Is Corporate Governance Dead?

by James McRitchie for, January 3rd, 2010.

John Richardson writes that corporate governance is dead.

One indicator of this is the recent spate of mergers in the proxy adviser world. ISS goes through its seemingly endless series of mergers and acquisitions. MSCI, now stuck with a minimally profitable enterprise is no doubt wondering how to offload this doddering venture. Governance Metrics merged with the Corporate Library. Recent reports have announced the acquisition of Proxy Governance by Glass Lewis. Each of these events speaks to the unspoken fact that there is little money to be made in the proxy advisory world. CalPERS is refocusing its governance work in a way that suggests that its adventures over the last two decades is winding down.

More importantly, the arcane discussions about executive pay, director responsibility and risk are proving to be ever more irrelevant in a world concerned about the influence of the corporate enterprise on society and the environment. Corporate Governance as a tool for addressing these problems has lost its edge. While these discussions remain important to the initiated, its backward-looking approach and its failure to influence the ills of global corporate conduct speaks to its ultimate irrelevance. (Corporate Governance is Dead | Global Investment Watch, 12/28/2010)

Sure, many of us are frustrated by what appears to be a “failure to influence the ills of global corporate conduct” but corporate governance doesn’t necessarily take a “backward-looking approach.” While issue oriented advocates push one item at a time, those focused on corporate governance take a more systematic approach, focusing on rules and accountability. Just as you can govern a state through initiatives, you can govern corporations through advisory proposals. Richardson appears ready to throw in the towel even before the most significant reform, proxy access, has even been implemented.

Hopefully, we can move from one-dimensional reforms, like “independent” directors, that can easily be co-opted. For example, “independence,” as defined by Nasdaq and the NYSE, does little to increase the likelihood that directors will exercise independent judgment. On the other hand, directors who are dependent on nomination by shareowners will at least provide better balance on boards and such directors can be expected to take a broader approach to corporate responsibility than simply doing whatever is necessary to ensure a self-perpetuating board. (continue reading… )



1 Response to “Is Corporate Governance Dead?”

  1. 1 Brian Finch January 4, 2011 at 11:47 am

    An insightful blog but the lead-in quotation from Richardson’s post on Global Investment Watch is strange because that thinking seems to be informed by too much Christmas celebration. Richardson makes wild assertions rather than reasoned arguments. Quite why mergers of proxy voting advisers should be any indicator of corporate governance is a mystery. And evidence for growing interest in corporate social responsibility displacing other governance concerns is entirely absent as is any plausible incompatibility with interest in executive pay, director responsibility or risk. It seems to me that the Christmas elves have been at the wine and have written this post whilst Richardson was asleep.

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