Boardtalk: Coral Ingley – Feudal fortunes

There is no escaping the conclusion that desperately poor corporate governance performance is really what is at the heart of the latest global economic crunch. While that might seem like pretty harsh conclusion, Coral Ingley, corporate governance specialist and associate professor, management at Auckland’s AUT University, has come to it after some pretty deep thinking and extensive local and international conversations.
Just back from the annual conference of the increasingly influential International Corporate Governance Network held in Sydney this year, Ingley says three isues dominated proceedings: excessive executive remuneration, how to more effectively regulate for good governance, and how to improve risk management practices.
“The conference accepted that corporate governance failures allowed the world’s financial crisis to develop,” she says. “People acknowledge that the crisis was due to many things but, poor governance was at the core of it. And I agree with that conclusion. It begs the same old questions: where were the directors, and what were they thinking of?
“But,” adds Ingley, “when I suggested that perhaps we need to go back to basics and think about governance fundamentals, they weren’t very keen to do that. They really just want to patch up the leaky ship,” she says disappointedly.
Unless someone starts to take long hard look at the essentials of corporate governance, nothing will change and “we’ll be doomed to keep repeating history”, she adds. And given latest revelations of rapidly recovering banks again preparing to pay out more billions of dollars in bonuses, who can argue with her conclusion?
Ingley accepts that practitioners don’t have much opportunity to stand back and reflect on how corporate governance might be changed so thinkers, including the academic world, should step up and question just how relevant existing governance structures are in today’s world.
She points to the failure of modern corporate governance practices that led to the sharemarket crash of the late 1980s, the ’97/’98 Asian financial crisis, episodes like Enron in the early 2000s and now, the 2007/2008 credit crunch that led to the current global recession.
“I understand that complexity of issues led to these outcomes, but corporate governance lies at the heart of it,” says Ingley. “And it is patently obvious that successive iterations of reform have failed to prevent yet another wave of disasters. Worse still, each subsequent wave becomes more serious because of the integration of the global economy.”
The problem, says Ingley, is that our corporate governance system is largely unchanged from that which emerged 150 or so years ago, during the industrial revolution. Organisations have changed significantly since then, with the emphasis swinging toward management being in control, rather than shareholders and directors.
“We still have boards of directors but much of the law surrounding governance harks back to these earlier times,” she adds. “You have to ask how well this entrenched approach to governance and management fits with modern thinking about the role of corporations in civil societies? We talk about wanting companies to be good corporate citizens. How does that look today compared with 150 years ago?
“We regard democratic societies as essential to underpinning the capitalist market. But our corporations are run along feudal lines. Businesses are often governed by benign monarchy, certainly by an oligarchy. We have very hierarchical structures of barons and lords. And excessive executive pay and the remuneration of directors are part and parcel of an institutionalisation that is very like the feudal structures of mediaeval times. few elite reap excessive rewards at the expensive of the wider society, including shareholders and other stakeholders.”
Ingley concedes that breaking this nexus won’t be easy. But, she says, thinking about how to make corporate governance more democratic is evolving. The ICGN conference, for example, talked about it at some length.
“We need to encourage shareholders and investors to be more actively involved in governance. They have lost power and become pretty passive in recent years,” she says. “The separation of management and ownership has produced management hegemony. Now we need to concentrate on getting voice back to the other organisational stakeholders.”
And that process, according to Ingley, requires total rethink of corporate governance and how it works, is structured and how it is regulated.