History repeats itself: The failure of rational choice models in corporate governance

Marnet, Oliver

doi:10.1016/j.cpa.2005.11.010

Cited by 56 publications

(56 citation statements)

References 83 publications

(111 reference statements)

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“…• governance (Bolton 2006, Clarke & Dean 2007, Khancel 2007, Shleifer & Vishny 1997 • quality of financial reporting (Brennan & Solomon 2008); • role of the chief executive (Jones 2005); and • behavioural influences (Marnet 2008(Marnet , 2007(Marnet , 2005(Marnet , 2004.…”

Section: Chapter Two: Governancementioning

confidence: 99%

Audit Committee Effectiveness in Victorian Local Government

Purcell

Francis

Clark

2014

Australian Accounting Review

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The tenets of local government are based on strong financial probity, adherence to independence principles to avoid conflict of interest and conformance to ethical principles. The research established support from mayors, chief executives and chairs of audit committees for the primary research proposition, but no support for the secondary research proposition. There was a similarity of views in relation to: (1) inputs of an audit committee (charter, skills, activities, communications and induction and training); (2) the behavioural nuances of the rigour of: debate, trust and effective communications; and (3) the relationships with councillors and management. It was found that an audit committee's effectiveness was perceived to be limited by: (1) the ability to attract and retain skilled independent members; (2) the variability of expertise and the skills of the councillor audit committee members; (3) the level of continuing professional development for the councillor audit committee members; (4) the 'gaming' behaviours associated with manipulation of agendas, control of information and the omission of critical data from the audit committee; (5) power games associated with the appointment of councillor members to the audit committee; and (6) domination of the audit committee by one or two members or management.The suggested way forward is to have an audit committee in local government which can provide the effective oversight of organisational governance processes with a specific focus on behavioural outcomes.ii Student Declaration Student Number: 3793755

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Section: Chapter Two: Governancementioning

confidence: 99%

Audit Committee Effectiveness in Victorian Local Government

Purcell

Francis

Clark

2014

Australian Accounting Review

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“…In the course of typical boardroom discourse, important concerns may fail to be expressed and inadequacies of the formal form of accountability may remain unchallenged until critical issues of organizational performance enter the public domain (Parker, 2008;APB, 2012). While corporate scandals are frequently associated with issues of corruption, fraud, incompetence, and ethical failure of key governance agents, including that of members of the board (Clarke et al, 2003;Marnet, 2007;Gwilliam and Marnet, 2010), the bigger issue may be one of flawed judgment by these agents due to cognitive bias as an inescapable element of individual and group decision-making (Janis, 1972;Kahneman et al, 1982;Bazerman and Watkins, 2004;Bazerman and Malhotra, 2006;Prentice, 2000Prentice, , 2003Coffee, 2006).…”

Section: Discussionmentioning

confidence: 99%

Explaining governance failure: accountability spaces in-between and bias

Marnet

2014

IJCA

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The paper is based on a two-year participant observer study of the governance failures in a UK housing association that experienced significant adverse performance resulting in its near collapse. Concerned with the accountability of boards of directors, the study extends research by Roberts (1991Roberts ( , 1996Roberts ( , 2001) who distinguishes between formal and informal forms of accountability, and Collier (2005) who identifies accountability spaces in-between where governance may be lost. The present research builds on this discussion by introducing socio-psychological factors underlying a reluctance of boards to adequately explore governance issues hidden in these spaces. As informal reporting systems are increasingly important drivers of the control role of boards (Parker, 2008), the paper emphasizes the need for boards to adopt procedures aimed at mitigating the effects of bias on the quality of board decision-making.Keywords: Quasi-public sector; governance; accountability; boardroom decisionmaking; bias mitigation; new public management;. 2 IntroductionThe paper explores limitations of formal, accounting-based systems of accountability and inadequacies of informal, sense-making narrative systems (Roberts, 1991(Roberts, , 1996(Roberts, , 2001Collier, 2005). The sense-making narrative terminology builds on the contrast made by Roberts (1991) between a formal, hierarchical system of accountability based on calculative accounting, and an informal, socialising form, which in boardroom discussions increasingly replaces the focus on the technical and rulebased (Parker, 2008). Hidden between the two systems, Collier (2005) identifies accountability spaces in-between where neither the formal nor the informal ensures that issues important to the organization are sufficiently explored and where governance can be neglected and lost. The present research inquires into sociopsychological causes for the reluctance of boards to investigate these spaces. The paper suggests that cognitive bias in judgment frequently inhibits an adequate articulation and exploration of issues critical to the governance of organizations, thereby undermining the value of the narrative form of accountability (Langevoort, 2001a,b;Prentice, 2003;Bazerman and Malhotra, 2006;Forbes and Watson, 2010;FRC, 2011; APB, 2012).With the rise of New Public Management (NPM) and the subsequent increase in the use of performance measurement in the quasi-public sector (Collier, 2005;Bogt and Scapens, 2012), a discussion on bias in the boardroom provides useful insights on potential problems and dysfunctional consequences of the adoption of this model in the public sector (see, e.g., Hood, 2007;McLean et al., 2007;Broadbent and Guthrie, 2008;Lapsley, 2008). New Public Management, although changing over time and from country to country, stresses the use of explicit quantitative performance 3 measures and external audits, output controls, and private sector management methods to advance public sector performance and accountability (Hood, 1995(Hood, ,...

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“…Now attention focused on the limitations of cognition, the inability of directors to see and process all the available information and the inability of investors to monitor the performance of the companies in which they invested. This bounded rationality recalls the premises of behavioral economics, the limitations of rational choice theory, and the need for a change in the expectations of what directors can do (Marnet 2007).…”

Section: Cognitionmentioning

confidence: 99%

Edging Toward ‘Reasonably’ Good Corporate Governance

Nordberg

2018

Philosophy of Management

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Over four decades, research and policy have created layers of understandings in the quest for Bgood^corporate governance. The corporate excesses of the 1970s sparked a search for market mechanisms and disclosure to empower shareholders. The UK-focused problems of the 1990s prompted board-centric, structural approaches, while the fall of Enron and many other companies in the early 2000s heightened emphasis on director independence and professionalism. With the financial crisis of 2007-09, however, came a turn in some policy approaches and in academic literature seeking a different way forward. This paper explores those four phases and the discourse each develops and then links each to assumptions about accountability and cognition. After the financial crisis came pointers n policy and practice away from narrow, rationalist prescriptions and toward what the philosopher Stephen Toulmin calls Breasonableness^. Acknowledging that heightens awareness of complexity and interdependence in corporate governance practice. The paper then articulates a research agenda concerning what Breasonably^good corporate governance might entail.

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History repeats itself: The failure of rational choice models in corporate governance

Cited by 56 publications

References 83 publications

Audit Committee Effectiveness in Victorian Local Government

Audit Committee Effectiveness in Victorian Local Government

Explaining governance failure: accountability spaces in-between and bias

Edging Toward ‘Reasonably’ Good Corporate Governance

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