Has Someone Hijacked Corporate Governance? An Internet Dialogue

Posted in Blog at 1:02 pm

The following exchanges occurred on an internet message board devoted to corporate governance issues, and involving mostly professionals working in the field. The thread began with one of the participants alleging that governance had been “hijacked” by various parties who wanted to transform it into something other than a means by which a board would be run optimally.  I felt that this was too restrictive and mechanical a definition, but also that the notion that there was some coherent ‘they,’ or even several groups of ‘theys’ who were trying to seize control of the governance dialogue was unrealistic, and reflected a collective corporate paranoia which is all too common at present.  I added a comment, which led to the following dialogue between one of the other participants (not the author of the original post) and myself:

Me: Hijacked by whom, exactly? An obsession with board process can be as much of a distraction as one with shareholder ‘democracy,’ regulatory compliance, stakeholder interests or anything else. The point is that a company should be efficiently run, with optimal management of the risks it is running and/or is likely to encounter in the foreseeable future. What else is governance about?

—How about Responsibility, Accountability and Stakeholders Value Creation? Just a thought…

Responsibility—yes, but to whom? Accountability, absolutely—but for what? Stakeholders’ value, surely—but why? For being a good steward of the assets which have been entrusted to you: that you managed them well, and for the future as well as the present time. The three you cite are important, but I see them as means, not ends. Which is why I gave the above, admittedly reductionist formula. The company should be the best manager of the assets it controls (including the portion of people’s lives it affects), and it should attempt to continue to be so for the indefinite future. Since that includes shareholder value in the broadest sense, I don’t think it’s hijacking anything.

—Ends and Means…uuumm I like where this conversation is going. Since Governance is just a means to a end… what is the end?

Good stewardship: sustainable profits for the owners, reliable goods or services for customers, fair and beneficial relationships with the other stakeholders, good economic use of the assets. I think that covers it—no?

I think you might have missed a bit… commonly known as natural resources, which I would rather call Natural Capital. I wonder though, if the end of Governance is Good Stewardship, what is the end of Business, its purpose?

Business? I would say ‘economic activity’ is the end of business. It’s very neutral, and completely amoral—a good business, a bad business, a criminal business, a profitable business, a tax shelter, a charitable business, etc. etc.

So the purpose of business is generating economic activity? in other words, everyone works just to keep themselves busy so that someone else gets richer? is that what you are saying? that would not make me want to get up in the morning, and certainly not inspire me to work.

In my view, economic activity, like governance, is still a means, not an end. Any other views or suggestions?

People engage in economic activity so that they themselves get richer! Or so that a non-profit can do whatever it does: stage artistic performances, aid the less fortunate, provide for education . . . Or for any of the many other purposes one can think of for a business. Yes, of course it is a means to an end. I didn’t think we were on this site to talk about the Meaning of Life, but if we are, personal benefit, broadly defined, would be part of the reason for human activity, altruism another, and if you believe in God (or any other transcendent principle), serving him (it) would be a third. Obviously, personal enrichment (this includes survival) heads the list where economic activity is concerned, because there the link is most direct.

I suppose what you are saying is, “Why should anyone in a position of power care about good governance, if the only results serve base ends or else accrue to someone else’s benefit?” but that shouldn’t be it. The point is that good governance makes higher returns (including non-economic returns and intangibles, if those are your goal), sustainable. That is, over time, the investments which are necessary to allow any business to function—money, human capital, natural resources, brand equity—will only flow to those businesses which adequately reward them over the appropriate time frame. So you shouldn’t manage the business only for next week, unless your stated goal is to make a quick return and pay off the stakeholders. This is, I think, the logic behind [another member's] point that the goals of governance are variable; they should be consonant with the expectations of those who have invested money, time, effort, and other scarce resources in them. If you are deluding or otherwise disappoint any of these stakeholders, they will sooner or later withdraw their stake, and refuse to support any more of your ventures.

The alternative to this model of governance is really: ‘There’s a sucker born every minute.’ That’s a form of fraud, and I think most of us would agree that it is both socially undesirable and unsustainable as a business model.

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