Report: Most company failures are failures of governance

A recent study, conducted by UK firm Reputability LLP, has found that failures of governance are at the seat of most company failures. A lack of [governance] skill and an inability to influence management were cited as the root cause of 88% of the failure cases studied. Gosh, that's nearly nine out of every ten failures attributable to poor governance! Information asymmetry, a tendency to rely on quantitative data (numbers) and poor 'soft' skills were identified contributing factors. The full report is available, for a fee, here.

This report is an indictment on governance. It clearly exposes an underlying problem with governance. Boards, in general, are not operating effectively. I'm not particularly surprised by the findings of this study. Most corporate Boards operate within a framework called 'agency theory', whereby an adversarial relationship between the owner's representatives (the Board) and management exists. The Board sees its role as that of a policeman, to monitor and control management, in order to protect the interests of the owner(s). In such situations, trust is typically low, reputations are carefully protected, and information is shared carefully and sometimes under duress.

The tragedy is that agency theory remains the dominant governance framework—in the western world at least—despite a seemingly endless body of evidence that shows companies are not well served by it. Perhaps this report might prompt Boards and shareholders to take stock, and consider other governance frameworks whereby Boards and management actually work together to maximise performance. After all, the evidence is compelling. Is that asking too much?