Chapter 5 What’s Wrong with Corporate Governance ‘Best’ Practices?
CORPORATE GOVERNANCE, H. Kent Baker, Ronald Anderson, eds., John Wiley & Sons Inc., New York, 2010
26 Pages Posted: 18 Nov 2009
Date Written: November 16, 2009
This chapter critiques corporate governance practices widely promoted as being “best” for Publicly Traded Corporations (PTCs). The criteria used to identify good governance are those that minimize the involvement of Regulators or Law Makers with PTCs. The different drivers of corporate evolution in Europe and the United States explain the development of some of the counterproductive practices in Anglophone countries. These include directors obtaining inappropriate powers and conflicts of interests for directors and auditors. These intrinsically flawed practices have become enshrined as “best” practices in governance codes, governance metrics, regulations, securities exchanges, and the law. This chapter uses the natural laws of requisite variety, identified by mathematicians who founded the science of governance in the 1940’s to explain why current practices are not “best”. Natural laws explain why the communication and control architecture of PTCs and corporate regulators do not permit executives, directors, and regulators to directly monitor or control on a reliable basis the complex workings of modern firms without co-regulators.
Keywords: Audit conflicts, Director conflicts, Power, Network governance, Self-governance
JEL Classification: G34, G38, H11, K22, M14, P11
Suggested Citation: Suggested Citation