Corporate Eye

Corporate Governance 2.5 A New Focus

It is time for a new corporate governance editorial focus. Why?

Corporate governance has a long history, perhaps beginning as far back as the 4th century BC, when the Chinese philosopher Mencius argued that it is acceptable to overthrow corrupt or unjust rulers, through the establishment of joint stock companies (perhaps as early as the 13th century, but certainly by the 17th century) and stock exchanges to facilitate the sale of stock, to the US Securities Act of 1933 – the first to regulate the securities markets, particularly with respect to disclosure – and the development of corporate governance codes in the 1990s. In 2002, in the US, the Enron collapse and other corporate scandals led to the Sarbanes-Oxley Act; and in 2009, the UK Walker Report recommendations were published, closely followed in 2010-11 by revisions to the UK corporate governance code, and the development of a stewardship code for institutional investors.

Still, two and half millennia of governance experience, and many regulatory and legal interventions seemed to do little to prevent the catastrophic 2008 world economic collapse. The reaction is dramatic…

“We are in the middle of the biggest revolution in corporate governance since the 1930s…

Richard Cellini, senior VP of business and legal affairs at Integrity Interactive Corp.
“After the Storm”, The Conference Board Review March / April 2009

This broad sweeping commentary is supplemented by others who focus on more specific items:

  • Risk Management

    “The crisis has also thrown up some massive failures in risk management. Even where companies had mandatory internal controls on reporting for the financial accounts, their executives did not fully grasp or clearly communicate the financial risks of many of the instruments they were betting on.”
    Source:  Corporate Governance-Lessons from the  Financial Crisis OECD

  • Not Enough Regulation

    “With (Brooksley) Born (former head of a regulatory unit who, in the late 1990s, warned about the risks associated with  complex financial instruments) out of the way, the last two years of the Clinton administration were a heyday of deregulation. OTC derivatives were off  limits. Banks were freed to make riskier investments. Wall Street was largely left to regulate itself.”
    Source: The Warning, Public Broadcasting System

  • Too Much Regulation

    “…, the U.S. government and quasi-governmental agencies have developed a near unfathomable maze of corporate performance reporting measures that have clearly helped, but are largely inadequate to safeguard corporations and improve the public trust. The end result is that investors, the public, and even management can’t evaluate the extent of their exposure regardless of the position outlined in much company information.”
    Source: Beyond Transparency: Information Overload and a Model for Intelligibility
    ROBERT L. LAUDAND DONALD H. SCHEPERS Business and Society Review 114:3 365–391

  • Communications

    “It’s time for CEOs and boards to understand how powerful customer and employee social interactions truly are, and how they are accelerated and enabled by online communications and cloud technologies. For boards to succeed, nothing less than a shift from traditional closed governance to open and socially aware independent directorship is required.”
    Source: Talkin’ ’bouta Revolution. By: LIBERT, BARRY, POTTER, STEVEN, Institutional Investor, 00203580, Apr 2011, Vol. 45, Issue 3

This small sample of key issues in corporate governance is supplemented by many others such as executive compensation, lack of board oversight, ethics, internal controls and more. All point to a need to revisit corporate governance, so we will focus our posts on these topics and others around communicating corporate governance including–

  • how to explain what corporate governance is
  • discussing the difference between corporate governance and management
  • best practices in corporate governance communications on websites
  • how to explain relationships between board/senior management on the corporate website
  • why leaders need to communicate and be visible
  • ideas for explaining the corporate strategy and progress against that strategy.

Well there it is: our new corporate governance focus.

Let us know what you think. Comments Please: readers are encouraged to provide their thoughts on what they believe should be covered in future posts.

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Ed Konczal has an MBA from New York University's Stern School of Business (with distinction). He has spent the last 10 years as an executive consultant focusing on human resources, leadership, market research, and business planning. Ed has over 10 years of top-level experience from AT&T in the areas of new ventures and business planning. He is co-author of the book "Simple Stories for Leadership Insight," published by University Press of America.