Coming to grips with the elements of corporate governance | Managing Leadership

The zen of corporate governance

The word “governance,” of course, comes from the root: to govern. This suggests that someone is operating within a limited charter to govern in the name of one group over members of another with the purpose of accomplishing a specific end.

This warrants some emphasis: if someone possesses complete sovereignty over all people, property and principles in a particular jurisdiction, like the prototypical princes of old, then there is no real question of government. One does not appoint one’s self to govern within certain prescribed limits in one’s own name over one’s own possessions.

That presumption, actually, is an unexpectedly prominent factor in the world of corporate governance, today. Largely due to its peculiar presence, we still don’t seem to be able to come to consensus agreement over such seemingly straightforward concepts as authority and accountability.

For example, a recent Business Week opinion piece suggests that we shouldn’t be too hurried in the US to adopt the practice of separating the positions of CEO and board chair. A key piece of evidence for this view is that independent chairs can be difficult to remove if they under-perform. But isn’t a key problem with our current system that dual-hatted CEOs/chairs can themselves be difficult to remove if they under-perform?

The piece also cites a National Association of Corporate Directors (NACD) special board’s survey of its own members in which three possible positions were each endorsed by one-third of the respondents:

Separate CEO and chair.

Combine CEO and chair.

Set no particular preference policy regarding this; just try to ensure that whoever provides leadership in the board and the overall corporation is effective.

The author reports that the NACD has selected the last choice as “best practice.” Why? How could experienced directors who are equally divided among three alternatives select one as representing “best practice?” And what practice, exactly, is it that is being so embraced? What does it mean to just let the chips fall where they may as long as corporate leadership seems to be effective? Corporate leadership from whom? Effective as determined by whom?

Another key implication of the word “governance” is that the governor’s position is provisional; he or she is being watched and will have his or her authority revoked if it is ineffectively or improperly exercised. Where is that concept in the world of anonymous shareholder-owned corporations? That’s the real problem, here. It is also what is at the heart of most the shareholder revolts of the past few years.

We’ll talk more about this, soon. Keep an eye on the news - this issue will continue to play out prominently in it.

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Today’s tip: BNET has assembled an excellent collection of four articles under the heading What’s that MBA Really Worth? This is a topic of interest in these pages, and the pieces are well worth reading whatever your personal experience with or position regarding the MBA.

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