Peter Crow
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On 'corporate governance': Is our understanding flawed?

9/12/2015

2 Comments

 
​One of the enduring questions of my career as a board advisor and company director is this:
  • When and how did our predeliction for the term 'corporate governance' emerge?
​My father was a company director, of a large processor in the dairy sector for fifteen years. He hadn't heard of the term until six months before he retired in 2001, when a young director who had recently joined the board started using the term. To that point, my father thought that directors governed and provided direction, and he was not alone.
Picture
A search back in time reveals that Eells (a researcher) was the first to use the term—in 1960—to describe the functioning of the polity (the board). Then, silence reigned until 1977 when the term appeared in HBR and subsequently in 1980 in academic journals. Yet since 2000, when the term entered the public's consciousness (perhaps as a result of media reports of hubris, incompetence, moral failures and fraud amongst directors), usage has exploded.
​Today, the term's usage has become so commonplace and distorted that a correction is needed.
​Corporate governance--the act of steering, guiding and piloting—describes what boards [should] do when in session. It does not describe and is not a proxy for the board itself, nor any other party or activity outside the boardroom. Regulators (to set rules), proxy advisers (lobbyists on behalf of shareholders and other interests), and shareholder meetings (communications) are all important, but none is corporate governance.
Rob Campbell, your call to address this misunderstanding is both timely and most welcome. Directors institutes, business schools and consultants should take note, lest the expectations of the market, regulators and shareholders—not to mention directors themselves—wander further away from their original purpose, which is to pursue business performance in the best interests of the company and on behalf of shareholders.
2 Comments
James McRitchie link
6/1/2016 10:45:07

Sir Adrian Cadbury once said, "I have always regarded Bob Tricker as the Father of Corporate Governance since his 1984 book introduced me to the words corporate governance."

Interesting way to define the term. However, I can agree that corporate governance is only what boards do, or should do, when in session. That seems a little too akin to describing civil governance as only what goes on in Congress or Parliament.

I think most parcvpants see corporate governance as the whole framework.

Reply
Peter Crow
6/1/2016 19:07:50

Thanks James, I appreciate you taking the time to comment.

I don't think our views are that far apart, if at all. By framework, if you mean the activities of strategy formulation; policymaking; monitoring and supervising; and, providing accountability (a la Tricker's framework of board activities), then yes, my conception of corporate governance is inclusive of all of these elements.

The 'in session' qualifier refers to boards performing these tasks and making decisions together (i.e., in meetings of various types). The difficulty I have been wrestling with is the boundaries. What's 'in' and what's 'out'. In law, where I live anyway, decisions are binding when the board or a sanctioned committee meets and makes them. The meeting may be in-person, on-line or some other format.

Thank you again for your comment. I will continue to read, listen and learn, and expect my thinking to develop along the way.

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Dr. ​Peter Crow, CMInstD
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