Is corporate governance a first-order cause of the current malaise?

Abstract

The US has evolved a regime of high-powered corporate governance in which managerial performance is disciplined through shareholder value metrics. This paper argues against overstating the importance of this regime in creating problems of inequality, greater economic insecurity, and slower economic growth. Corporate governance acts principally as the transmission mechanism to the behaviour of the particular firm of changes in the global and domestic competitive environment. The critical problem is a risk-shift from shareholders, who now have access to robust diversification against firm-specific risks, and towards employees, whose concentrated firm-specific investments are hard to protect or diversify. The paper argues that we need a different government-private sector 'match' for the development of human capital, shifting away from a purely k-12 (or k-16+) model of government subsidy to a model that takes account of the need to replenish human capital over a lifetime. Such a strategy is not only distributionally appealing, but also pro-growth, since it revitalises human productivity.

Through the looking glass: tying performance and materiality to corporate purpose

“…Recent trends in corporate reporting and investment practice seek to address the concern that current performance measurement is not holistic enough. At company level, increased stakeholder pressure and a growing realisation of the linkages between long-term liabilities and system level challenges are pushing boardrooms to engage in conversations beyond traditional financial profit (Gordon 2018;Enacting Purpose Initiative 2020;. In recognition of these multiple objectives and concerns, and to construct a sustainable strategy, many companies have begun to address and manage the scarcity and vulnerability of intangible and non-financial assets, such as workers, communities, and natural resources through a variety of disclosure mechanisms and so-called 'full cost accounting' systems (Bebbington et al 2007;Unerman et al 2018;Stroehle & Rama Murthy 2019).…”

How to Measure Performance in a Purposeful Company? Analysing the Status Quo.

“…Recent trends in corporate reporting, accounting and investment practice seem to mirror the concern that the current practices for performance measurement are not holistic enough. At company level, increased stakeholder pressure and a growing realization of the linkages between long-term liabilities and system level challenges have already pushed board-rooms to engage in much broader conversations beyond the concern about traditional financial profit (Gordon 2018). In recognition of these dependencies, and to construct a sustainable strategy, many companies have begun to address and manage the scarcity and vulnerability of intangible and non-financial assets, such as workers, communities, and natural resources through a variety of disclosure mechanisms and / or so-called "full cost accounting" systems (Bebbington et al 2007;Unerman et al 2018;Stroehle & Rama Murthy 2019).…”