by Charles M. Nathan for The Harvard Law School Forum, May 18th, 2011.
Good corporate governance is of the moment. It is talked and written about constantly by academics, the corporate governance community working for institutional investors and proxy advisors, boards of directors, corporate executives, corporate lawyers, judges, reporters and, yes, even politicians. Indeed, it is talked about and written about so often and at such length that it often seems to tower above all other aspects of the corporate world. The discourse, moreover, has come to resemble something of a Tower of Babel, where so much is said, from so many points of view, that it seems impossible to make sense of it all.
This essay attempts to bring some coherence to the topic by positing a 12-Step Program that we believe would lead to a useful and effective paradigm for truly good corporate governance.
Step One: Start at the Beginning — The Proper Goal of Corporate Governance is to Enhance Value Creation for Shareholders
The literature and lore of corporate governance has become so complex and complicated that most of us tackle corporate governance issues on a relatively detailed level. We too often deal with the proverbial trees, not the proverbial forest. For example, we debate ad nauseam the merits of proxy access, or the optimum frequency of say-on-pay advisory votes or the utility of say-on-pay advisory votes. We worry about whether directors should be selected by majority voting instead of plurality voting, and how to frame a director resignation policy to deal with directors who fail to receive a majority vote under either system. We wrangle about whether poison pills should ever be allowed, and if so, whether they should be restricted to a one- or three-year term, and which body — directors or shareholders — should have the power to make these decisions. And participants in these and all of the other corporate governance discussions commonly assume that whatever seems to them to be the right answer to any given governance issue at any one time is the right answer for all companies, regardless of their particular circumstances.
It’s pretty hard to come to grips with the fundamentals, however, if you spend all of your time with the details. So the simple, but critical, first step in our 12-Step Program for truly good corporate governance is to start from the beginning. (continue reading… )