Corporate governance: Is it time to return to first principles?

Thirty years ago, the term 'corporate governance' rarely rated a mention. However, an awareness of boards and corporate governance has grown in the minds of the general populace as a steady stream of reports—of corporate failures, scandals, moral failures, hubris, incompetence, judicial investigations and sanctions—have been published in the popular press. In fact, the term has entered the lexicon to such an extent that it is routinely mentioned and all manner of faults are attributed to it, even though it is rarely defined. FIFA, HSBC and now Renault F1 are recent examples. Further, the systemic response to each 'wave' of corporate failures has become quite  predictable: The introduction of hard law (statutory regulation) and, in the case of publicly traded companies, stricter codes of compliance. The goal of such measures is to prevent reoccurrences.

The evidence suggests that less is known about boards, board practice, director behaviour and corporate governance than what most of us have assumed to be the case. This is not good! However, all is not lost, for two pathways to knowledge seem to be available. One option is to continue to use existing tools and techniques in pursuit of a deterministic 'truth' about boards (assumption: on the right path, just not there yet). The other option is to take stock, on the chance that the contemporary understanding of ownership, shareholding and control; and popular conceptions of board practice and corporate governance are actually founded on a less-than-firm footing. But that would mean putting popular models and ideas to one side, which could be a bitter pill to swallow. Which is the best option then? Might a return to first principles be necessary? I'm starting to think so. What do you think?

While well-intentioned, the costly actions of legislators and code writers have not led to any discernible improvements in corporate behaviour or performance. Consequently, some groups have become quite jaundiced (and vocal), and the reputation of boards and business more generally have become tarnished as a result. Worse still, the research community, which has been studying boards for forty years or more, has yet to propose any credible explanations of how boards could or should work. That this much effort has been expended without 'success' (excepting a raft of spurious correlations) is a travesty of justice. It also points to a deeper problem. Our underlying assumptions could be wrong.