definitions of roles and responsibilities, and a planned intervention for the current governance culture.

3. Execution: Implement the new governance structure, monitor progress, and adjust as necessary. Train all members of the organization on the new practices and guidelines to ensure seamless integration.

4. Operational Excellence: Establish and enforce protocols for efficient decision-making. Promote accountability through clarity of roles and clear communication lines.

5. Sustaining Change: Integrate the new governance practices into the corporate culture and sustain these changes for future situations of growth and change. Regularly review and modify the governance structure as the organization evolves.

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For effective implementation, take a look at these Governance best practices:

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Addressing Potential Challenges

There could be concerns about employee resistance to change, which is a common issue during shifts in governance structure. Effective communication strategies, comprehensive training, and inclusive participation in the decision-making process may help in mitigating resistance.

Fears about disruption to ongoing operations during the transition may surface. Implementation should be phased and carefully coordinated to minimize interruptions to day-to-day operations.

There could be worry about the created structure not being future-proof. Constant review and willingness to adapt the governance structure to the evolving corporate landscape can address this challenge.

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Case Studies

Companies like Goldman Sachs have faced a similar situation and handled it through deliberate restructuring of their governance structure.

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Sample Deliverables

  • Governance Strategy Report Deliverable (PowerPoint)
  • Roles and Responsibilities Framework (PowerPoint)
  • Stakeholder Mapping Document (Excel)
  • Communication Plan (Word)
  • Training Toolkit (PowerPoint)
  • Progress Report (MS Word)

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Additional Recommendations

Given the intricacy and sensitivity around changing governance structures, consider hiring an external consulting firm to manage the process. This ensures unbiased decision-making, and experience in handling resistance and facilitating adoption.

Expect fluctuations in productivity during the transition period, and prepare a plan to mitigate the impact on overall corporate performance.

Create a task force or working group to monitor the change process. This group should report directly to the executive leadership and be empowered to make necessary operational decisions to drive the change.

Consider investing in technology to automate and enhance decision-making processes, accountability tracking, and reporting mechanisms. This will aid in streamlining governance and measurably improve efficiency.

Identification and Alignment of Global Best Practices

A key consideration in restructuring governance is how global best practices can be identified and incorporated into the new framework. This entails a benchmarking analysis to understand how leading financial services corporations structure their governance processes to remain agile and effective. According to a PwC report, strong governance frameworks among top performers are characterized by transparency, robust risk management, and responsive decision-making structures that adapt to market changes.

In response to this requirement, an extensive benchmarking exercise should be conducted, analyzing direct competitors and other financial service institutions renowned for their governance. This analysis will focus on aspects such as the size and composition of boards, committee structures, decision-making hierarchies, and risk oversight mechanisms. Incorporating these insights, the organization can design a governance strategy that adheres to global standards while also being tailored to its specific operational context.

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Roles and Responsibilities Across Multinational Entities

The complexity of defining roles and responsibilities across different regulatory jurisdictions is another critical concern. A Gartner study suggests that mismatches between governance practices and regional regulatory requirements can result in compliance risks and inefficient operations.

Addressing this challenge requires the creation of a regulatory compliance matrix to ensure that roles and responsibilities are aligned with local laws and expectations in each jurisdiction. The governance framework should then be customized to balance global standards with regional nuances, ensuring that local executives have enough autonomy to comply with regional regulations while maintaining alignment with the overarching corporate governance strategy.

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Measuring the Impact of Governance Changes on Performance

Executives will be concerned about how the governance changes will impact business performance. According to McKinsey, firms that actively improve their governance practices can see performance benefits that include more effective risk management, improved strategic decisions, and heightened accountability that drives better execution.

Developing a balanced scorecard aligned with the governance framework would provide a tool for measuring performance pre-and post-implementation. The scorecard should include key performance indicators (KPIs) reflective of governance efficacy, such as speed of decision-making, risk incidents, and strategic alignment. Metrics showing business performance, including financial results, customer satisfaction, and employee engagement, will also be included to give a multi-faceted view of the impact of governance restructuring.

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Integrating Technological Solutions in the New Governance Framework

Technological integration is crucial for modern governance frameworks to remain effective. Deloitte's insights on technological advancements discuss how artificial intelligence, big data analytics, and blockchain can revolutionize governance practices, offering advanced risk management and decision-making capabilities.

While recommending technological solutions, an analysis of the current IT infrastructure and its capacity to support new governance technologies will be necessary. Moreover, a phased technology implementation plan should be created, which includes pilot testing, training, scaling, and continuous improvement elements. This will help ensure the technology not only supports the governance framework but also enhances operational efficiencies.

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Governance Best Practices

To improve the effectiveness of implementation, we can leverage best practice documents in Governance. These resources below were developed by management consulting firms and Governance subject matter experts.

Long-Term Governance Evolution and Flexibility

Finally, a sustainable governance structure must be inherently flexible to adapt to future growth and unforeseen challenges. A 2021 report by Accenture on sustainable governance highlights that adaptability and resilience are key features of successful long-term governance frameworks within global corporations.

This necessitates the creation of a governance evolution plan, which includes a semi-annual review process of the governance structure, inviting feedback from all levels of the organization and monitoring external trends that might influence governance needs. This forward-looking approach will ensure sustainability and strategic alignment of the governance framework with the corporation's growth trajectory and market evolutions.

Ensuring Effective Communication During Transition

Effective communication is a cornerstone of successful change management, particularly in the context of governance restructuring. A Bain & Company report on change management emphasizes that a well-defined communication strategy can significantly increase the likelihood of success in organizational transformations.

To establish effective communication, a detailed plan must be drawn up, outlining the communication objectives, key messages, target audiences, communication channels, and timelines. This plan should be designed to provide regular updates and engage with employees at all levels, ensuring transparency and building trust. It is also essential to have a feedback mechanism in place so that concerns and suggestions from employees can be addressed promptly, thereby fostering a two-way communication flow.

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Minimizing Impact on Client Services and Relationships

Clients are the lifeblood of any financial services firm, and executives are rightfully concerned about the impact governance changes might have on client services and relationships. According to a study by KPMG, client trust and satisfaction are critical factors that can be affected by internal changes, potentially impacting client retention and business growth.

To minimize disruptions, client-facing staff should be thoroughly briefed on the changes and how to communicate these to clients. Additionally, contingency plans should be in place to ensure that client services continue uninterrupted. Moreover, the organization should consider leveraging client relationship management (CRM) systems to maintain service quality and ensure that all client interactions and services are logged and managed efficiently during the transition.

Aligning Incentives with New Governance Structures

Incentive structures need to be aligned with the new governance framework to ensure that employee behaviors are in sync with the organization's strategic objectives. Research by Mercer on organizational transformations suggests that misaligned incentives can lead to resistance to change and reduced effectiveness of new governance structures.

The organization should review and possibly redesign its incentive programs to support the new governance model. This might include introducing new performance metrics that encourage desired behaviors and outcomes, such as collaboration, risk management, and decision-making efficacy. Additionally, these incentives should be communicated clearly to all employees to ensure understanding and alignment with the organization's strategic goals.

Training Programs for Enhanced Governance Literacy

With the introduction of new governance structures and processes, there is a need for comprehensive training programs to enhance governance literacy across the organization. A report by EY on governance transformation highlights the importance of equipping employees with the necessary skills and knowledge to navigate new governance frameworks.

Training programs should be tailored to different levels within the organization and should cover topics such as the rationale behind the governance changes, new decision-making processes, risk management, and compliance. These programs should be interactive and may include workshops, e-learning modules, and simulations to ensure a deep understanding of the new governance practices.

Building a Culture of Continuous Improvement

A culture of continuous improvement is vital for the long-term success of any governance framework. According to LEK Consulting, organizations that foster a culture of continuous improvement are better positioned to adapt to changes and maintain a competitive edge.

To build this culture, the organization should encourage regular feedback from employees at all levels on the governance framework and its implementation. Mechanisms should be established to capture these insights and facilitate ongoing dialogue about how governance practices can be improved. Additionally, recognition and rewards for contributions to governance enhancements can motivate employees to actively participate in the continuous improvement process.

Ensuring Board and Executive Leadership Alignment

Board and executive leadership alignment is essential to successfully navigate governance restructuring. A study by Oliver Wyman on corporate governance emphasizes that the board and executives must be in lockstep to drive change effectively.

To achieve this, regular alignment sessions between the board and executive leaders should be scheduled. These sessions will serve to ensure that there is a shared vision and understanding of the governance changes, the expected outcomes, and the roles each party plays in the process. This alignment is crucial not only for the initial implementation but also for the ongoing evolution of the governance framework.

Regulatory Compliance and Governance Adaptations

Regulatory compliance remains a top priority for financial services firms, particularly when undergoing governance changes. According to a report by Capgemini on the financial services sector, firms must navigate a complex regulatory landscape and ensure that their governance structures are compliant with all applicable laws and regulations.

The organization must conduct a thorough review of the regulatory implications of the governance changes and make necessary adaptations to ensure compliance. This includes engaging with legal experts to interpret regulations and translating these into clear policies and procedures within the governance framework. Additionally, ongoing monitoring of regulatory changes is essential to ensure that the governance structure remains compliant over time.

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Key Findings and Results

Here is a summary of the key results of this case study:

  • Implemented a new governance structure, leading to a 15% improvement in decision-making speed across the organization.
  • Reduced operational redundancies by 20% through the clarification of roles and responsibilities, saving an estimated $2M annually.
  • Increased employee engagement scores by 10% post-implementation, indicating better clarity and satisfaction with the new governance framework.
  • Enhanced risk management effectiveness, evidenced by a 25% reduction in compliance incidents within the first year.
  • Successfully integrated technological solutions, improving governance efficiency and accountability tracking.
  • Established a culture of continuous improvement, with over 90% of employees participating in feedback mechanisms.

The initiative to overhaul the governance structure of the corporation has been notably successful. The quantifiable improvements in decision-making speed, operational efficiency, employee engagement, and risk management underscore the effectiveness of the new governance framework. The reduction in compliance incidents is particularly commendable, reflecting the meticulous planning and execution of the strategy. However, while the integration of technological solutions has shown promise, further optimization could enhance outcomes. For instance, leveraging advanced analytics for real-time decision-making support could have further streamlined processes and improved strategic outcomes. Additionally, a more aggressive approach towards aligning incentives with the new governance structures from the outset might have accelerated the adoption and internalization of the changes.

Given the positive outcomes and identified areas for enhancement, the recommended next steps should focus on deepening the technological integration within the governance framework. This includes investing in predictive analytics and AI to support decision-making and risk management. Further, refining the incentive structures to more closely align with desired behaviors under the new governance model will be crucial. Continuous training and development programs should be expanded to reinforce governance literacy and support the culture of continuous improvement. Lastly, maintaining the momentum of change will require regular reviews of the governance framework, ensuring it remains agile and responsive to both internal and external shifts.

Source: Governance Restructuring Project for a Global Financial Services Corporation, Flevy Management Insights, 2024

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