Matt
Welcome back to Sound-Up Governance. This episode is like every other episode of Sound-Up Governance... Psych!
Hi, this is Matt Fullbrook. Since one of the objectives of Ground-Up Governance is to provide me with a platform to express myself, I've decided to try out a new thing. Hot takes and harsh criticism are entertaining. And it turns out I have a lot of hot takes and harsh criticism when it comes to corporate governance. So here's the first installment of...well, honestly, I haven't decided on a name yet. Something dumb for sure. How about "Reprimatt" or "Disparagematt" or "Criticismatt"? Anyway, please take all this in good fun. A lot of the stuff I'll be reacting to has been created by people way smarter and more interesting than me. Case in point, this first edition of Belittlematt targets academic research and other expert perspectives about corporate governance. I'll share some excerpts of papers or books and then I'll give you my unscripted reaction to them. Let's dive in. First, we have the book, Corporate Governance from 2011 by Robert Monks, the founder of ISS and Corporate Library among many other accomplishments, and the Queen of Corporate Governance herself, Nell Minow, who's also a super successful film critic. They're both amazing, obviously. And here's how they describe corporate governance in their book.
Dana (reading from “Corporate Governance”)
Corporate Governance is about how public companies are structured and directed. Every strategy, every innovation in product operations and marketing, every acquisition and divestiture every decision about asset allocation, finance, joint ventures, financial reports, systems, compensation and community relations. Every decision and every one of the 1000s of decisions within each one is determined by some part of the system of corporate governance.
Weird Echo Voice saying "Reaction!"
Reaction!
Matt (reacting)
Yeah, okay. You know what, I kind of like most of this in the sense that I really also agree that corporate governance is about everything. That's fair. But what's up with that first sentence about corporate governance being...what is it? Something about the how public companies are structured as if corporate governance doesn't happen outside of public companies or something? That gets a gigantic "lol" from me.
Matt
Monks and Minow also take a stab at defining *good* governance thusly:
Dana (reading from “Corporate Governance”)
When corporate governance operates optimally, the three key players - the executives, the board of directors and the shareholders - provide through a system of checks and balances a system for a transparent and accountable system for promoting objectively determined goals and benchmarks.
Weird Echo Voice saying "Reaction!"
Reaction!
Matt (reacting)
Ok...so, this is like one of those parts in Beavis and Butthead where butthead goes "uuuhhh. hmmm." It's. So first of all, it's an atrocious sentence. I'm sorry, Mr. Monks and Miss Minow, it's really, really poorly written. And also, it's a really like this is the reason why I made Ground-Up Governance in the first place is because even the smartest people out there who are trying to tell you what corporate governance is, or good governance in this case, it's always impossible to understand. At the very best, it's something that is barely applicable or barely useful. And in this case, it's just like a perfect example of some really, really smart, really influential, really respected people giving you something that makes absolutely no sense. So...no.
Matt
Up next, Christine Mallin is a professor of corporate governance at Norwich Business School. In her book, also called Corporate Governance, she first describes a bunch of catastrophic corporate failures and then offers this almost definition of corporate governance.
Dana (reading from “Corporate Governance”)
In essence, corporate collapses affect us all. Why have such collapses occurred? What might be done to prevent such collapses happening again? How can investor competence be restored? The answers to all these questions are linked to corporate governance. A lack of effective corporate governance meant that such collapses could occur, good corporate governance can help prevent such collapses happening again and restore investor confidence.
Weird Echo Voice saying "Reaction!"
Reaction!
Matt (reacting)
Okay, well, this one kind of gets saved at the last second by the words "can help," because up until that point, I'm kind of getting the sense and I'm sorry, Christine, like the implication here is that corporate catastrophes are because of bad governance and good governance can guarantee you almost that catastrophic failures won't happen. I mean, obviously, if we're thinking about corporate governance or good corporate governance as the way that we make, or the conditions that we create for decision making, then yeah, you know, you'd like to think that effective decision making conditions make it less likely for catastrophic failures to happen. But I mean, come on, there's so many external and uncontrollable factors even internal uncontrollable factors. So I, you know, I like this sort of provocative attempt to connect catastrophic failures and corporate governance. And I'm sure in some cases, that's true. But, meh, I'm not so sold on this one either.
Matt
Here we have another book called Corporate Governance: Accountability, Enterprise and International Comparisons from 1999. By Keasey, Thompson and Wright. They acknowledge the muddiness of our topic saying:
Dana (reading from “Corporate Governance: Accountability, Enterprise and International Comparisons”)
The underlying issues of the subject are always in danger of being swamped. Moreover, since good governance, like fair trade, and free competition is an abstract that commands near universal respect, but diverse interpretation, it has also become the destination board for a bandwagon carrying those who would in fact, take the corporation in myriad directions.
Weird Echo Voice saying "Reaction!"
Reaction!
Matt (reacting)
So first off, nothing goes together better than corporate governance and super purple prose. But also, you know, this one comes across as a little bit like "let's be a part of the problem instead of part of the solution." Because like, yeah, exactly, I'm arguing same thing, we lack a unified and shared definition of what this stuff means. And as a result, we use terms like "good governance" to mean different things, because we don't level set and talk to each other and establish a shared meaning. And so instead of just saying, "Hey, we have a shared, we lack shared meaning," why don't these guys propose something? And you know what, I kind of think it's a good thing if we've got people around us who have different myriad ideas about where to take the corporation. Isn't that a, like superpower? I don't know. I'm I kind of get where they're saying. And I like that they're pointing out that there's an issue. But let's be part of the solution here.
Matt
So to simplify things, they offer us a tangible definition of "good governance."
Dana (reading from “Corporate Governance: Accountability, Enterprise and International Comparisons”)
If we follow the traditional Anglo American conception of the firm as a device to further the well being of its owner-shareholders, good governance is a matter of ensuring that decisions are taken and implemented in pursuit of shareholder value.
Weird Echo Voice saying "Reaction!"
Reaction!
Matt (reacting)
Barf! Come on, guys seriously? "In pursuit of shareholder value?" This is your definition of good governance? I mean, you know, who would disagree with you, Christine Mallin. From our last example, who's talking about corporate catastrophes because we can all think of in fact, the most famous corporate governance failures are the ones where the bad actors inside and outside these organizations made decisions in pursuit of shareholder value. I mean, come on, it's just... no.
Matt
To give us a bit of a palate cleanser, Lu et. al. recently published a paper called Board of Directors Attributes and Corporate Outcomes: A Systemic Literature Review and Future Research Agenda in the International Review of Financial Analysis. Here's how they described their objective:
Dana (reading from “Board of Directors Attributes and Corporate Outcomes: A Systemic Literature Review and Future Research Agenda”)
This paper provides a comprehensive systematic literature review of existing international accounting and finance research on the structure characteristics and diversity of corporate boards, as well as their effects on the corresponding corporate outcomes.
Matt
I only read the abstract, but they basically said that after examining 511 articles, they couldn't come up with any compelling result for a whole bunch of reasons. Not the least of which was, "inconsistent definition and measurement, insufficient variables, and repetitive quantitative research methods."
Weird Echo Voice saying "Reaction!"
Reaction!
Matt (reacting)
This has got to be like my favorite research team ever. They basically just looked at all the work that people like me and then all the sort of scientific community around corporate governance have done over the past - who knows how long they were looking at these 511 papers, it could have been from the last like 40 years - and found that basically, the problem is none of us know what we're talking about. So it can't be studied very easily. They offered some future suggestions, but I mean, it's still I find this really funny really gratifying, and also really validating. So thank you to those guys. It was a 2022 paper. I really thought that this was pretty great.
Matt
Thanks for listening, everybody. I hope this didn't come across as too mean spirited. I sincerely do appreciate everyone who's in the corporate governance space trying to crack the code of how to cut through the jargon and communicate the right messages, just to show that I'm not being entirely hypocritical, the next episode of this segment is going to be me reacting to and trolling old episodes of One Minute Governance and some of my old research papers revealing some of the not so great stuff that I've put out into the world. In the meantime, please pass along any corporate governance content that you love or hate so that I can check it out and maybe react to it in a future episode of Assessmatt are Commattary or Mattnalysis. Just shoot me a note at soundup@groundupgovernance.com to share anything that's on your mind. See you next time.
Dana (reading from Monks and Minow’s Corporate Governance)
Hilarious outtakes and giggling
Sound-Up Governance (ep13) - Reacting to real-world governance resources