BOOKSHELF Governing the Corporation

Edited by Justin O’Brien
Publisher: John Wiley & Sons
Price: $139.95
Reviewer: Reg Birchfield

Corporate governance is not, as one of the contributors to this book observes, “a fashion – it is an imperative”. And, “standards have got to improve”. The book is, indeed, the upshot of an attempt to inject some intellectual horsepower into the debate about the sometimes-sorry state of international corporate governance standards and practices.
True, governance nasties like Enron, WorldCom and co briefly propel the topic to the top of even the most disinterested mind but, these scandals aside, corporate governance is fast becoming one of the world’s most critical economic issues. It is increasingly at the heart of the global political agenda and not just as response to headlines in the United States, Europe or Asia. The future of the capitalist economy is increasingly dependent on the world’s ability to build and deliver better governance mousetrap than it has to date.
Governing the Corporation is an edited collection of presentations from governance practitioners, policymakers and academics who contributed to an international discussion organised by the Institute of Governance, Public Policy and Social Research at Queen’s University, Belfast, in September 2004.
The contributors, from the United States, Europe, Canada and Australia, were asked to consider why structural and systemic corporate governance and regulation problems in global markets remain “intractable issues”. And the consensus is that there is an awful lot to be done. At the heart of the problem is how to suppress the dark and unethical practices that organisations resort to in order to thwart rules and regulations and as result of personal and organisational greed, growth and ambition.
Integrating an ethical component into strategic decision-making is now an “overwhelming priority” according to the book’s editor Justin O’Brien who runs the Corporate Governance Programme at the Queen’s University’s School of Law. But, he warns, so too is corporate leadership’s determination to “repeal or dilute external oversight, based on the argument that governance reform has become too expensive, with regulators too aggressive, emboldened by unrealistic expectations that risk can be legislated out of existence”.
So, how to bring the world’s fast growing global and equally rapidly spawning entrepreneurial enterprises to account? That was what Queen’s University was trying to do – to kickstart some thinking around how to “institutionalise” an ethical framework that is capable of transcending technical compliance. In the end, good governance is entirely dependent on the adoption of an ethical approach and there isn’t lot of evidence to suggest that the western economic market model is particularly interested in prioritising ethical issues – certainly not when it comes to the crunch of satisfying shareholder demands.
The US market economy is, to many minds, the envy of the world. And it has delivered on many counts. Its economic flexibility, conviction that change is “good” word and its constant drive for innovation all reinforce the standing of the model. But its very success might also have delivered the seeds of the capitalist model’s destruction.
America’s astonishing success with constant and consistent productivity growth might, argues one contributor, have gone to business leaders’ heads. According to William J McDonough, Washington DC-based chairman of the Public Company Accounting Oversight Board, excessive executive compensation and the drive for ever increasing and fully predictable quarterly profits stand out as enormously problematic.
There is no question the world is increasingly cynical and disillusioned by system that pays CEOs 400 times more than the company’s average worker when there is simply no economic theory, however far fetched, that can justify this level of income imbalance. Even in New Zealand, where the imbalance is nothing like this order of magnitude, the payment of multimillion-dollar salaries to individuals who net the dollars more by good luck than good performance, is increasingly under well-deserved scrutiny. As McDonough points out: intelligent successful people know that “good luck, and not just their efforts, got them there”.
And the notion that organisational profit growth will continue indefinitely is equally absurd and as such, the process of demanding and managing for constant predictable profit increases erodes the credibility of the whole system.
The book’s contributors tackle most of the key issues – from envisaging regulations to meet global market conditions, to processes for restoring trust, postulating multi-lateral initiatives, explaining corporate social responsibility, fingering the issues associated with criminal law and corporate governance and considering governance “as state of mind”. It is tad too heavy for the marginally interested and could have done with some helpful editing. But serious and active practitioners should make the effort. There is some thoroughly thoughtful material here.
Governing the Corporation is an important addition to the growing body of literature on topic that is fast taking centre stage in the economic arena. Will China and India, for example, cope with or simply ignore the many spin-off issues best practice corporate governance present for their emerging economies? Corporate law theory in the United States and much of Europe is, after all, rooted in the central tenet that the corporation is private entity which should be free to pursue its own goals.
For variety of reasons – economic, environmental, social and cultural – the US and European corporate and governance models are under pressure. They must mend their ways to meet new demands. As Lisa Whitehouse, senior lecturer in law at the University of Hull suggests, the debate on corporate social responsibility has focused on profit maximisation and the private property interests of shareholders. “While these aspects are important, academics and politicians alike appear to have lost sight of or have refused to acknowledge the fundamental threat to democracy posed by corporate power.” Consequently, the debate over the past 75 years has done little more than “go round in circles”.
A book worth tackling in bite-size sittings.

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