Governance: The Great Divorce (From Reality)

Call it a bad month for governance. If good things come in threes, so do bad, and Olympus, MF Global, and Dynegy Part II (III?, IV?) are that. The only question is which one is worst. Massive money lost, check. Corrupt machinations, check. Board must have known, check. Lies, investigations, clouds of prison–er, witness, check, check, check. So much for banishing management from the board room, conferring (self) righteously, and readmitting the lowly CXO’s back into the hallowed hall. The boards are into it up to their elbows. Or, as in the case of an Olympus or a Dynegy Inc., may well be the driving force. Are the words of governance just a pious happy chat while businesses go on doing pretty much what they want to do?

Is it any wonder that it has been a decade since “tone at the top” was first advanced, and moral “trickle down” has not worked yet? Clearly these three companies did not have the requisite morality at the top, a morality which places “doing right” over “the right numbers.” What about other companies, those implicated in bribery, embezzlement, and ‘rogue’ employee conduct: while they set the “right” tone at the top, do they turn a blind eye or even encourage improper influence and outright bribery and illegality on down ladder to get to the “right numbers”? If quality of governance truly mattered to boards, Olympus would not have fudged its losses for two decades and Icahn would not still be up to dirty tricks nearly three decades after TWA.

Policy, program, and performance bonus is what for employees and third parties embodies the ‘tone at the top’ regardless of the words. Do the rewards offered down the ladder really honor the spirit of the words? Well, no.

Common wisdom is that investment perspective has been so short term for so long that all investors care about is what management has done for them this year or this quarter, thus corrupting corporate mission and CEO vision. If quality of governance truly mattered to investors, we would not have had the continuing daytime drama at HP. We would not have the endless drizzle of corporate scandal from the US to Europe to Asia and beyond year after year. The real story is that governance has become an old dry story over the past decade. For a little while governance became its own feel-good industry, providing a sort of spiritual cover for the fact that the world pretty much goes on about its business as usual.

© 2010 Sigrid Caroline Schroder. All Rights Reserved.

Cloud of Witnesses: Heb. 12:1
“Wherefore seeing we also are compassed about with so great a cloud of witnesses, let us lay aside every weight, and the sin which doth so easily beset us, and let us run with patience the race that is set before us.”