That sounds like a good fit to me. Due to the quarterly earnings report system that managers are under great pressure to comply with, combined with the great increase in short-term trading, the ease of access to capital - the cash-flow life-blood of the company - can be seriously undermined by bad news.

So, if you don’t have success to report, then you might think it advisable at least to delay reporting the bad news until after the next earnings reporting period, so you can avoid untoward reactions in your share price, which make it harder for you to access capital. In other words, delaying the negative consequences of your bad news is as beneficial to your cash flow as success.

Of course, this also encourages the sort of creative accounting that enables you “legitimately” to delay reporting that bad news. This weakens ethical barriers, leading ultimately to even worse negative consequences.

I agree with you - Scott Adams’s quote fits right in with this. But we’re still talking about managers either failing to communicate properly with owners, or failing to communicate with the right (non-day-trading) owners. And, of course, there may be self-interested reasons for managers to succumb to this temptation, related to compensation scheme elements like options exercise, etc.

Thanks for adding this!

I’m not sure I’m quite capturing it right, but the point is valid and germane to this discussion. If the manager is serving the short-term financial investors, he can be the toast of the board for making decisions that are destructive, but only in the long term.

Your angle on this introduces many fascinating topics into the discussion. For one thing, it points out the weakness of my metaphor. In society, the governed are the sovereign, and in corporations, the governed, according to my metaphor, are agents of the sovereign. So let’s just use the agency/contract metaphor (and thanks to Wally Bock for reminding me of the appropriateness of it in this context):

I just have a hard time with the concept of giving agents - whose interests are often so divergent from ours and whose freedom of maneuver in this particular contractual relationship is so wide and difficult to closely monitor as it is - a role in defining their own guidance and overseeing their own supervision in the execution of it.

However, that does describe the facts as they generally stand, today, and there is little likelihood of events forcing as abrupt a change as I’d like in the near future. But a measure such as you propose, of a fully independent observer with the power to interpose his or her authority when deemed appropriate in board organization, deliberations, and decisions is an interesting idea; perhaps a beginning, a transition to the day of the fully professional director.

Thanks, Cam, as always for pressing these points. This is good stuff - thanks!

Thanks, as always, for you generous comments. I hadn’t thought of a book. Perhaps a booklet or report might be a good vehicle for putting all of this together.

Thanks again for your visit, your kind words, and, of course, for your own work and writing.

Is that a NECESSARY step, or must we instead reduce the likelihood of conflicts of interest by establishing a proper check on the governed?

The bicameral government is an interesting solution, but in the event of a difference of opinion, who wins?

Perhaps an independent mediator, sort of like how the Vice President only gets to vote in the Senate in the event of a tie.

I’m continuing to learn a lot and think differently as a result of our thoughts on governance.

Hope there is a book–even a small one–on the horizon. It could prove a useful tool for boards, CEO’s, and shareholders.